CREDIT AGREEMENT

Exhibit 10.12

CREDIT AGREEMENT

 

among

 

FLOW INTERNATIONAL CORPORATION

 

as Borrower,

 

and

 

BANK OF AMERICA, N.A.

and

U.S. BANK NATIONAL ASSOCIATION

 

as Lenders,

 

and

 

BANK OF AMERICA, N.A.

 

as Agent for Lenders

 

 

April 28, 2005

 

 

 

TABLE OF CONTENTS

 

 

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ii

 

iii

 

iv

 

 

v

CREDIT AGREEMENT

 

THIS CREDIT AGREEMENT (the “ Agreement ”) is made as of the 28th day of April, 2005, by and among BANK OF AMERICA, N.A., a national banking association, and U.S. Bank National Association, a national banking association (“ U.S. Bank ”) (each individually a “ Lender ” and collectively the “ Lenders ”), BANK OF AMERICA, N.A., a national banking association, as agent for Lenders (the “ Agent ”) and FLOW INTERNATIONAL CORPORATION, a Washington corporation (the “ Borrower ”).

 

WHEREAS, Borrower has requested that Agent and Lenders enter into this Agreement, which Agent and Lenders are willing to do, subject to the terms and conditions contained herein;

 

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows:

 

ARTICLE 1

DEFINITIONS

 

Section 1.1 Certain Defined Terms. As used in this Agreement, the following terms have the following meanings:

 

“ Affiliate ” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. “ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.

 

“ Agent ” means Bank of America, N.A. and any successor agent selected pursuant to Section 9.9 hereof.

 

“ Agent-Related Persons ” means the Agent, together with its Affiliates and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates.

 

“ Applicable Interest Period ” means, with respect to any Revolving Loan, the period commencing on the date such Revolving Loan was made or converted or continued pursuant to Section 2.2(a) and ending (a) at maturity in the case of a Base Rate Loan; or (b) one (1) or two (2) months thereafter in the case of a LIBOR Loan as specified in the Notice of Borrowing given by Borrower in respect of such Loan; provided , however , that no Applicable Interest Period may end later than the Revolving Maturity Date.

 

“ Applicable Interest Rate ” means, for the Revolving Loan or a portion thereof, the Base Rate or the LIBOR Rate; provided , however , the Borrower’s ability to select a LIBOR Rate as the Applicable Interest Rate shall be subject to the number and dollar amount limitations set forth in Section 2.2(a)(ii) .

 

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“ Asset Sale Net Proceeds ” shall mean the gross proceeds attributable to the sale of any assets (other than the sale of assets in the ordinary course of business) owned by Borrower or any Guarantor minus (i) the expenses associated with such sale including, without limitation, investment banking, legal, accounting and any other broker fees associated with the sale of such asset, (ii) the satisfaction of any encumbrances secured by a lien senior to that of the Agent and Lenders, (iii) the satisfaction of any other contractual or legal liability required to be satisfied as a result of such sale, and (iv) a reserve for estimated taxes due associated with the sale of such asset.

 

“ ATAB ” means Avure Technologies AB, a limited liability company organized under the laws of Sweden, and an indirect subsidiary of Borrower.

 

“ Attorney Costs ” means and includes all reasonable fees, expenses and disbursements of any law firm or other external counsel and, without duplication, the reasonable allocated cost of internal legal services and all expenses and disbursements of internal counsel.

 

“ Bank of America ” means Bank of America, N.A., a national banking association, in its capacity as Lender, and any Successor.

 

“ Base Rate ” means the sum of (i) the Prime Rate, plus (ii) 0.50% (50 basis points).

 

“ Base Rate Loan ” means any portion of the Revolving Loans bearing interest at the Base Rate.

 

“ Borrower ” means Flow International Corporation, a Washington corporation, and any Successor.

 

“ Borrower Accounts ” means any and all checking accounts held by Borrower at Bank of America.

 

“ Business Day ” means any day other than Saturday, Sunday or another day on which commercial banks are authorized or obligated to close in Seattle, Washington.

 

“ Change of Control ” means, with respect to any Person, an event or series of events by which:

 

(a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire (such right, an “ option right ”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 40% or more of the equity securities of such Person entitled to vote for members of the board of directors or equivalent governing body of

 

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such Person on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or

 

(b) during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of such Person cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors).

 

“ Chiao Tung Loans ” has the meaning given that term in Section 7.3 .

 

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

 

“ Collateral ” means all personal or real property in which any of the Loan Documents now or hereafter create or purport to create a Lien.

 

“ Collateral Differential ” means, as of any Collateral Measurement Date, the amount (if any) by which the Minimum Collateral Amount as of such date exceeds the net book value of the Collateral.

 

“ Collateral Measurement Date ” means the applicable date designated as a Collateral Measurement Date in Section 6.13 .

 

“ Commitment ” shall mean (a) with respect to each Lender, (i) its obligation to extend Revolving Loans under this Agreement, or (ii) its obligation to purchase Letter of Credit Risk Participations pursuant to Article 10 hereof; and (b) with respect to Agent, its obligation to issue Letters of Credit under this Agreement.

 

“ Contractual Obligation ” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

 

“ Controlled Group ” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code.

 

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“ Debtor Relief Laws ” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

 

“ Default ” means any event which but for the passage of time or the giving of notice or both would be an Event of Default.

 

“ Default Rate ” means a per annum rate equal to the then-current Base Rate plus three percent (3%).

 

“ Dollars ”, “ dollars ” and “ $ ” each mean lawful money of the United States.

 

“ Domestic Guarantors ” means Avure Technologies, Inc., CIS Acquisition Corp. and Flow Waterjet Florida Corporation and any other Subsidiary that from time to time executes and delivers a supplement in the form attached to, or otherwise becomes bound by, the Domestic Guaranty.

 

“ Domestic Guarantor Security Agreement ” means that certain Security Agreement dated as of the date hereof, executed by the Domestic Guarantors in favor of Agent, and all additions, supplements, renewals or amendments thereto.

 

“ Domestic Guaranty ” means that certain Guaranty Agreement dated as of the date hereof executed by the Domestic Guarantors in favor of Agent and Lenders, and any additions, supplements, renewals or amendments thereto.

