LOAN AND SECURITY AGREEMENT
Dated as of May 30, 2008
Between
REED’S, INC.
(Borrower)
and
FIRST CAPITAL WESTERN REGION, LLC
(Lender)
TABLE OF CONTENTS
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Page
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1.
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Definitions
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1
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2.
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Borrowing
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8
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3.
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Interest
and Fees
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10
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4.
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Representations
and Warranties of Borrower
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12
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5.
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Collateral
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13
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6.
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Financial
Covenants
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14
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7.
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Collateral
Covenants
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14
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8.
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Negative
Covenants
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16
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9.
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Reporting
and Information
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18
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10.
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Inspection
Rights; Expenses; Etc
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19
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11.
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Rights
of Setoff, Application of Payments, Etc
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20
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12.
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Attorney-in-Fact
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20
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13.
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Defaults
and Remedies
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21
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14.
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Indemnification
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23
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15.
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General
Provisions
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24
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TABLE OF
CONTENTS
(continued)
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Page
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Attachments:
Schedule
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Exhibit A - Form of Borrowing Base
Certificate
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Exhibit B - Form of Compliance Certificate
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Exhibit C - Form of Deed of Trust
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Exhibit D - Real Property Description
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LOAN AND SECURITY AGREEMENT
This
LOAN AND SECURITY AGREEMENT (this “
Agreement ”)
is entered into as of this 30th day of May, 2008 between
REED’S, INC., a Delaware corporation (“
Borrower ”),
and FIRST CAPITAL WESTERN REGION, LLC (“
Lender ”).
RECITALS:
WHEREAS,
Borrower has requested that Lender provide Borrower with a
secured lending facility; and
WHEREAS,
Lender is willing to provide a secured lending facility to
Borrower on the terms set forth in this
Agreement.
NOW,
THEREFORE, Borrower and Lender hereby agree as
follows:
1.
Definitions .
For purposes of this Agreement:
“
Accounts ”
means all presently existing or hereafter arising accounts (as that
term is defined in the UCC) of Borrower, accounts receivable due to
Borrower (including medical and health-care-insurance receivables),
book debts, notes, drafts and acceptances and other forms of
obligations now or hereafter owing to Borrower, including, without
limitation, those arising from the sale or lease of goods or the
rendition of services by Borrower, all of Borrower’s rights
in, to and under all purchase orders now or hereafter received by
Borrower for goods and services, all proceeds from the sale of
Inventory, all monies due or to become due to Borrower under all
contracts for the sale or lease of goods, the licensing of
intellectual property or the rendition of services by Borrower
(whether or not yet earned) (including the right to receive the
proceeds of said purchase orders and contracts), all collateral
security, guarantees and supporting obligations of any kind given
by any obligor with respect to any of the foregoing, and all goods
returned to or reclaimed by Borrower that correspond to any of the
foregoing.
“
Affiliate ”
means, with respect to a Person, (a) any family member, officer,
director, employee or managing agent of such Person, and (b) any
other Person (i) that, directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common
control with, such given Person, (ii) that, directly or indirectly
beneficially owns or holds 10% or more of any class of voting stock
or partnership or other interest of such Person or any subsidiary
of such Person, or (iii) 10% or more of the voting stock,
membership interests or partnership or other interest of which is
directly or indirectly beneficially owned or held by such Person or
a subsidiary of such Person. The term “control” means
the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person,
whether through ownership of voting securities or partnership or
other interests, by contract or otherwise.
“
Agreement Date ”
means the date as of which this Agreement is dated.
“
Borrowing Base ”
has the meaning set forth in
Item 1 of the Schedule .
“
Borrowing Base Certificate ”
means the certificate, substantially in the form of
Exhibit A ,
with appropriate insertions, to be submitted to Lender by Borrower
pursuant to this Agreement and certified as true and correct by the
Chief Executive Officer or the Chief Financial Officer of
Borrower.
“
Business Day ”
means
any day excluding Saturday, Sunday, and any day which is a legal
holiday under the laws of the State of California or which is a day
on which Lender is otherwise closed for transacting business with
the public.
“
Collateral ”
has the meaning set forth in
Section 5(a) .
“
Customer ”
means any customer or accounts debtor who is obligated on an
Account, chattel paper or a General Intangible.
“
Deed of Trust ”
means that certain Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing, of even date herewith, substantially
in the form of
Exhibit C ,
executed by Borrower for the benefit of Lender.
“
Default ”
has the meaning set forth in
Section 13(a) .
“
Dilution ”
means, at the time it is being calculated, a percentage, based upon
the experience of the immediately prior 30 days, that is the result
of dividing the dollar amount of (a) bad debt write-downs,
discounts, advertising allowances, credits, or other non-cash
reductions with respect to the outstanding Accounts, by (b) the
Accounts created by Borrower during such period.
