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CREDIT AGREEMENT

Loan Agreement

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City National Bank

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Title: CREDIT AGREEMENT
Date: 5/6/2008
Industry: Business Services     Sector: Services

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Exhibit 10.1
 
  CREDIT AGREEMENT
     This Credit Agreement (the “Agreement”), dated as of the 1st day of May, 2008 (“Loan Date”) is between City National Bank, a national banking association (“CNB”) and SM&A, a Delaware corporation (“Borrower”).
1. DEFINITIONS . As used in this Agreement, these terms have the following meanings:
     1.1. “Account” or “Accounts” has the meaning given in the Code, and includes, but is not limited to, any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper from any Person, whether now existing or hereafter arising or acquired, whether or not it has been earned by performance.
     1.2. “Account Debtor” means the Person obligated on an Account.
     1.3. “Affiliate” means any Person directly or indirectly controlling, controlled by, or under common control with Borrower, and includes any employee stock ownership plan of Borrower or an Affiliate. “Control” (including with correlative meaning, the terms “controlling,” “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise.
     1.4. “Borrower’s Loan Account” means the statement of daily balances on the books of CNB in which will be recorded Loans made by CNB to Borrower, payments made on such loans, and other appropriate debits and credits as provided by this Agreement. CNB will provide a statement of account for Borrower’s Loan Account at least once each month on a date established by CNB, which statement will be accepted by and conclusively binding upon Borrower unless it notifies CNB in writing to the contrary, within five (5) days of receipt of such statement, or ten (10) days after sending of such statement if Borrower does not notify CNB of its non-receipt of the statement. Statements regarding other credit extended to Borrower will be provided separately.
     1.5. “Business Day” means a day that CNB’s Head Office is open and conducts a substantial portion of its business.
     1.6. “Code” means the Uniform Commercial Code of California, as currently in effect and as amended and replaced from time to time, except where the Uniform Commercial Code of another state governs the perfection of a security interest in Collateral located in that state.
     1.7. “Collateral” there is no Collateral .
     1.8. “Commercial Letters of Credit” means letters of credit issued pursuant to this Agreement and in response to Borrower’s submission of an Irrevocable Letter of Credit Application and Security Agreement.
     1.9. “Commitment” means CNB’s commitment to make the loans and issue Letters of Credit in the aggregate principal amount outstanding at any one time of up to TEN MILLION AND NO/100THS DOLLARS ($10,000,000.00).

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City National Bank   CREDIT AGREEMENT
     1.10. “Current Assets” will be determined on a consolidated basis for Borrower and the Subsidiaries in accordance with GAAP excluding, however, loans to stockholders, management or employees, amounts due from Subsidiaries or Affiliates, deferred costs and other intangible assets.
     1.11. “Current Liabilities” will be determined on a consolidated basis for Borrower and the Subsidiaries in accordance with GAAP and will include, without limitation: (a) all payments on Subordinated Debt required to be made within one (1) year after the date on which the determination is made, and (b) all indebtedness payable to stockholders, Affiliates, Subsidiaries or officers regardless of maturity, unless such indebtedness has been subordinated, on terms satisfactory to CNB, to the Obligations.
     1.12 . “Debt” means, at any date, the aggregate amount of, without duplication, (a) all obligations of Borrower or any Subsidiary for borrowed money; or reimbursement for open letters of credit (b) all obligations of Borrower or any Subsidiary evidenced by bonds, debentures, notes or other similar instruments; (c) all obligations of Borrower or any Subsidiary to pay the deferred purchase price of property or services; (d) all capitalized lease obligations of Borrower or any Subsidiary; (e) all obligations or liabilities of others secured by a lien on any asset of Borrower or any Subsidiary, whether or not such obligation or liability is assumed; (f) all obligations guaranteed by Borrower or any Subsidiary; (g) all obligations, direct or indirect, for letters of credit; and (h) any other obligations or liabilities which are required by GAAP to be shown as liabilities on the balance sheet of Borrower or any Subsidiary.
     1.13. “Debt Service” means (a) the aggregate amount of Current Maturity of Long Term Debt plus (b) all interest incurred on borrowed money. “Current Maturity of Long Term Debt” means that portion of Borrower’s consolidated long term liabilities, determined in accordance with GAAP, which shall, by the terms thereof, become due and payable within one (1) year following the date of the balance sheet upon which such calculations are based.
     1.14. “Demand Deposit Account” means Borrower’s demand deposit account no. 023-809958 maintained with CNB.
     1.15. “Eurocurrency Reserve Requirement” means the aggregate (without duplication) of the rates (expressed as a decimal) of reserves (including, without limitation, any basic, marginal, supplemental, or emergency reserves) that are required to be maintained by banks during the Interest Period under any regulations of the Board of Governors of the Federal Reserve System, or any other governmental authority having jurisdiction with respect thereto, applicable to funding based on so-called “Eurocurrency Liabilities”, including Regulation D (12 CFR 224).
     1.16. “GAAP” means generally accepted accounting principles, consistently applied.
     1.17. “Guarantor" , there is no Guarantor.
     1.18. “Interest Period” means the period commencing on the date a LIBOR Loan is made (including the date a Prime Loan is converted to a LIBOR Loan, or a LIBOR Loan is renewed as a LIBOR Loan, which, in the latter case, will be the last day of the expiring Interest Period) and ending on the first day of the month occurring prior to or on the date which is one (1), three (3), six (6), nine (9) or twelve (12) months thereafter,