 

“ Domestic Subsidiary ” means a Subsidiary of Borrower incorporated and organized under the laws of any state of the United States and the District of Columbia.

 

“ EBITDA ” means operating income, plus the sum of (i) depreciation expense, (ii) depletion expense, (iii) amortization expense, (iv) restructuring expenses not to exceed $1,500,000 in fiscal year 2005, (v) fees paid to legal and financial advisors associated with Borrower’s refinancing efforts and negotiations with its existing creditors, (vi) one-time, non-cash charges related to write-downs of intangibles or goodwill, and (vii) non-cash compensation.

 

“ EBITDA Measurement Period ” has the meaning given in Section 6.12 .

 

“ Environmental Laws ” means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances

 

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Control Act, the Emergency Planning and Community Right-to-Know Act, and any applicable state law.

 

“ Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Guarantor or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

 

“ ERISA Affiliate ” means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

 

“ Event of Default ” has the meaning given in Section 8.1 .

 

“ Existing Letters of Credit ” means the following standby letters of credit issued by Bank of America pursuant to the Prior Credit Agreement:

 

(1) Irrevocable Standby Letter of Credit Number 3064768 dated August 4, 2004 naming International Advanced Research Centre for Powder, Metallurgy and New Materials as beneficiary and Flow Autoclave Systems, Inc. as applicant in a face amount not to exceed $706,817.10;

 

(2) Irrevocable Standby Letter of Credit Number 3073456 dated February 16, 2005 naming International Advanced Research Centre for Powder, Metallurgy and New Materials as beneficiary and Flow Autoclave Systems, Inc. as applicant in a face amount not to exceed $706,817.10;

 

(3) Irrevocable Standby Letter of Credit Number 3072934 dated January 20, 2005 naming Itochu Mechatronics Corp. as beneficiary and Flow International Corporation as applicant in a face amount not to exceed $1,818,150;

 

(4) Irrevocable Standby Letter of Credit Number 3066311 dated October 22, 2004 naming Itochu Mechatronics Corp. as beneficiary and Flow International Corporation as applicant in a face amount not to exceed $500,000; and

 

(5) Irrevocable Standby Letter of Credit Number 3066310 dated October 22, 2004 naming Itochu Mechatronics Corp. as beneficiary and Flow International Corporation

 

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as applicant, as amended on December 20, 2004, in a face amount not to exceed $3,852,489 (as amended).

 

“ FAC ” means Flow Asia Corporation, a corporation formed under the laws of Taiwan, and a wholly-owned subsidiary of Borrower.

 

“ Federal Funds Rate ” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on transactions received by Agent from three federal funds brokers of recognized standing selected by Agent.

 

“ Financial Transactions Obligations ” means all indebtedness, liabilities and obligations of Borrower to Bank of America or any Affiliate of Bank of America now or hereafter existing, whether joint or several, direct or indirect, absolute or contingent or due or to become due, arising under or in connection with any agreement (including all schedules thereto, confirmations of transactions thereunder, and documents, definitions, and agreements incorporated therein by reference or relating thereto) pursuant to which Bank of America has agreed to permit daylight overdrafts to occur on accounts maintained by Borrower with Bank of America, provide remote disbursement services for Borrower, process automated clearing house (ACH) transactions for the account of Borrower or extend credit to Borrower, in the form of credit card accounts, including, without limitation, any interest due thereon, all fees, costs, and expenses incurred by Bank of America in connection therewith, and termination payments and indemnifications relating thereto.

 

“ First Commercial Loans ” has the meaning given in Section 7.3(h) .

 

“ Flow Europe ” means Flow Europe GmbH, a corporation organized under the laws of Germany and a wholly-owned subsidiary of Borrower.

 

“ Foreign Guarantors ” means FAC, Flow Europe, ATAB, Flow International FPS AB and Flow Holdings Sagl, and any other Subsidiary that from time to time executes and delivers a supplement in the form attached to, or otherwise becomes bound by, the Foreign Guaranty, and “ Foreign Guarantor ” means any one of them.

 

“ Foreign Guarantor Security Agreement ” means that certain Security Agreement dated as of the date hereof, executed by the Foreign Guarantors in favor of Agent, and all additions, supplements, renewals or amendments thereto.

 

“ Foreign Guaranty ” means that certain Guaranty Agreement dated as of the date hereof, executed by the Foreign Guarantors in favor of Agent and Lenders, and any additions, supplements, renewals or amendments thereto.

 

“ GAAP ” has the meaning given in Section 1.3 .

 

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“ Government Approval ” means an approval, permit, license, authorization, certificate, or consent of any Governmental Authority.

 

“ Governmental Authority ” means the government of the United States or any State or any foreign country or any political subdivision of any thereof or any branch, department, agency, instrumentality, court, tribunal or regulatory authority which constitutes a part or exercises any sovereign power of any of the foregoing.

 

“ Guarantors ” means the Domestic Guarantors, the Foreign Guarantors, and any other Subsidiary that from time to time executes and delivers a supplement in the form attached to, or otherwise becomes bound by, the Domestic Guaranty or Foreign Guaranty, and “ Guarantor ” means any one of them.

 

“ Handelsbanken Loans ” has the meaning given that term in Section 7.3 .

 

“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

 

“ Indebtedness ” means for any person (a) all items of indebtedness or liability (except capital, surplus, deferred credits and reserves, as such) which would be included in determining total liabilities as shown on the liability side of a balance sheet as of the date as of which indebtedness is determined, (b) indebtedness secured by any Lien, whether or not such indebtedness shall have been assumed, (c) any other indebtedness or liability for borrowed money or for the deferred purchase price of property or services for which such person is directly or contingently liable as obligor, guarantor, or otherwise, or in respect of which such person otherwise assures a creditor against loss, (d) any other obligations of such person under leases which shall have been or should be recorded as capital leases, and (e) guarantees or other contingent obligations.

 

“ Indemnified Liabilities ” has the meaning given to it in Section 11.14 .

 

“ Letter of Credit ” means any standby letter of credit issued by Agent pursuant to the terms of Article 3 hereof together with the Existing Letters of Credit.