“
Dilution Reserve ”
means, as of any date of determination, an amount sufficient to
reduce the advance rate against Eligible Accounts by two percentage
points for each percentage point, calculated by rounding off
partial percentage points using conventional rounding rules as
determined by Lender, by which Dilution is in excess of
10.00%.
“
Election Notice ”
has the meaning set forth in
Item 1(a)(ii)(B) of the Schedule
.
“
Eligible Accounts ”
means those Accounts arising from the sale of Inventory or
performance of services in the ordinary course of Borrower’s
business;
provided ,
however ,
that Eligible Accounts
shall not include
the following:
(a)
any
Account which has remained unpaid for more than the number of
days specified in
Item 2(a) of the Schedule ;
(b)
Accounts
with respect to which the Customer is an Affiliate of
Borrower;
(c)
Accounts
with respect to which services or goods are placed on
consignment, guaranteed sale, or other terms by reason of
which the payment by the Customer may be
conditional;
(d)
Accounts
with respect to which the Customer (i) does not maintain its
chief executive office in the United States, or (ii) is not
organized under the laws of the United States of America or
any state thereof; or (iii) is the government of any foreign
country or of any state, province, municipality, or other
political subdivision thereof; except to the extent that such
Account is secured or payable by a letter of credit
satisfactory to Lender in its discretion;
(e)
any
and all Accounts as to which the perfection, enforceability,
or validity of Lender’s Collateral or security interest
in such Account, or Lender’s right or ability to obtain
direct payment to Lender of the proceeds of such Account, is
governed by any federal or state statutory requirements other
than those of the Uniform Commercial Code, including any
Account subject to the Federal Assignment of Claims Act of
1940; provided, however, that an Account shall not be deemed
ineligible by reason of this clause (e) if Borrower has
completed all of the steps necessary, in the discretion of
Lender, to comply with the Federal Assignment of Claims Act of
1940 with respect to such Account;
(f)
Accounts
with respect to which the Customer is any state of the United
States or any city, town, municipality, county or division
thereof;
(g)
Accounts
which may be subject to offset or recoupment by the Customer,
whether as the result of goods sold or services rendered by
the Customer to Borrower, any contractual arrangement between
the Customer and Borrower (including any lease) or
otherwise;
(h)
those
Accounts where Lender, in Lender’s discretion, has
notified Borrower that the Account or Customer is not
acceptable to Lender;
(i)
all
of the Accounts owed by a Customer if the aggregate
outstanding dollar amount of such Accounts not considered as
Eligible Accounts under clause (a) above as a percentage of
all outstanding accounts then owing by such Customer, is equal
to or greater than the Cross Aging Percentage specified
in
Item 2(b) of the Schedule ;
(j)
Accounts
for which services have not yet been rendered to the Customer
or the goods sold have not yet been delivered to the Customer
(commonly referred to as “pre-billed
accounts”);
(k)
Accounts
owed by a Customer not previously approved in writing by
Lender where the dollar value for the aggregate amount of
outstanding Accounts then owing by such Customer as a
percentage of the dollar value of all outstanding Accounts
then owing to Borrower is greater than the Concentration Limit
specified in
Item 2(c) of the Schedule ,
but only to the extent of such excess;
(l)
any
Account with respect to all or part of which a check,
promissory note, draft, trade acceptance, or other instrument
for the payment of money has been received, presented for
payment, and returned uncollected for any reason;
(m)
any
Account with respect to which Borrower has extended the time
for payment without the consent of Lender;
(n)
any
Account with respect to which any one or more of the following
events has occurred to the Customer on such Account: death or
judicial declaration of incompetency of a Customer who is an
individual; the filing by or against the Customer of a request
or petition for liquidation, reorganization, arrangement,
adjustment of debts, adjudication as a bankrupt, winding-up,
or other relief under the bankruptcy, insolvency, or similar
laws of the United States, any state or territory thereof, or
any foreign jurisdiction, now or hereafter in effect; the
making of any general assignment by the Customer for the
benefit of creditors; the appointment of a receiver or trustee
for the Customer or for any of the assets of the Customer,
including, without limitation, the appointment of or taking
possession by a “custodian,” as defined in the
Bankruptcy Code; the institution by or against the Customer of
any other type of insolvency proceeding (under the bankruptcy
laws of the United States or otherwise) or of any formal or
informal proceeding for the dissolution or liquidation of,
settlement of claims against, or winding up of affairs of, the
Customer; the sale, assignment, or transfer of all or any
material part of the assets of the Customer; the nonpayment
generally by the Customer of its debts as they become due; or
the cessation of the business of the Customer as a going
concern;
(o)
any
Account which arises out of finance or similar
charges;
(p)
any
Account in which Lender does not have a duly perfected,
first-priority security interest, subject to no other
Lien;
(q)
any
Account which arises under a contract or arrangement covered
by a performance or surety bond on behalf of Borrower, unless
the Person providing such performance or surety bond has
delivered an acceptable Lien waiver to Lender; or
(r)
any
Account which is evidenced by a note, draft, trade acceptance,
or other instrument for the payment of money where such
instrument, document, chattel paper, note, draft, trade
acceptance or other instrument has not been endorsed and
delivered by Borrower to Lender.