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City National Bank   CREDIT AGREEMENT
as selected by the Borrower; provided, however, no Interest Period may extend beyond the Termination Date.
     1.19. “Inventory” means goods held for sale or lease in the ordinary course of business, work in process and any and all raw materials used in connection with the foregoing.
     1.20. “Letter s of Credit Commitment” is THREE MILLION AND NO/100THS DOLLARS ($3,000,000.00).
     1.21. “LIBOR Base Rate” means the British Banker’s Association definition of the London InterBank Offered Rates as made available by Bloomberg LP, or such other information service available to CNB, for the applicable monthly period upon which the Interest Period is based for the LIBOR Loan selected by Borrower and as quoted by CNB on the Business Day Borrower requests a LIBOR Loan or on the last Business Day of an expiring Interest Period.
     1.22. “LIBOR Interest Rate” means the rate per year (rounded upward to the next one-sixteenth (1/16th) of one percent (0.0625%), if necessary) determined by CNB to be the quotient of (a) the LIBOR Base Rate divided by (b) one minus the Eurocurrency Reserve Requirement for the Interest Period; which is expressed by the following formula:
LIBOR Base Rate
1 - Eurocurrency Reserve Requirement
     1.23. “LIBOR Loan” means any Loan tied to the LIBOR Interest Rate.
     1.24. “Loan” or “Loans” means the loans extended by CNB to Borrower pursuant to Section 2.
     1.25. “Loan Documents” means, individually and collectively, this Agreement, any Note, guaranty, security or pledge agreement, financing statement and all other contracts, instruments, addenda and documents executed in connection with or related to extensions of credit under this Agreement.
     1.26. “Loan Fee” is $25,000.00.
     1.27. “Notes” means the Note(s) referenced in Section 2.
     1.28. “Obligations” means all present and future liabilities and obligations of Borrower to CNB hereunder and all other liabilities and obligations of Borrower to CNB of every kind, now existing or hereafter owing, matured or unmatured, direct or indirect, absolute or contingent, joint or several, including any extensions and renewals thereof and substitutions therefor.
     1.29. “Person” means any individual or entity.
     1.30. “Potential Event of Default” means any condition that with the giving of notice or passage of time or both would, unless cured or waived, become an Event of Default.
     1.31. “Prime Loan” means any Loan tied to the Prime Rate.