 

“ Letter of Credit Risk Participation ” means, with respect to each Lender, a risk participation purchased by such Lender pursuant to Article 10 hereof with respect to a Letter of Credit, including, without limitation, the Existing Letters of Credit (including risk participations deemed purchased from Agent by Bank of America in its capacity as Lender).

 

“ Letter of Credit Usage ” means, as of any date of determination, the sum of (i) the aggregate face amount of all outstanding unmatured Letters of Credit, plus (ii) the aggregate amount of all payments made by Agent under Letters of Credit, no longer outstanding, but not yet reimbursed by Borrower pursuant to Section 3.4 .

 

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“ LIBOR Loan ” means any portion of the Revolving Loans bearing interest at the LIBOR Rate.

 

“ LIBOR Rate ” means for any Applicable Interest Period with respect to a LIBOR Loan, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the sum of (i) 2.50% (250 basis points), and (ii) the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Agent from time to time) at approximately 11:00 a.m. (London time) two (2) Business Days prior to the commencement of such Applicable Interest Period, for United States Dollar deposits (for delivery on the first day of such Applicable Interest Period) with a term equivalent to such Applicable Interest Period. If such rate is not available at such time for any reason, then the “LIBOR Rate” for such Applicable Interest Period shall be the rate per annum determined by the Agent to be the rate at which deposits in Dollars for delivery on the first day of such Applicable Interest Period in same day funds in the approximate amount of the LIBOR Loan being made, continued or converted by the Agent and with a term equivalent to such Applicable Interest Period would be offered by the Lender’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 4:00 p.m. (London time) two (2) Business Days prior to the commencement of such Applicable Interest Period.

 

“ Lien ” means, for any person, any security interest, pledge, mortgage, charge, assignment, hypothecation, encumbrance, attachment, garnishment, execution or other voluntary or involuntary lien upon or affecting the revenues of such person or any real or personal property in which such person has or hereafter acquires any interest, except (a) liens for Taxes which are not delinquent or which remain payable without penalty or the validity or amount of which is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof; (b) liens imposed by law (such as mechanics’ liens) incurred in good faith in the ordinary course of business which are not delinquent or which remain payable without penalty or the validity or amount of which is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof with, in the case of liens on property of Borrower, provision having been made to the satisfaction of Agent for the payment thereof in the event the contest is determined adversely to Borrower; and (c) deposits or pledges under worker’s compensation, unemployment insurance, social security or other similar laws or made to secure the performance of bids, tenders, contracts (except for repayment of borrowed money), or leases, or to secure statutory obligations or surety or appeal bonds or to secure indemnity, performance, customs or other similar bonds given in the ordinary course of business.

 

“ Loan Documents ” means this Agreement, the Notes, the Domestic Guaranty, the Foreign Guaranty, the Security Agreement, the Pledge Agreement, the Domestic Guarantor Security Agreement, the Foreign Guarantor Security Agreement, any Reimbursement Agreements relating to Letters of Credit and Existing Letters of Credit, letter of credit applications relating to the Letters of Credit and the Existing Letters of Credit, any deposit account control agreements, mortgages, deeds of trust, environmental indemnity agreements, and all other agreements, documents, instruments, powers of attorney, resolutions, certificates, financing statements, financing statement amendments, stock powers or notices executed by or on behalf of Borrower or its Affiliates or any Guarantor in connection with this Agreement or

 

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any Loan Document, the transactions contemplated hereby, or otherwise in favor of Agent or any Lender, in any case, either prior to or after the date hereof or thereof, in each case, as the same may be amended, restated, extended, supplemented or otherwise modified from time to time.

 

“ Loans ” means the Revolving Loans and overdraft advances pursuant to Section 2.1(b) and includes Base Rate Loans and LIBOR Loans.

 

“ LTM ” means last twelve months.

 

“ Majority Lenders ” means all Lenders.

 

“ Mandatory Reductions ” has the meaning given in Section 2.1(b)(i) .

 

“ Material Adverse Effect ” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent) or condition (financial or otherwise) of the Borrower or the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the ability of Borrower or any Guarantor to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against Borrower or any Guarantor of any Loan Document to which it is a party.

 

“ Minimum Collateral Amount ” means the applicable amount designated as a Minimum Collateral Amount in Section 6.13 .

 

“ Minimum EBITDA Amount ” has the meaning given in Section 6.12 .

 

“ Notes ” has the meaning given in Section 2.7 .

 

“ Notice of Borrowing ” means a written or oral request for a Loan from Borrower delivered to Agent in the manner, at the time, and containing the information required under Section 2.2 .

 

“ Obligations ” means all advances to, and debts, liabilities, obligations, covenants and duties of Borrower or any Guarantor arising under any Loan Document or otherwise with respect to any Loan, Letter of Credit or Financial Transactions Obligations, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against Borrower or any Guarantor or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

 

“ Officer’s Certificate ” means a certificate executed and delivered on behalf of Borrower by its Chairman, President or Chief Financial Officer.

 

“ Optional Reductions ” has the meaning given in Section 2.1(b)(ii) .

 

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“ PBGC ” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

 

“ Pension Plan ” means an “employee pension benefit plan” (as such term is defined in ERISA) from time to time maintained by Borrower or a member of the Controlled Group.

 

“ Performance Premium ” has the meaning given in Section 6.12 .

 

“ Person ” or “ person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

 

“ Plan ” means, at any time, an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (a) maintained by Borrower or any member of the Controlled Group for employees of Borrower or any member of the Controlled Group or (b) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which Borrower or any member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five (5) plan years made contributions.

 

“ Pledge Agreement ” means that certain Pledge Agreement dated as of the date hereof, executed by the Borrower in favor of Agent, and all additions, supplements, renewals or amendments thereto.

 

“ Prime Rate ” means the rate publicly announced from time to time by Bank of America at its “prime rate.” The prime rate is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the prime rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

 

“ Prior Credit Agreement ” means that certain Second Amended and Restated Credit Agreement by and between Bank of America, N.A. and General Electric Capital Corporation, as lenders, and Bank of America, N.A. as administrative agent, dated as of July 28, 2003, as amended from time to time.