“
Eligible Inventory ”
means and includes that Inventory (other than packaging materials,
labels and supplies) located in the continental United States which
Lender, in its discretion, deems to be Eligible Inventory. Without
limiting the generality of the foregoing, no Inventory shall be
Eligible Inventory unless:
(a)
it
is raw materials or finished goods;
(b)
at
all times it strictly complies with all of Borrower’s
warranties, covenants and representations to
Lender;
(c)
it
is in good, new and salable condition;
(d)
it
is not slow moving, obsolete or unmerchantable, in
Lender’s discretion;
(e)
it
meets all standards imposed by any governmental agency or
authority;
(f)
it
is at all times subject to Lender’s duly perfected,
first-priority security interest and there exists no other
Lien thereon;
(g)
it
is in Borrower’s possession and control situated at a
location disclosed to Lender in compliance with this
Agreement, the Inventory is not in-transit, Borrower’s
books reflect the Inventory, the Inventory is insured to the
full value thereof, and the insurance policy lists Lender as
lender loss payee;
(h)
it
is not in the hands of any third party, including a
warehouseman, finisher, consignee, bailor, or processor,
unless such arrangement is fully disclosed to Lender in
writing and Borrower shall have provided to Lender such
waivers, acknowledgments and other items requested by Lender
in its discretion;
(i)
it
is not subject to any license or other agreement that limits,
conditions, or restricts Borrower’s or Lender’s
right to sell or otherwise dispose of such
Inventory;
(j)
Borrower
owns such Inventory and such Inventory is not in
Borrower’s possession based upon any consignment,
guaranteed sale, or similar basis; and
(k)
it
is not of a type that Lender, in its discretion, has
determined is not Eligible Inventory.
“
Equipment ”
means all of Borrower’s presently owned and hereafter
acquired machinery, apparatus, equipment, motor vehicles, tractors,
trailers, rolling stock, fittings, fixtures and other tangible
personal property of every kind and description, together with all
parts, accessories and special tools and all increases and
accessions thereto and substitutions and replacements
therefor.
“
GAAP ”
means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board that are applicable to the circumstances as of the date of
determination and applied on a consistent basis.
“
General Intangibles ”
means all of Borrower’s present and future general
intangibles and all other presently owned or hereafter acquired
intangible personal property of Borrower (including payment
intangibles and any and all choses or things in action, goodwill,
patents and patent applications, tradenames, servicemarks,
trademarks and trademark applications, copyrights, blueprints,
drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, infringement claims,
software, computer programs, computer discs, computer tapes,
literature, reports, catalogs, deposit accounts, tax refunds and
tax refund claims) other than Goods and Accounts, and all
supporting obligations relating to any of the foregoing, as well as
Borrower’s books and records relating to any of the
foregoing.
“
Goods ”
means all of Borrower’s present and hereafter acquired goods,
as defined in the UCC, wherever located, including imbedded
software to the extent included in “goods” as defined
in the UCC, manufactured homes, and standing timber that is cut and
removed for sale.
“
Guarantor ”
means individually, and “Guarantors” means
collectively, Christopher Reed and any other Person that has
guaranteed all or any part of the Obligations.
“
Inventory ”
means all present and future inventory (as defined in the UCC) of
Borrower, including goods held for sale or lease or to be furnished
under a contract of service and all of Borrower’s present and
future raw materials, work in process, finished goods, shelving and
racking upon which the inventory is stored and packing and shipping
materials, wherever located, and any documents of title
representing any of the above.
“
Lien ”
means any security interest, security title, mortgage, deed to
secure debt, deed of trust, lien, pledge, charge, conditional sale
or other title retention agreement, or other encumbrance of any
kind in respect of any property, including the interest of each
lessor under any capitalized lease and the interest of any bondsman
under any payment or performance bond, in, of or on any assets or
properties of a Person, whether now owned or hereafter acquired and
whether arising by agreement or operation of law.
“
Loan Documents ”
means, collectively,
this Agreement, the Deed of Trust, and each other agreements,
instruments, certificates (including any Borrowing Base
Certificate) or other documents entered into in connection with
this Agreement, including collateral documents, letter of credit
agreements, security agreements, pledges, guaranties, mortgages,
deeds of trust, assignments and subordination agreements, and any
other agreement executed by any Obligor or any Affiliate of any
Obligor pursuant hereto or in connection herewith.
“
Maximum Credit Limit ”
means $2,000,000.
“
Negotiable Collateral ”
means all of Borrower’s present and future letters of credit,
advises of credit, notes, drafts, instruments, and documents,
including, without limitation, bills of lading, leases, and chattel
paper, and Borrower’s books and records relating to any of
the foregoing.