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City National Bank   CREDIT AGREEMENT
     1.32. “Prime Rate” means the rate most recently announced by CNB at its principal office in Beverly Hills, California as its “Prime Rate.” Any change in the interest rate resulting from a change in the Prime Rate will become effective on the day on which each change in the Prime Rate is announced by CNB.
     1.33. “Quick Assets” means the sum of cash, plus cash equivalents, plus Accounts, plus securities classified as short-term marketable securities according to GAAP, as such items appear on Borrower’s consolidated balance sheet, determined in accordance with GAAP.
     1.34. “Revolving Credit Commitment” means CNB’s commitment to make the Revolving Credit Loans in the aggregate principal amount at any one time of up to TEN MILLION AND NO/100THS DOLLARS ($10,000,000.00).
     1.35. “Standby Letters of Credit” means standby letters of credit issued pursuant to this Agreement and in response to Borrower’s submission of an Irrevocable Standby Letter of Credit Application and Letter of Credit Agreement.
     1.36. “Subordinated Debt” means Debt of Borrower or any Subsidiary, the repayment of which is subordinated, on terms satisfactory to CNB, to the Obligations.
     1.37. “Subsidiary” means any Person, the majority of whose voting interests are at any time owned, directly or indirectly, by Borrower and/or by one or more Subsidiaries.
     1.38. “Tangible Net Worth” means the total of all assets appearing on a balance sheet prepared in accordance with GAAP for Borrower and the Subsidiaries on a consolidated basis, minus (a) all intangible assets, including, without limitation, unamortized debt discount, Affiliate, employee, officer and stockholder receivables or advances, goodwill, research and development costs, patents, trademarks, the excess of purchase price over underlying values of acquired companies, any covenants not to compete, deferred charges, copyrights, franchises and appraisal surplus; minus (b) all obligations which are required by GAAP to be classified as a liability on the consolidated balance sheet of Borrower and the Subsidiaries; minus (c) the amount, if any, at which shares of stock of a non-wholly owned Subsidiary appear on the asset side of Borrower’s consolidated balance sheet, as determined in accordance with GAAP; minus (d) minority interests; and minus (e) deferred income and reserves not otherwise classified as a liability on the consolidated balance sheet of Borrower and the Subsidiaries.
     1.39. “Termination Date” means May 1, 2009. Notwithstanding the foregoing, CNB may, at its option, terminate this Agreement pursuant to the Section entitled “CNB’s Remedies”; the date of any such termination will become the Termination Date as that term is used in this Agreement.
     1.40. “Total Senior Liabilities” means, as of any date of determination, the amount of all liabilities that should be reflected as a liability on a consolidated balance sheet of Borrower and the Subsidiaries prepared in accordance with GAAP, less Subordinated Debt.

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City National Bank   CREDIT AGREEMENT
2. THE CREDIT.
     2.1. Revolving Credit Loan . Subject to the terms of this Agreement, CNB agrees to make loans (“Revolving Credit Loans”) to Borrower, from the date of this Agreement up to and including the Termination Date, at such times as Borrower may request, up to the amount of the Revolving Credit Commitment, less the amount of outstanding Letters of Credit, and unpaid drafts under drawn Letters of Credit. The Revolving Credit Loans may be repaid and reborrowed at any time up and including the Termination Date; provided, however, that the aggregate unpaid principal amount of outstanding Revolving Credit Loans will at no time exceed the Revolving Credit Commitment, less the amount of the outstanding Letters of Credit, and unpaid drafts under drawn Letters of Credit.
          2.1.1. Procedure for Revolving Credit Loans . Each Revolving Credit Loan may be made by CNB at the oral or written request of anyone who is authorized in writing by Borrower to request Revolving Credit Loans until written notice of the revocation of such authority is received by CNB.
          2.1.2. Interest . The Revolving Credit Loans will bear interest from disbursement until due (whether at stated maturity, by acceleration or otherwise) at a rate equal to, at Borrower’s option, either (a) for a LIBOR Revolving Loan, the LIBOR plus two and one-quarter percent (2.25%) per year, or (b) for a Prime Revolving Loan, the fluctuating Prime minus one-half percent (-0.50%) per year. Interest on the Revolving Credit Loans and other charges incurred under this Agreement will accrue daily and be payable (a) monthly in arrears, on the first day of each month, commencing on the first such date following disbursement; (b) if a LIBOR Revolving Loan, upon any prepayment of any LIBOR Revolving Loan (to the extent accrued on the amount prepaid); and (c) at the Termination Date. A Revolving Credit Loan tied to the LIBOR Interest Rate is called a “LIBOR Revolving Loan,” and a Revolving Credit Loan tied to the Prime Rate is called a “Prime Revolving Loan.” A Revolving Credit Loan will be a Prime Revolving Loan any time it is not a LIBOR Revolving Loan.
     2.2. Letter of Credit Facility. CNB will, at the request of Borrower any time up to the Termination Date, issue Letters of Credit for the account of Borrower. The aggregate face amount of outstanding Letters of Credit and unpaid drafts under drawn Letters of Credit at any time will not exceed the lesser of (a) the Letter of Credit Commitment or (b) the Revolving Credit Commitment less Revolving Credit Loans outstanding.
          2.2.1. Issuance of Letters of Credit . Commercial Letters of Credit will be issued to finance the import of merchandise in accordance with an Irrevocable Letter of Credit Application and Security Agreement submitted by Borrower and incorporated herein by this reference, subject to the terms of this Agreement in the event of any conflict herewith. Standby Letters of Credit will be issued in accordance with an Irrevocable Standby Letter of Credit Application and Letter of Credit Agreement submitted by Borrower and incorporated herein by this reference, subject to the terms of this Agreement in the event of any conflict herewith. Letters of Credit will be issued on the normal documentation used by CNB from time to time in accord with the Uniform Customs and Practices for Documentary Credits (2007 Revision) International Chamber of Commerce Publication No. 600, or the International Standby Practices 1998, whichever is applicable. Commercial Letters of Credit will expire no more than 180 days after issuance. Letters of Credit will expire no more than 180 days after issuance. Unless CNB otherwise agrees in writing, no Standby Letter of Credit may expire after the Termination Date. Standard CNB fees and charges will apply to the issuance and administration of Letters of Credit, and any drawings thereunder.