 

“ Pro Rata Share ” means a fraction whose numerator (a) with respect to Bank of America, is Bank of America’s Commitment, and (b) with respect to U.S. Bank, is U.S. Bank’s Commitment, and whose denominator is the sum of all Lenders’ Commitments, as set forth in Section 2.1(a) .

 

“ Reimbursement Agreements ” has the meaning given in Section 3.2(d) .

 

“ Restricted Payment ” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other equity interest of the

 

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Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other equity interest or of any option (other than options under the Borrower’s stock option plan), warrant or other right to acquire any such capital stock or other equity interest.

 

“ Revolving Commitment Period ” has the meaning given in Section 2.1(a) .

 

“ Revolving Commitment ” has the meaning given in Section 2.1(a) .

 

“ Revolving Loans ” has the meaning given in Section 2.1(a) and includes Base Rate Loans and LIBOR Loans.

 

“ Revolving Maturity Date ” means August 1, 2005.

 

“ Security Agreement ” means that certain Security Agreement dated as of the date hereof, executed by the Borrower in favor of Agent, and all additions, supplements, renewals or amendments thereto.

 

“ Stock Sale Net Proceeds ” shall mean the gross cash proceeds attributable to any public or private offering by the Borrower or other sale by Borrower after the date of this Agreement of its common or preferred stock or warrants, options, rights or other equity interests minus all fees and expenses associated with such sale including, without limitation, investment banking, legal, accounting, printing, transfer agent and broker fees associated with such sale.

 

“ Subordinated Note Purchase Agreement ” means, collectively, the agreements providing for the purchase of an aggregate original principal amount of $35,000,000 of the Borrower’s 13% Subordinated Notes due April 30, 2008 and Warrants to Purchase Common Stock between Borrower and the “Purchasers” identified therein, as amended from time to time.

 

“ Subordinated Notes ” means the notes issued in connection with, and as defined in, the Subordinated Note Purchase Agreement.

 

“ Subsidiary ” shall mean any person, corporation, association or other business entity directly or indirectly controlled by Borrower. For the purposes of this definition, “controlled by” shall mean the possession, directly or indirectly of the power to direct or cause the direction of the management and policies of such Subsidiary, whether through the ownership of voting securities, by contract or otherwise.

 

“ Successor ” means, for any corporation or banking association, any successor by merger or consolidation, or by acquisition of substantially all of the assets of the predecessor.

 

“ Tax ” means, for any person, any tax, assessment, duty, levy, impost or other charge imposed by any Governmental Authority on such person or on any property, revenue, income, or franchise of such person and any interest or penalty with respect to any of the foregoing.

 

“ Total Revolving Commitment ” means Thirty Million Dollars ($30,000,000).

 

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“ Total Utilization ” means, as of any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans, (ii) any amounts outstanding under Section 2.1(c) , and (iii) the Letter of Credit Usage.

 

“ Unfunded Vested Liabilities ” means, with respect to any Plan at any time, the amount (if any) by which (a) the present value of all vested nonforfeitable benefits under such Plan exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent evaluation date for such Plan, but only to the extent that such excess represents a potential liability of Borrower or any member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA.

 

Section 1.2 General Principles Applicable to Definitions. Definitions given herein shall be equally applicable to both singular and plural forms of the terms therein defined and references herein to “he” or “it” shall be applicable to persons whether masculine, feminine or neuter. References herein to any document including, but without limitation, this Agreement shall be deemed a reference to such document as it now exists, and as, from time to time hereafter, the same may be amended. References herein to any section, subsection, schedule or exhibit shall, unless otherwise indicated, be deemed a reference to sections and subsections within and schedules and exhibits to this Agreement.

 

Section 1.3 Accounting Terms. Except as otherwise provided herein, accounting terms not specifically defined shall be construed, and all accounting procedures shall be performed, in accordance with generally accepted United States accounting principles consistently applied (“ GAAP ”) and as in effect on the date of application.

 

ARTICLE 2

THE LOANS

 

Section 2.1 Amounts and Terms of Commitments.

 

(a) The Revolving Credit. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make loans (“ Revolving Loans ”) to Borrower from time to time on Business Days until the Revolving Maturity Date (the “ Revolving Commitment Period ”) in amounts equal to such Lender’s Pro Rata Share (as set forth below) of each requested Loan; provided that , after giving effect to any requested Loan (i) the aggregate of all Revolving Loans from such Lender will not exceed at any one time outstanding the Total Revolving Commitment, multiplied by such Lender’s Pro Rata Share (such Lender’s “ Revolving Commitment ”), and (ii) the Total Utilization will not exceed the Total Revolving Commitment. Each Lender’s Revolving Commitment is set forth opposite its name below. The Revolving Loans described in this Section 2.1(a) constitute a revolving credit and within the amount and time specified, Borrower may pay, prepay and reborrow.

 

 

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(b) Reductions in Total Revolving Commitment.

 

(i) Mandatory Reductions. The Total Revolving Commitment shall be permanently reduced on the following dates and in the following amounts:

 

(A) on any date when Borrower receives (or becomes entitled immediately to receive) any Asset Sale Net Proceeds, the Total Revolving Commitment shall be permanently reduced by an amount equal to one hundred percent (100%) of such Asset Sale Net Proceeds;

 

(B) on any date when Borrower receives (or becomes entitled to receive) any Stock Sale Net Proceeds, the Total Revolving Commitment shall be permanently reduced by an amount equal to thirty percent (30%) of such Stock Sale Net Proceeds; and

 

(C) if there is a Collateral Differential on any Collateral Measurement Date, the Total Revolving Commitment shall be permanently reduced by the amount of such Collateral Differential in accordance with Section 6.13 .

 

Any reduction in the Total Revolving Commitment under this Section 2.1(b)(i) shall be referred to as a “ Mandatory Reduction ” and shall be in addition to any Optional Reduction.

 

(ii) Optional Reductions. Borrower may, at its option, reduce the Total Revolving Commitment from time to time upon at least two (2) Business Days’ prior written notice to Agent; provided that each such reduction (an “ Optional Reduction ”) must be in an amount not less than $250,000. Each notice of an Optional Reduction shall be irrevocable and shall specify the effective date of such reduction, which date may not be earlier than the next Business Day after receipt by Agent of such notice.