“
Obligations ”
means all indebtedness, obligations and liabilities of Borrower to
Lender and its Affiliates of every kind and description, direct or
indirect, secured or unsecured, joint or several, absolute or
contingent, due or to become due, including any overdrafts, whether
for payment or performance, now existing or hereafter arising,
whether presently contemplated or not, regardless of how the same
arise, or by what instrument, agreement or book account they may be
evidenced, or whether evidenced by any instrument, agreement or
book account, including, but not limited to, all loans (including
any loan by modification, renewal or extension), all indebtedness
arising from any derivative transactions, all undertakings to take
or refrain from taking any action, all indebtedness, liabilities or
obligations owing from Borrower to others which Lender may have
obtained by purchase, negotiation, discount, assignment or
otherwise, and all interest, taxes, fees, charges, expenses and
attorney’s fees (whether or not such attorney is a regularly
salaried employee of Lender or any of its Affiliates) chargeable to
Borrower or incurred by Lender under this Agreement or any other
document or instrument delivered in connection
herewith.
“
Obligor ”
means Borrower, Guarantor, any validity guarantor or any other
Person primarily or secondarily, directly or indirectly, liable on
any of the Obligations.
“
Permitted Liens ”
means (a) Liens or charges for current taxes, assessments or other
governmental charges which are not delinquent or remain payable
without any penalty, or the validity of which is contested in good
faith by appropriate proceedings upon stay of execution of the
enforcement thereof and for which appropriate reserves have been
established in accordance with GAAP; (b) deposits or pledges to
secure (i) statutory obligations, (ii) surety or appeal bonds, or
(iii) bonds for release of attachment, stay of execution or
injunction; (c) statutory Liens on property arising in the ordinary
course of business which, in the aggregate, do not materially
impair the use of such property or materially detract from the
value of such property; (d) Liens existing on the Agreement Date
and described on
Item 3 of the Schedule ;
(e) Liens on Equipment securing all or part of the purchase price
of such Equipment;
provided ,
however ,
that (i) such Lien is created contemporaneously with the
acquisition of such Equipment, (ii) such Lien attaches only to the
specific items of Equipment so acquired, and (iii) such Lien
secures only the indebtedness incurred to acquire such Equipment;
and (f) Liens in favor of Lender.
“
Person ”
means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any
other entity.
“
Real Property ”
means that certain real property commonly referred to as 12930 and
13000 South Spring Street, Los Angeles, California 90061 and more
specifically described in
Exhibit D .
“
Subordinated Debt ”
means all of the indebtedness owed by Borrower to any other Person,
the repayment of which is subordinated to the repayment of the
Obligations pursuant to the terms of a subordination agreement
approved by Lender in its discretion.
“
UCC ”
means the Uniform Commercial Code, as in effect from time to time,
of the State of California or of any other state the laws of which
are required as a result thereof to be applied in connection with
the issue of perfection of security interests;
provided ,
however ,
that to the extent that the UCC is used to define any term herein
or in any other documents and such term is defined differently in
different Articles of the UCC, the definition of such term
contained in Article 9 shall govern. As used herein,
references to an Article of the UCC shall be deemed to be
references to Division of the UCC of the State of
California.
Other Definitional Provisions
. References
to the “Schedule” or any “Section” or
“Exhibit” refer to the Schedule or a section or
exhibit, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in
Section 1 may,
unless the context otherwise requires, be used in the singular or
the plural depending on the reference. In this Agreement: words
importing any gender include the other genders; the words
“including”, “includes” and
“include” shall be deemed to be followed by the words
“without limitation”; references to agreements and
other contractual instruments shall be deemed to include subsequent
amendments, assignments, and other modifications thereto, but only
to the extent such amendments, assignments and other modifications
are not prohibited by the terms of this Agreement; references to
any Person includes their respective permitted successors and
assigns or people succeeding to the relevant functions of such
Persons; any and all terms which are defined in the UCC and are not
defined herein shall be construed and defined in accordance with
the definition of such terms under the UCC; all references to
statutes and related regulations shall include any amendments of
same and any successor statutes and regulations; and all references
to time of day shall refer to Los Angeles, California
time.
2.
Borrowing .
(a)
Amount Available to Be Borrowed .
From time to time Borrower may request, and Lender will, subject to
the other terms and conditions of this Agreement, lend to Borrower
up to an amount equal to the Borrowing Base at any time. Borrowed
amounts that are repaid may be reborrowed upon the terms and
conditions of this Agreement.
(b)
Standards .
Lender will determine eligibility and the loan value of Collateral,
in its sole discretion, consistent with Lender’s experience,
prudent business judgment and standards of commercial
reasonableness applicable to asset-based credits and in good faith.
Any loans requested by Borrower and made by Lender or at any time
outstanding in excess of the Borrowing Base or any other limitation
set forth in this Agreement will, nevertheless, be subject to the
terms of this Agreement, will constitute Obligations for all
purposes and be entitled to the benefits of the
Collateral.