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City National Bank   CREDIT AGREEMENT
          2.2.2. Reimbursement for Funding Letter of Credit . Any payment of a draft made after a drawing under a Letter of Credit will be deemed to be an irrevocable request for a Revolving Credit Loan under this Agreement. Borrower’s obligation to reimburse CNB may also be satisfied by charging Borrower’s Demand Deposit Account if requested by Borrower. CNB’s obligation under this Subsection to make a Revolving Credit Loan will exist irrespective of the existence of any Potential Event of Default or Event of Default.
     2.3. LIBOR Loan Terms and Conditions.
          2.3.1. Procedure for LIBOR Loans . Borrower may request that a Revolving Credit Loan be a LIBOR Loan (including conversion of a Prime Revolving Loan to a LIBOR Revolving Loan, or continuation of a LIBOR Revolving Loan as a LIBOR Revolving Loan upon the expiration of the Interest Period). Borrower’s request will be irrevocable, will be made to CNB using the “Notice of Borrowing” form attached hereto as Exhibit “A,” no earlier than two (2) Business Days before and no later than 1:00 p.m. Pacific Time on the day the LIBOR Loan is to be made. If Borrower fails to select a LIBOR Loan in accordance herewith, the Loan will be a Prime Loan, and any outstanding LIBOR Loan will be deemed a Prime Loan upon expiration of the Interest Period.
          2.3.2 . Availability of LIBOR Loans . Notwithstanding anything herein to the contrary, each LIBOR Loan must be in the minimum amount of $500,000.00 and increments of $100,000.00. Borrower may not have more than five (5) LIBOR Loans outstanding at any one time under this Agreement. Borrower may have Prime Loans and LIBOR Loans outstanding simultaneously.
          2.3.3. Prepayment of Principal. Borrower may not make a partial principal prepayment on a LIBOR Loan. Borrower may prepay the full outstanding principal balance on a LIBOR Loan prior to the end of the Interest Period, provided, however, that such prepayment is accompanied by a fee (“LIBOR Prepayment Fee”) equal to the amount, if any, by which (a) the additional interest which would have been earned by CNB had the LIBOR Loan not been prepaid exceeds (b) the interest which would have been recoverable by CNB by placing the amount of the LIBOR Loan on deposit in the LIBOR market for a period starting on the date on which it was prepaid and ending on the last day of the applicable Interest Period. CNB’s calculation of the LIBOR Prepayment Fee will be deemed conclusive absent manifest error.
          2.3.4 . Suspension of LIBOR Loans . If CNB, on any Business Day, is unable to determine the LIBOR Base Rate applicable for a new, continued, or converted LIBOR Loan for any reason, or any law, regulation, or governmental order, rule or determination, makes it unlawful for CNB to make a LIBOR Loan, Borrower’s right to select LIBOR Loans will be suspended until CNB is again able to determine the LIBOR Base Rate or make LIBOR Loans, as the case may be. During such suspension, new Loans, outstanding Prime Loans, and LIBOR Loans whose Interest Periods terminate may only be Prime Loans.
     2.4. Default Interest Rate . From and after written notice by CNB to Borrower of the occurrence of an Event of Default (and without constituting a waiver of such Event of Default), the Loans and any other amounts due CNB hereunder (and interest to the extent permitted by law) will bear additional interest at a fluctuating rate equal to five percent (5.0%) per year higher than the interest rate as determined in the above Section(s) 2.1.2 until the Event of Default has been cured; provided, however, for