 

(c) Overdrafts. Subject to the terms and conditions of this Agreement, including without limitation, Section 4.2 , Bank of America, as part of its Commitment hereunder, hereby severally agrees to make loans, not to exceed the lesser of (i) Total Revolving Commitment minus the Total Utilization, and (ii) $3,000,000, to cover overdrafts on Borrower Accounts.

 

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Section 2.2 Manner of Borrowing.

 

(a) Revolving Loans.

 

(i) For each requested Revolving Loan, Borrower shall deliver to Agent a Notice of Borrowing. Each Notice of Borrowing (whether oral or written) shall specify: (A) whether the Borrower is requesting a new Revolving Loan, a conversion of a Revolving Loan from one type to another, or a continuation of a LIBOR Loan, (B) the requested date of the borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (C) the principal amount of the Revolving Loan to be borrowed, converted or continued, (D) the Applicable Interest Rate for the requested borrowing, and (E) the Applicable Interest Period, if the requested borrowing is to be a LIBOR Loan. If the Borrower fails to specify a type of loan in the Notice of Borrowing or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Revolving Loan shall be made as, or converted to, a Base Rate Loan. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Applicable Interest Period then in effect with respect to the applicable LIBOR Loan. If the Borrower requests a borrowing of, conversion to, or continuation of a LIBOR Loan in any such Notice of Borrowing, but fails to specify an Applicable Interest Period, it will be deemed to have specified an Applicable Interest Period of one (1) month.

 

(ii) Each such Notice of Borrowing (whether oral or written) shall be received by the Agent not later than 11:00 a.m. (Seattle time) (A) three (3) Business Days prior to the requested date of any borrowing of, conversion to or continuation of a LIBOR Loan or of any conversion of LIBOR Loans to Base Rate Loans, and (B) on the requested date of any borrowing of a Base Rate Loan. Any oral Notice of Borrowing must be confirmed promptly by delivery to the Agent of a written Notice of Borrowing, appropriately completed and signed by an authorized officer of Borrower. Each borrowing of, conversion to or continuation of LIBOR Loans shall be in a principal amount of $1,000,000 or a whole multiple of $250,000 in excess thereof. Requests for borrowings, conversions or continuations of any Revolving Loan shall be irrevocable and shall be deemed to constitute a representation and warranty by Borrower that as of the date of such notice, the statements set forth in Article 5 hereof are true and correct and that no Default or Event of Default has occurred and is continuing. On receipt of a Notice of Borrowing, Agent shall promptly notify each Lender by telephone, telex or telefax of the date of the requested borrowing and the amount thereof. Each Lender shall before 1:00 p.m. (Seattle time) on the date of the requested borrowing, pay such Lender’s Pro Rata Share of the aggregate principal amount of the requested borrowing in immediately available funds to Agent at its Commercial Loan Processing Center, Seattle, Washington. Upon fulfillment to Agent’s satisfaction of the applicable conditions set forth in Article 4 , and after receipt by Agent of such funds, Agent will promptly make such funds available to Borrower by depositing them to the ordinary checking account maintained by Borrower at Agent’s Commercial Accounts Service Center. If no timely notice of a conversion or continuation is provided by the Borrower, the Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection.

 

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(iii) Except as otherwise provided herein, a LIBOR Loan may be continued or converted only on the last date of an Applicable Interest Period for such LIBOR Loan. During the existence of a Default, no Loan may be requested as, converted to or continued as LIBOR Loans without the consent of the Majority Lenders.

 

(iv) The Agent shall promptly notify the Borrower and the Lenders of an interest rate applicable to any Applicable Interest Period for LIBOR Loans upon determination of such interest rate. At any time the Base Rate Loans are outstanding, the Agent shall notify the Borrower and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

 

(v) After giving effect to all borrowings, all conversion of Revolving Loans from one type to the other and all continuations of Revolving Loans as the same type, there shall not be more than five (5) Applicable Interest Periods in effect with respect to the Revolving Loans.

 

(b) Overdrafts. Bank of America may, at its option, notify Agent that any overdraft covered by Section 2.1(c) shall be deemed a Notice of Borrowing requesting a Loan. If Bank of America so notifies Agent, then all parties hereto agree that, for all purposes under this Agreement, Borrower will be deemed to have delivered a Notice of Borrowing to Agent pursuant to Section 2.2(a) requesting a Revolving Loan on the date and in the amount of such overdraft. Any such Revolving Loan made under Section 2.1(c) and this Section 2.2(b) shall accrue interest at the Base Rate only and not at a LIBOR Rate. Borrower shall, if requested by Agent, provide a written Notice of Borrowing to Agent as additional evidence of its request for such Revolving Loan.

 

Section 2.3 Agent’s Right to Fund Loans. Unless Agent shall have received notice from a Lender prior to 12:00 Noon (Seattle time) on the date of any requested borrowing that such Lender will not make available to Agent its share of the requested borrowing, Agent may assume that such Lender has made such funds available to Agent on the date such Loan is to be made in accordance with Section 2.2 hereof and Agent may, in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such portion available to Agent, such Lender and Borrower jointly and severally agree to pay to Agent forthwith on demand such corresponding amount, together with interest thereon for each day from the date such amount is made available to Borrower until the date such amount is repaid to Agent, at (a) in the case of Borrower, the Base Rate and (b) in the case of such Lender, the Federal Funds Rate. Any such repayment by Borrower shall be without prejudice to any rights it may have against Lender that has failed to make available its funds for any requested borrowing.

 

Section 2.4 Repayment of Principal.

 

(a) Borrower shall repay to Lenders from time to time such amounts of principal as may be necessary to ensure that at all times, the Total Utilization is equal to or less than the Total Revolving Commitment then in effect.

 

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(b) On each Business Day that there is an outstanding balance in any of the Borrower Accounts at 5:00 p.m. (Seattle time), Borrower shall repay to Agent, no later than 10:00 a.m. (Seattle time) on the following Business Day, an amount equal to such balance.