(c)
Persons Authorized to Request Loans
.
Borrower
hereby authorizes and directs Lender to make loan advances to or
for the benefit of Borrower upon receipt of instructions from any
of the persons listed on
Item 4 of the Schedule .
Lender shall have no liability whatsoever to Borrower or any other
Person for acting upon any such instructions which Lender, in good
faith, believes were given by any such person, and Lender shall
have no duty to inquire as to the propriety of any disbursement.
Lender is hereby authorized to make the loans provided for herein
based on instructions received by facsimile, electronic mail,
telephone or other method of communication from any of such
persons. Although Lender shall make a reasonable effort to
determine the person’s identity, Lender shall not be
responsible for determining the authenticity of any such
instructions, and Lender may act on the instructions of anyone it
perceives to be one of the persons authorized to request loans
hereunder. Lender shall have the right to accept the instructions
of any of the foregoing persons unless and until Lender actually
receives from Borrower (in accordance with the notice provisions of
this Agreement) written notice of termination of the authority of
that person. Borrower may change persons designated to give Lender
borrowing instructions only by delivering to Lender written notice
of such change. Borrower will ensure that each telephone
instruction from any person designated in or pursuant to this
section shall be followed by written confirmation of the request
for disbursement in such form as Lender makes available to Borrower
from time to time for such purpose;
provided ,
however, that Borrower’s failure to provide written
confirmation of any telephonic instruction shall not invalidate
such telephonic instruction.
(d)
Application of Remittances .
Borrower will use only invoices in forms that Lender has approved,
and Borrower’s billings on such invoices will be conclusive
evidence of assignment and transfer hereunder to Lender of the
Accounts represented thereby, whether or not Borrower executes any
other instrument with regard to any specific Account. Borrower will
cause the proceeds of Accounts to be forwarded by all Customers
directly to a lockbox designated by Lender. Such lockbox shall be
maintained by Wells Fargo Bank, N.A., and all payments received in
such lockbox shall be deposited in a bank account in Lender’s
name and owned by Lender at Wells Fargo Bank, N.A, for application
to the Obligations. All checks or other remittances received by
Borrower for application to Accounts will be received by Borrower
in trust for Lender, and Borrower will turn over to Lender the
identical remittances as speedily as possible, appropriately
endorsed, if necessary. As compensation to Lender for delays in the
collection and clearance of such checks, Borrower agrees to pay
interest on each remittance, including wire transfers, from the
date of Lender’s receipt thereof plus the number of days set
forth on
Item 5 of the Schedule
at
the rate applicable to loans outstanding hereunder, as set forth
in
Section 3 below.
Borrower will account fully and faithfully for and promptly pay or
turn over to Lender proceeds in whatever form received of the sale
or other disposition of any Collateral, and Borrower agrees that
the inclusion of proceeds in “Collateral” will not be
deemed to mean that Lender consents to Borrower’s disposition
of Collateral other than in accordance with the terms of this
Agreement.
(e)
Conditions to Obligation to Make Loans
.
Borrower acknowledges that Lender’s obligation to make loans
to Borrower (or to issue or create or cause the issuance or
creation by Lender or its Affiliates of letters of credit or
acceptances for Borrower’s account) is subject to the
following terms and conditions:
(i)
Lender
has
no obligation to make the initial loan to Borrower or to
extend any other financial accommodation to Borrower unless
and until each condition precedent specified on
Item 6 of the Schedule has
been fulfilled to Lender’s satisfaction.
(ii)
Lender’s
obligation to make any loans to Borrower and extend other
financial accommodations to Borrower (including the initial
loans) is subject to the conditions that, as of the date of
any such loan or other accommodation, no Default will have
occurred and be continuing hereunder, there will have occurred
no material adverse change in Borrower’s financial
condition or operations or in Borrower’s business
prospects as compared to the state of facts existing on the
Agreement Date, and Borrower’s representations and
warranties set forth in this Agreement (including any
amendment, modification, supplement or extension hereof) will
be true and correct as if made on and as of the date of each
subsequent credit request. Each request for a borrowing or
other financial accommodation by Borrower will be deemed to be
a reaffirmation of each of Borrower’s warranties and
representations hereunder.
(f)
Repayment of Loans .
In the event of any breach by Borrower of any provision hereof or
upon termination of this Agreement, Borrower will repay upon demand
all of the Obligations. If no demand is earlier made, Borrower will
repay all Obligations in full, without demand or notice, on the
last day of the term of this Agreement (as provided in
clause (g) below). If at any time for any reason, the
aggregate outstanding principal amount of all loans exceeds the
Borrowing Base or any other limitation on the amount available to
be borrowed hereunder, Borrower will immediately, without notice or
demand, repay the outstanding principal amount of the loans,
together with accrued and unpaid interest on the amount repaid, in
an amount equal to such excess. Borrower shall make each payment
required hereunder or under any other Loan Document without setoff,
deduction or counterclaim.