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City National Bank   CREDIT AGREEMENT
purposes of this Section, a LIBOR Loan will be treated as a Prime Loan upon the termination of the Interest Period. All interest provided for in this Section will be compounded monthly and payable on demand.
     2.5. Loans and Payments. All payments will be in United States Dollars and in immediately available funds. Interest will be computed on the basis of a 360 day year, actual days elapsed. All payments of principal, interest, fees and other charges on the Loans will be made by charging, and Borrower hereby authorizes CNB to charge, the Borrower’s Demand Deposit Account for the amount of each such payment. Borrower must have sufficient collected balances in the Borrower’s Demand Deposit Account in order that each such payment will be available when due. CNB is authorized to note the date, amount and interest rate of each Loan and each payment of principal and interest on CNB’s books and records, which notations will constitute presumptive evidence of the accuracy of the information noted. Any Loan will be conclusively presumed to have been made to or for the benefit of Borrower when CNB, in its sole discretion, believes that the request therefor has been made by authorized persons (whether in fact that is the case), or when the Loan is deposited to the Borrower’s Demand Deposit Account, regardless of whether any Person other than Borrower may have authority to draw against such account.
     2.6. Late Charge . Borrower shall pay a late charge of 5% or $10.00, whichever is greater, of any payment not received by CNB on or before the 10th day after the payment is due.
3. TERM AND TERMINATION.
     3.1. Establishment of Termination Date. The term of this Agreement will begin as of the date hereof and continue until the Termination Date, unless the term is renewed for an additional period by CNB giving Borrower prior written notice, in which event the Termination Date will mean the renewed maturity date set forth in such notice. Notwithstanding the foregoing, CNB may, at its option, terminate this Agreement pursuant to Section 8.3; the date of any such termination will become the Termination Date as that term is used in this Agreement.
     3.2. Obligations Upon the Termination Date . Borrower will, upon the Termination Date:
          3.2.1. Repay the amount of the balance due as set forth in Borrower’s Loan Account plus any accrued interest, fees and charges;
          3.2.2. Pay CNB cash in the aggregate face amount of the Letters of Credit and unpaid drafts under drawn Letters of Credit outstanding to be held as cash collateral for Borrower’s obligation to reimburse CNB upon the funding of such Letters of Credit and drafts; and
          3.2.3. Pay the amounts due on all other Obligations owing to CNB. In this connection and notwithstanding anything to the contrary contained in the instruments evidencing such Obligations, the Termination Date hereunder will constitute the maturity date of such other Obligations.
     3.3. Survival of Rights . Any termination of this Agreement will not affect the rights, liabilities and obligations of the parties with respect to any Obligations outstanding

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on the date of such termination. Until all Obligations have been fully repaid, CNB will retain its security interest in all existing Collateral and Collateral arising thereafter, and Borrower will continue to assign all Accounts to CNB and to immediately turn over to CNB, in kind, all collections received on the Accounts.
4. CONDITIONS PRECEDENT.
     4.1. Extension of Credit . The obligation of CNB to make any Loan or other extension of credit hereunder is subject to CNB’s receipt of each of the following, in form and substance satisfactory to CNB, and duly executed as required by CNB:
          4.1.1. All Loan Documents required by CNB, including but not limited to this Agreement and any guaranties required hereunder;
          4.1.2. A copy of Borrower’s organizational and governing documents and any public filings made in c

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