 

(c) On any date when Borrower receives (or becomes entitled immediately to receive) any Asset Sale Net Proceeds, Borrower shall pay to Lenders an amount equal to one hundred percent (100%) of such Asset Sale Net Proceeds.

 

(d) On any date when Borrower receives (or becomes entitled immediately to receive) any Stock Sale Net Proceeds, Borrower shall pay to the Lenders an amount equal to thirty percent (30%) of such Stock Sale Net Proceeds.

 

(e) Borrower shall repay the principal amount of the Revolving Loans on or before the Revolving Maturity Date.

 

Section 2.5 Interest on Loans.

 

(a) General Provisions. The Borrower agrees to pay interest on the outstanding principal amount of each Loan, including overdrafts made pursuant to Section 2.1(c) , from the date of such Loan until the Loan shall be due and payable at a per annum rate equal to the Applicable Interest Rate. If a default shall occur in the payment when due of any Loan (whether at maturity, upon acceleration or otherwise), interest shall accrue at a per annum rate equal to the Default Rate. Accrued but unpaid interest on each Base Rate Loan shall be paid on the first day of each calendar month, on any prepayment of the Loan and on the Revolving Maturity Date. Accrued but unpaid interest on each LIBOR Loan shall be paid at the end of each Applicable Interest Period, on any prepayment of the Loan and on the Revolving Maturity Date. Notwithstanding the foregoing, accrued interest on any Loan shall be payable on demand after the occurrence of an Event of Default.

 

(b) Applicable Days for Computation of Interest. Computations of interest described in Section 2.5 shall be made on the basis of a year of 360 days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable.

 

(c) Unavailable LIBOR Rate. In the event, and on each occasion, that the Agent shall have determined (which determination shall be conclusive and binding) that the LIBOR Rate cannot be ascertained for any reason or the Agent shall determine that, due to a change in any applicable law, rule or regulation of any Governmental Authority or in the application of such law, rule or regulation to either Lender or due to a change in the financial markets not specifically related to the funding capabilities of either Lender, the LIBOR Rate will not adequately and fairly reflect the cost to the Lenders of making or maintaining the principal amount of a LIBOR Loan during the Applicable Interest Period for such LIBOR Loan, the Agent shall, as soon as practicable thereafter, give notice of such determination to Borrower and any request for conversion to or continuation of a LIBOR Loan pursuant to Section 2.2 shall be deemed to be a request for a Base Rate Loan.

 

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Section 2.6 Prepayments.

 

(a) Any portion of the principal of a Loan may be paid prior to its maturity (herein a “ prepayment ”), except that nonmandatory prepayments of LIBOR Loans must occur at the end of an Applicable Interest Period. Any prepayment of principal shall be accompanied by all accrued but unpaid interest on the principal amount prepaid. Unless otherwise agreed by the Lenders, prepayments shall be applied to the principal installments required to be paid pursuant to Section 2.2 in the inverse order of maturity.

 

(b) No fee shall be assessed in connection with the prepayment of a Base Rate Loan. If a LIBOR Loan is paid prior to the end of the Applicable Interest Period, Borrower shall, on the date of such payment, pay an amount required pursuant to Section 2.12 . Such additional amount shall be paid in all circumstances where principal on a LIBOR Loan is paid prior to the end of the Applicable Interest Period, regardless of whether such payment is voluntary or mandatory or the result of Agent’s collection efforts. Notwithstanding the foregoing to the contrary, Borrower shall not be required to pay any prepayment fees associated with the prepayment of any LIBOR Loans prior to the end of an Applicable Interest Period if such prepayment is associated with the pay down and termination of this Agreement and the simultaneous execution and delivery of a new credit agreement with Bank of America, U.S. Bank and any other banks (if any), as lenders, and Bank of America, as administrative agent.

 

Section 2.7 Notes. The Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Agent in the ordinary course of business. The accounts or records maintained by the Agent and each Lender shall be conclusive proof of the amount of the Loans made by the Lenders to the Borrower and the principal and interest payments made thereon, absent a showing of manifest error. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Agent in respect of such matters, the accounts and records of the Agent shall control in the absence of manifest error. Any failure to maintain accounts or records or any error in doing so shall not, however, limit or affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. Upon the request of any Lender made through the Agent, the Borrower shall execute one or more notes (the “ Notes ”) substantially in the form of Exhibit A hereto, as applicable, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender is hereby authorized to record the date and amount of the Loans it makes and the date and amount of each payment of principal and interest thereon on a schedule annexed to and constituting part of the appropriate Note, account or record. Any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided , however , the failure to make any such recordation shall not affect the obligations of Borrower hereunder or under the Notes.

 

Section 2.8 Manner of Payments.

 

(a) All payments and prepayments of principal and interest on any Loan and all other amounts payable hereunder by Borrower to Agent or any Lender shall be made by paying the same in Dollars and in immediately available funds to Agent at its Commercial Loan

 

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Processing Center, Seattle, Washington not later than 12:00 Noon (Seattle time) on the date on which such payment or prepayment shall become due.

 

(b) Borrower hereby authorizes Agent and each Lender, if and to the extent any payment is not promptly made pursuant to this Agreement or any other Loan Document, to charge from time to time against any or all of the accounts of Borrower with Agent or any Lender or any affiliate of any Lender any amount due hereunder or under such other Loan Document.

 

(c) Whenever any payment hereunder or under any other Loan Document shall be stated to be due would otherwise occur on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

(d) Unless Borrower has notified Agent prior to the date any payment to be made by it is due, that it does not intend to remit such payment, Agent may, in its sole and absolute discretion, assume that Borrower has timely remitted such payment and may, in its sole and absolute discretion and in reliance thereon, make available such payment to the Lender entitled thereto. If such payment was not in fact remitted to Agent in immediately available funds, then each Lender shall forthwith on demand repay to Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each day from and including the date such amount was made available by Agent to such Lender to the date such amount is repaid to Agent at the Federal Funds Rate.