(g)
Maturity .
This Agreement will continue in full force and effect from the
Agreement Date until the termination date provided for in
Item 7 of the Schedule .
(h)
Voluntary Termination .
Following the first six (6) months of the initial term of this
Agreement, Borrower may terminate this Agreement at any time upon
at least 60 days’ prior written notice to Lender. On the date
specified in such notice, termination will be effective, so long as
Borrower has paid to Lender, in same day funds, an amount equal to
the aggregate principal amount of all loans outstanding on such
date, together with accrued interest thereon, the originals of all
letters of credit and bankers acceptances, if any, issued, created
or guaranteed by Lender or any of its Affiliates for
Borrower’s account have been returned for cancellation or
have been presented and paid by Borrower or other arrangements
satisfactory to Lender have been made, all other Obligations
outstanding and unpaid have been paid in full in cash, and Borrower
has provided Lender an indemnification agreement satisfactory to
Lender with respect to returned and dishonored items and such other
matters as Lender shall require.
(i)
Termination on Default .
Notwithstanding the foregoing, should a Default occur and be
continuing, Lender will have the right to terminate this Agreement
at any time without notice.
(j)
Survival .
Notwithstanding termination, all the terms, conditions, and
provisions hereof (including Lender’s security interest in
the Collateral, but excluding any obligations of Lender hereunder)
will continue to be fully operative until all Obligations have been
fully disposed of, concluded, paid, satisfied, and
liquidated.
(k)
Payments as Loans .
Borrower’s failure to pay any amount due from Borrower under
this Agreement or any other Loan Document, whether for principal,
interest, fees, premiums, costs, expenses or otherwise, shall be
deemed to be a request by Borrower for a loan hereunder, and Lender
may charge Borrower’s loan account for any such amount.
Additionally, if Lender determines in its discretion that
extensions of credit are necessary to protect the Collateral,
Lender is hereby authorized to make such extensions of credit and
charge them to Borrower’s loan account.
3.
Interest and Fees .
(a)
Interest on Loans .
Borrower will pay Lender or, at Lender’s option, Lender may
charge Borrower’s loan account with, interest on the average
daily net principal amount of loans outstanding hereunder,
calculated monthly and payable on the first day of each calendar
month, at a rate (computed on the basis of the actual number of
days elapsed over a year of 360 days) equal to the interest margin
specified in
Item 8 of the Schedule ,
plus the greater of (i) 2.0%, per annum
and
(ii) the LIBOR Rate. The “
LIBOR Rate ”
is, at any time, the rate of interest noted in
The Wall Street Journal ,
Money Rates section, as the “30 day LIBOR Rate”. In the
event that
The Wall Street Journal quotes
more than one rate, or a range of rates, as the LIBOR Rate, then
the LIBOR Rate shall mean the average of the quoted rates. In the
event that
The Wall Street Journal ceases
to publish a LIBOR Rate, then the LIBOR Rate shall be the
commercial lending rate that most closely replaces the LIBOR Rate,
as determined by Lender in its reasonable discretion. The
“LIBOR Rate” may not be the lowest or best rate at
which Lender calculates interest or extends credit. Any change in
the LIBOR Rate shall be effective for purposes of calculating
interest hereunder as of the date of such change.
(b)
Default Interest .
To the extent permitted by law and without limiting any other right
or remedy of Lender hereunder, whenever there is a Default under
this Agreement, the rate of interest on the unpaid principal
balance of the Obligations shall, at the option of Lender, be
increased by adding the default margin identified on
Item 9 of the Schedule to
the interest rate otherwise in effect hereunder. Lender may charge
such default interest rate retroactively beginning on the date the
applicable Default first occurred or existed. Borrower acknowledges
that: (i) such additional rate is a material inducement to Lender
to make the loans described herein; (ii) Lender would not have made
the loans in the absence of the agreement of Borrower to pay such
additional rate; (iii) such additional rate represents compensation
for increased risk to Lender that the loans will not be repaid; and
(iv) such rate is not a penalty and represents a reasonable
estimate of (A) the cost to Lender in allocating its resources
(both personnel and financial) to the ongoing review, monitoring,
administration and collection of the loans, and (B) compensation to
Lender for losses that are difficult to ascertain. In the event of
termination of this Agreement by either party hereto,
Lender’s entitlement to this charge will continue until all
Obligations are paid in full.
(c)
Fees .
Borrower will pay to Lender the fees set forth in
Item 10 of the Schedule .
(d)
No Usury .
Borrower acknowledges that Lender does not intend to reserve,
charge or collect interest on money borrowed under this Agreement
at any rate in excess of the rates permitted by applicable law and
that, should any interest rate provided for in this Agreement
exceed the legally permissible rate(s), the rate will automatically
be reduced to the maximum rate permitted under applicable law. If
Lender should collect any amount from Borrower which, if it were
interest, would result in the interest rate charged hereunder
exceeding the maximum rate permitted by applicable law, such amount
will be applied to reduce principal of the Obligations or, if no
Obligations remain outstanding, will be refunded to
Borrower.
(e)
Monthly Statements .
Lender
will render a statement to Borrower each month for loans, payments,
and other transactions pursuant to this Agreement, and such
statement rendered by Lender will be binding upon Borrower unless
Lender is notified in writing to the contrary within 30 days after
the date such statement is rendered.
4.
Representations and Warranties of Borrower
.
(a)
Authority, Compliance with Laws, Litigation, No Material Adverse
Change, Etc
. Borrower
represents and warrants to Lender that: (i) Borrower’s exact
legal name, type of organization, state of organization and
organizational identification number are fully and accurately set
forth on
Item 11 of the Schedule ,
and Borrower is duly organized and validly existing under the laws
of such state of organization; (ii) the execution, delivery, and
performance of this Agreement and the other Loan Documents are
within Borrower’s corporate or other organizational powers,
have been duly authorized, do not violate Borrower’s
constituent documents, any law or regulation, including without
limitation, any law or regulation relating to occupational health
and safety or protection of the environment, applicable to
Borrower, or any indenture, agreement, or undertaking to which
Borrower is a party or by which Borrower or Borrower’s
property is bound; (iii) this Agreement and the other Loan
Documents to which Borrower is a party constitute valid, binding
and enforceable obligations of Borrower in accordance with the
terms hereof and thereof, except as enforceability may be limited
by bankruptcy, insolvency, fraudulent conveyance, moratorium or
other similar laws applicable to creditors’ rights generally
or by generally applicable equitable principles affecting the
enforcement of creditors’ rights; (iv) Borrower has no
subsidiaries or other investments in other Persons, except as set
forth on
Item 12 of the Schedule ;
(v) Borrower is in compliance in all material respects with all
laws, rules and regulations applicable to Borrower, including laws,
rules or regulations concerning the environment, occupational
health and safety and pensions or other employee benefits; (vi)
except as set forth on
Item 13 of the Schedule ,
there is no litigation or investigation pending against Borrower
(or, so far as Borrower is aware, threatened) which, if it were
decided adversely to Borrower, could reasonably be expected to have
a material adverse effect on Borrower, Borrower’s financial
or operational condition or Borrower’s prospects (taking into
account any insurance coverage that has been acknowledged by the
insurer); (vii) other than debt that is to be repaid from the
proceeds of the first advance hereunder, Borrower is not indebted
to any other Person for money borrowed nor has Borrower issued any
guaranty of payment or performance by any other Person, except as
set forth on
Item 14 of the Schedule ;
(viii) since the date of the financial statements of Borrower most
recently delivered to Lender, there has been no material adverse
change in Borrower’s business, Borrower’s financial or
operational condition or Borrower’s business prospects; and
(ix) Borrower is, and after giving effect to the initial loans
under this Agreement and the application of the proceeds of such
loans Borrower will be, solvent and has sufficient revenues to pay
Borrower’s obligations as they come due and adequate capital
with which to conduct Borrower’s business.
(b)
Title to Assets, Other Collateral Matters
.
Borrower represents and warrants to Lender that: (i) Borrower has
good and marketable title to the Collateral, free of all Liens
except for Permitted Liens, and no financing statement, mortgage,
notice of Lien, deed of trust, security agreement, or any other
agreement or instrument creating or giving notice of any Lien
against any of the Collateral has been signed, authorized or
delivered by Borrower, except in Lender’s favor or with
respect to Permitted Liens; (ii) with regard to each Account as it
arises, except as set forth on a Borrowing Base Certificate
including such Account: (A) Borrower will have made delivery of the
goods or will have rendered the services ordered; (B) the Customer
will have accepted the goods and/or services; and (C) no Customer
dispute will exist in any respect, including, without limitation,
disputes as to price, terms, warranties, quantity or quality, and
claims of set-off, release from liability or defense based upon any
act of God or a public enemy or war or because of the requirements
of law or of rules, orders, or regulations having the force of law;
(iii) all Inventory is in good condition, meets all applicable
governmental standards and is currently usable or saleable in the
ordinary course of Borrower’s business for a price
approximating at least Borrower’s cost thereof; (iv) all
Equipment is in good condition and state of repair, ordinary wear
and tear excepted; (v) all Collateral meets applicable government
standards; (vi) in the past five years, except as set forth
on
Item 15 of the Schedule (A)
Borrower has not used any other legal, trade or fictitious names,
and (B) Borrower has not been a party to any merger or purchased
assets from any other Person other than in the ordinary course of
business; and (vii) each of Borrower’s chief executive office
and principal place of business, all Inventory, all Equipment and
all other Collateral is located at the addresses (including the
county) set forth on
Item 16 of the Schedule
and
has not been located at any other location during the five year
period prior to the Agreement Date.