 

Section 2.9 Fees. In addition to certain fees described in Section 3.2(b), Borrower shall pay to the Agent for the account of the Lenders in accordance with each Lender’s Pro Rata Share, a quarterly commitment fee in an amount equal to the product of (i) 0.50% (50 basis points) and (ii) the Total Revolving Commitment. Such fee shall be prorated from the closing date of this Agreement and shall be paid on April 30, 2005 and on July 31, 2005. Such fees shall be deemed fully earned when due and non-refundable, in whole or in part, when paid. For the avoidance of doubt, the commitment fee payable on April 30, 2005 (which shall be charged to Borrower on May 2, 2005) shall be an amount equal to $3,370.79. If this Agreement is terminated by all of the parties hereto and replaced with another credit facility prior to July 31, 2005, then Borrower acknowledges and agrees that it shall pay to Agent for the benefit of the Lenders the accrued quarterly commitment fee prorated from April 30 through the date of termination.

 

Section 2.10 Sharing of Payments, Etc. If any Lender shall obtain any payment in respect of Borrower’s obligations under the Loan Documents (whether voluntary or involuntary, through the exercise of any right of setoff or otherwise) in excess of the amount it would have received if all payments had been made directly to Agent and apportioned in accordance with the terms hereof, such Lender shall hold such excess payment in trust for Agent and Lenders and shall forthwith remit the same to Agent for Lenders’ accounts as herein provided.

 

Section 2.11 Application of Payments. Any payment by Borrower hereunder shall be applied first , against fees, expenses and indemnities due hereunder; second , against interest then due in respect of any Loan; third , against amounts due under Section 3.4 hereof; fourth , against

 

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any Financial Transaction Obligations; and thereafter , ratably against amounts owing for the Loan principal. After the applicable maturity date for any Loan, payments to be applied to Loan principal shall be applied first to principal installments then due and thereafter to principal installments in the inverse order of maturity. Agent shall distribute any payment by Borrower in respect of Revolving Loans in accordance with each Lender’s Pro Rata Share. After any of the Loans become due (by maturity, upon acceleration or otherwise), any amounts recovered from Borrower, including, without limitation, through realization on any Collateral, shall be applied, and distributed by Agent to Lenders, in accordance with each Lender’s Pro Rata Share.

 

Section 2.12 Additional LIBOR Rate Provisions.

 

(a) Illegality. If any Lender determines that any law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful for any Lender or its applicable lending office to make, maintain or fund LIBOR Loans, or to determine or charge interest rates based upon the LIBOR Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Agent, any obligation of such Lender to make or continue LIBOR Loans or to convert Base Rate Loans to LIBOR Loans shall be suspended until such Lender notifies the Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to the Agent), prepay or, if applicable, convert all LIBOR Loans of such Lender to Base Rate Loans, either on the last day of the Applicable Interest Period therefor, if such Lender may lawfully continue to maintain such LIBOR Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBOR Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.

 

(b) Inability to Determine Rates. If the Majority Lenders determine that for any reason in connection with any request for a LIBOR Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Applicable Interest Period of such LIBOR Loan, (b) adequate and reasonable means do not exist for determining the LIBOR Rate for any requested Applicable Interest Period with respect to a proposed LIBOR Loan, or (c) the LIBOR Rate for any requested Applicable Interest Period with respect to a proposed LIBOR Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Loans shall be suspended until the Agent (upon the instruction of the Majority Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a borrowing of, conversion to or continuation of LIBOR Loans or, failing that, will be deemed to have converted such request into a request for a borrowing of Base Rate Loans in the amount specified therein.

 

(c) Increased Costs Generally. If any change in law shall (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender, (ii) subject any Lender to any tax of any kind whatsoever with

 

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respect to this Agreement, or any LIBOR Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof, or (iii) impose on any Lender or the London interbank market any other condition, cost or expense affecting this Agreement or LIBOR Loans made by such Lender, and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any LIBOR Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

 

(d) Compensation for Losses. Upon demand of any Lender (with a copy to the Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of: (i) any continuation, conversion, payment or prepayment of any Loan (other than a Base Rate Loan) on a day other than the last day of the Applicable Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise), or (ii) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan (other than a Base Rate Loan) on the date or in the amount notified by the Borrower, including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing. For purposes of calculating amounts payable by the Borrower to the Lenders under this Section, each Lender shall be deemed to have funded each LIBOR Loan made by it at the LIBOR Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such LIBOR Loan was in fact so funded.

 

ARTICLE 3

LETTERS OF CREDIT

 

Section 3.1 Letters of Credit. Borrower may request that Agent issue letters of credit for Borrower’s account in accordance with the terms and conditions of this Article 3 .

 

Section 3.2 Manner of Requesting Letters of Credit.

 

(a) From time to time, Borrower may request that Agent issue a standby letter of credit for Borrower’s account or extend or renew any existing Letters of Credit; provided however , the intended beneficiary of the Letter of Credit is a customer of Borrower. Such request will be made by delivering a written request or making an oral request for the issuance, extension or renewal of such a letter of credit to Agent not later than 9:00 a.m. (Seattle time) on the date a new letter of credit is to be issued or an existing letter of credit is scheduled to expire, provided that, any request given orally shall be confirmed by Borrower in a writing

 

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delivered to Agent not later than 10:00 a.m. (Seattle time) on the date such oral request is made. Each such request shall be deemed to constitute a representation and warranty by Borrower that as of the date of such request, statements set forth in Article 5 hereof are true and correct and that no Default or Event of Default has occurred and is continuing. Each such request shall specify the face amount of the requested Letter of Credit, the proposed date of expiration, the name of the intended beneficiary thereof, and whether such Letter of Credit is a new letter of credit or an extension or renewal thereof. Borrower, Lenders and Agent acknowledges that the Existing Letters of Credit shall be subject to and governed by the terms of this Agreement and that the Lenders shall, in accordance with Section 4.1(b) , pay to Agent at closing their portion of the Letter of Credit Risk Participation pursuant to the terms of Article 10.