(c)
Ownership Structure .
Borrower
represents and warrants that (i)
Item 17 of the Schedule accurately
describes the ownership of Borrower’s capital stock,
membership interests or other equity interests, and (ii) the
individual(s) listed on
Item 17 of the Schedule have,
directly or indirectly, voting and managerial control of
Borrower.
(d)
Additional Representations .
Borrower represents and warrants to Lender that: (i) Borrower is
not engaged as one of Borrower’s principal activities in
owning, carrying or financing the purchase or ownership by others
of “margin stock” (as defined in Regulation U of the
Board of Governors of the Federal Reserve System); (ii) Borrower
owns no real property and leases no real property other than as
listed on
Item 18 of the Schedule ;
(iii) a true, correct and complete list of any warehousemen,
processors, consignees or other bailees with possession or control
of any Inventory is set forth on
Item 18 of the Schedule ;
and (iv) a list and brief description of all bank accounts
maintained by Borrower with any bank or financial institution is
set forth on
Item 19 of the Schedule .
5.
Collateral .
(a)
Grant of Security Interest .
To induce Lender to accept this Agreement and to make loans to
Borrower from time to time pursuant to its terms, Borrower hereby
grants to Lender, for itself and as agent for any Affiliate of
Lender, a security interest in, and assigns, mortgages and pledges
to Lender, for itself and as agent for any Affiliate of Lender, all
of Borrower’s right, title and interest in and to all of
Borrower’s property, whether real or personal, tangible or
intangible, now owned or existing or hereafter acquired or arising,
including all of the following (collectively, the “
Collateral ”):
(i)
all
Accounts,
Inventory,
Equipment, Goods, General Intangibles and Negotiable
Collateral;
(ii)
all
investment property, securities and securities accounts and
financial assets, as well as all bank and depository
accounts;
(iii)
all
chattel paper (whether tangible or electronic) and contract
rights;
(iv)
a
ll
guaranties, collateral, Liens on real or personal property,
leases, letters of credit, letter-of-credit rights, supporting
obligations, and all other rights, agreements, and property
securing or relating to payment of Accounts or any other
Collateral;
(v)
all
documents, books and records relating to any Collateral or to
Borrower’s business;
(vi)
all
other property of Borrower’s now or hereafter in the
possession or control of Lender or any of Lender’s
Affiliates (including cash, money, credits and balances of
Borrower held by or on deposit with Lender or any Affiliate of
Lender);
(vii)
all
other assets of any Obligor in which Lender receives a
security interest to secure all or part of the Obligations or
which hereafter come into the possession, custody or control
of Lender or any Affiliate of Lender;
(viii)
all
of Borrower’s commercial tort claims listed on
(A)
Item 20 of the Schedule (which
Borrower represents and warrants is a true, accurate and complete
list of all of Borrower’s commercial tort claims as of the
Agreement Date) or (B) any other writing provided to Lender
pursuant to
Section 7(g) ;
and
(ix)
all
proceeds and products of all of the foregoing in any form,
including amounts payable under any policies of insurance
insuring all or any of the foregoing against loss or damage,
all parts, accessories, attachments, special tools, additions,
replacements, substitutions and accessions to or for all or
any of the foregoing, all condemnation or requisition payments
with respect to all or any of the foregoing and all increases
and profits received from all or any of the
foregoing.
(b)
Obligations .
Such grant, assignment, mortgage and transfer is made for the
purpose of securing and the Collateral secures and will continue to
secure all of the Obligations.
6.
Financial Covenants .
Borrower shall comply with each of the financial covenants set
forth on
Item 21 of the Schedule .
7.
Collateral Covenants .
(a)
Accounts .
Borrower will notify Lender promptly of and settle all Customer
disputes, but, if Lender so elects, Lender will have the right at
all times to settle, compromise, adjust, or litigate all Customer
disputes directly with the Customer or other complainant upon such
terms and conditions as Lender deems advisable without incurring
liability to Borrower for Lender’s performance of such acts.
All of Borrower’s books and records concerning Accounts and a
copy of Borrower’s general ledger will be maintained at the
address of Borrower’s chief executive office set forth
on
Item 16 of the Schedule .
All Accounts included on any Borrowing Base Certificate will be,
except as indicated on such Borrowing Base Certificate or
subsequently in writing to Lender, bona fide
and
existing obligations of Customers arising out of the sale of goods
and/or the rendering of services by Borrower in the ordinary course
of Borrower’s business, owned by and owing to Borrower
without defense, setoff or counterclaim, and will be subject to a
perfected, first-priority security interest in Lender’s favor
and will be free and clear of all other Liens.
(b)
Inventory .
All Inventory will at all times be located at one of the Inventory
locations set forth on
Item 16 of the Schedule as
the current location of Borrower’s chief executive office or
a current location of other Collateral, will be sub
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