 

(b) Borrower shall pay to Agent for the account of each Lender in accordance with its Pro Rata Share, a letter of credit fee equal to the maximum amount available to be drawn on the outstanding standby Letters of Credit multiplied by (i) 2.50% (250 basis points) per annum, which fee shall not be less than Two Hundred Fifty Dollars ($250). Such letter of credit fees shall be computed on a quarterly basis in arrears. Such letter of credit fees shall be due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Revolving Maturity Date and thereafter on demand. In addition, Borrower shall pay directly to Agent for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of Agent relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

 

(c) Each letter of credit requested hereunder: (i) shall be in a face amount such that after issuance of such letter of credit (A) the Total Utilization will not exceed the Total Revolving Commitment then in effect, and (B) the Letter of Credit Usage would not exceed $13,000,000; and (ii) shall have an expiration date not later than the Revolving Maturity Date.

 

(d) At the request of Agent, Borrower shall execute a letter of credit application and reimbursement agreement, in the standard form then used by Agent, in respect of each Letter of Credit requested hereunder. The letter of credit applications and reimbursement agreements now in effect with respect to each existing Letter of Credit shall remain in full force and effect except that, if such existing Letter of Credit is extended or renewed, Agent may, at its option, require Borrower to execute a new letter of credit application and reimbursement agreement (all reimbursement agreements relating to any of the Letters of Credit shall, as such agreements may be amended from time to time, be collectively referred to herein as the “ Reimbursement Agreements ”).

 

(e) Subject to the satisfaction of the conditions precedent set forth in Article 4 and Borrower’s compliance with the terms of this Section 3.2 , Agent shall issue and deliver its letter of credit to Borrower or to the designated beneficiary at such address as Borrower may specify. New Letters of Credit and extensions or renewals of any existing Letters of Credit shall contain terms and conditions customarily included in Agent’s letters of credit and shall otherwise be in a form acceptable to Agent.

 

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In the event of any conflict between the terms of any Reimbursement Agreement and the terms of this Agreement, the terms of this Agreement shall control, unless Agent has otherwise agreed in a writing.

 

Section 3.3 Indemnification; Increased Costs.

 

(a) Borrower agrees to indemnify Agent and each Lender on demand for any and all additional costs, expenses, or damages incurred by Agent or such Lender, directly or indirectly, arising out of the issuance of any Letter of Credit or the purchase of any Letter of Credit Risk Participation, including, without limitation, any costs of maintaining reserves in respect thereof and any premium rates imposed by the Federal Deposit Insurance Corporation in connection therewith. A certificate as to such additional amounts submitted to Borrower by Agent or such Lender shall be final, conclusive, and binding, absent manifest error.

 

(b) If at any time after the date hereof the introduction of or any change in applicable law, rule, or regulation or in the interpretation or the administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by Agent or Lender with any requests directed by any such Governmental Authority (whether or not having the force of law) shall, with respect to any Letter of Credit or Letter of Credit Risk Participation subject Agent or such Lender to any Tax or impose, modify, or deem applicable any reserve, special deposit, or similar requirements against assets of, deposits with or for the account of, credit extended by Agent or such Lender or shall impose on Agent or such Lender any other conditions affecting the Letters of Credit or Letter of Credit Risk Participations and the result of any of the foregoing is to increase the cost to Agent or such Lender of issuing a Letter of Credit or holding a Letter of Credit Risk Participation or to reduce the amount of any sum received or receivable by Agent or such Lender hereunder with respect to the Letters of Credit or Letter of Credit Risk Participations, then, upon demand by Agent or such Lender, Borrower shall pay to Agent or such Lender such additional amount or amounts as will compensate Agent or such Lender for such increased cost or reduction. A certificate submitted to Borrower by Agent or such Lender setting forth the basis for the determination of such additional amount or amounts shall be final, conclusive, and binding, absent manifest error.

 

(c) Borrower agrees to indemnify and hold Agent and each Lender (an “ Indemnitee ”) harmless from and against any and all (a) Taxes (exclusive of Taxes measured by net income and gross receipts) and other fees payable in connection with Letters of Credit, Letter of Credit Risk Participations or the provisions of this Agreement relating thereto, and (b) any and all actions, claims, damages, losses, liabilities, fines, penalties, costs, and expenses of every nature, including Attorney Costs, suffered or incurred by the Indemnitee otherwise arising out of or relating to this Article 3 , any Letter of Credit, or any Letter of Credit Risk Participations; provided , however , said indemnification shall not apply to the extent that any such action, claim, damage, loss, liability, fine, penalty, cost, or expense arises out of or is based solely upon the Indemnitee’s willful misconduct or negligence.

 

Section 3.4 Payment by Borrower. Borrower agrees to fully reimburse Agent for all amounts paid by Agent under any Letter of Credit and to pay interest thereon at the Base Rate from the date Agent makes such payment until the date of any demand for reimbursement by

 

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Agent. Such payment shall be made in immediately available funds at Agent’s Commercial Loan Processing Center not later than 11:00 a.m. (Seattle time) on the date Borrower is first notified by Agent that Agent has made payment under the Letter of Credit; provided Agent has notified Borrower by 9:00 a.m. on such date and provided further , that, if Agent so elects pursuant to the terms of Section 8.2 , following the occurrence of an Event of Default, the face amount of each Letter of Credit shall become immediately due and payable. If Borrower shall default in its obligations to reimburse Agent or make any other payment required hereunder, interest shall accrue on the unpaid amount thereof at a per annum rate equal to the Default Rate from the date such amount becomes due and payable until payment in full by Borrower. Interest on such unpaid amounts shall be calculated on the basis of a year of 360 days and shall be payable on demand.

 

Section 3.5 Cash Collateralize. Upon the request of the Agent, (i) upon a Default or an Event of Default, (ii) if the Agent has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in a borrowing, or (iii) if, as of the date of expiration of any Letter of Credit, any Letter of Credit may for any reason remain outstanding and partially or wholly undrawn, in addition to any other remedies the Agent may have pursuant to this Agreement, any Loan Document or applicable law, Borrower shall immediately Cash Collateralize the then outstanding amount of all Letters of Credit (in an amount equal to such outstanding amount determined as of the date of the Default, Event of Default, such borrowing or the Letter of Credit expiration date, as the case may be). For purposes hereof, “ Cash Collateralize ” means to pledge and deposit with or deliver to the Agent as collateral for the Letter of Credit obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Agent. The Borrower hereby grants to the Agent for the benefit of the Lenders and the Agent, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the for