LOAN AGREEMENT
BY
THIS AGREEMENT made and entered into as of the 15
th day
of June, 2007, STAR BUFFET, INC., a Delaware corporation, whose
address is 1312 N. Scottsdale Road, Scottsdale, Arizona 85257
(hereinafter severally and collectively called “
Borrower ”), and ROBERT E. WHEATON & SUZANNE H.
WHEATON, whose address is 4716 East Valley Vista Lane, Paradise
Valley, Arizona 85253 (hereinafter called “ Lender
”), for and in consideration of the recitals and mutual
promises contained herein, confirm and agree as follows:
SECTION
1.
RECITALS
1.0
Loan . Borrower has applied to Lender for a term loan
in the amount of ONE MILLION FOUR HUNDRED THOUSAND AND NO/100THS
DOLLARS ($1,400,000.00), upon the terms, conditions and provisions
set forth herein, for the sole purpose of providing working capital
for Borrower in the ordinary course of business.
SECTION
2.
DEFINITIONS
1.0
Defined Terms . As used herein, the following
capitalized terms shall have the meanings specified below, unless
the context otherwise requires.
(
)
Adjusted Tangible Net Worth . Tangible net worth plus
subordinated debt, determined in accordance with GAAP, plus the
amount of any reductions in tangible net worth for non-cash charges
required under Financial Accounting Standard 144 and reserves for
notes receivable.
(
)
Advance . Omitted.
(
)
Affiliate . Any person or entity (i) that
directly or indirectly controls, or is controlled by, or is under
common control with, Borrower; (ii) that directly or indirectly
beneficially owns or holds five percent (5%) or more of any class
of voting stock of or membership in Borrower; (iii) five
percent (5%) or more of the voting stock of or membership in which
entity is directly or indirectly beneficially owned or held by
Borrower; (iv) that is an officer, director or manager of
Borrower; (v) of which another Affiliate is an officer,
director or manager; or (vi) who is related by blood,
adoption, or marriage to another Affiliate. The term
“control” means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of an entity, whether through the ownership of voting
securities, by contract, or otherwise.
(
)
Business Day . Any day other than a Saturday, Sunday,
public holiday, or other day when commercial banks in Arizona are
authorized or required to close.
(
)
Capital Expenditures . For a period, any expenditures
of money during such period for the lease, purchase or construction
of assets that are capitalized on Borrower’s balance
sheet.
1
(a)
Closing . The satisfaction of all of the conditions
precedent set forth in SECTION 5 hereof and the consummation of all
of the loan transactions contemplated by this Loan
Agreement.
(
)
Closing Date . The date, on or before June 15, 2007,
on which the Closing occurs.
(
)
Commitment . As defined in Paragraph 3.1
hereof.
(
)
Compliance Certificate . A certification of compliance in
the form attached hereto as Exhibit “A.”
(
)
CPLTD . The amount of principal payments on long term
debt and the amount of capitalized leases that are to be paid
within one year.
(
)
Disbursement Account . Omitted.
(
)
EBITDA . Pretax earnings from continuing operations
plus interest expense, depreciation and amortization, impairment of
long-lived assets and reserves for notes receivable, computed and
calculated in accordance with GAAP calculated on a rolling four (4)
quarter basis.
(
)
Environmental Law . Any federal, state or local
statute, ordinance, or regulation pertaining to health, industrial
hygiene, or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601, et
seq. (“ CERCLA ”); the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901,
et seq. (“ RCRA ”); and the
Arizona Environmental Quality Act, Title 49, Arizona Revised
Statutes, and all rules adopted and guidelines promulgated pursuant
to the foregoing.
(
)
ERISA . The Employee Retirement Income Security Act of
1974, as amended and as in effect from time to time.
(b)
Event of Default . As defined in Paragraph 1.0
hereof.
(
)
Facility . Any real property and improvements owned or
occupied by Borrower in the conduct of its
business.
(
)
Fixed Charge Coverage . The ratio of (a) EBITDA, less
cash taxes and maintenance Capital Expenditures plus rent expense,
to (b) CPLTD, plus interest expense plus rent expense calculated on
a rolling four (4) quarter basis.
(
)
GAAP . Those generally accepted accounting principles
and practices that are recognized as such by the American Institute
of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or
through other appropriate boards or committees thereof and which
are consistently applied for all periods after the date thereof so
as to properly reflect the financial condition, and the results of
operations and changes in the financial position, of
Borrower.
2
(
)
Hazardous Substance : Includes:
(
)
those substances included within the definitions of
“hazardous substances,” “hazardous
materials,” “toxic substances,” or “solid
waste” in CERCLA, RCRA, and the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et
seq. , and in the regulations promulgated pursuant
thereto;
(
)
those substances defined as “hazardous substances” in
A.R.S. Section 49-201 and in rules adopted or guidelines
promulgated pursuant thereto;
(
)
those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by
the Environmental Protection Agency as hazardous substances (40 CFR
Part 302 and amendments thereto); and
(
)
all other substances, materials and wastes that are, or that
become, regulated under, or that are classified as hazardous or
toxic under, any Environmental Law.
(
)
Indebtedness . The total outstanding indebtedness owed
Lender by Borrower under or in connection with the Loan, including
principal and interest accrued but not previously paid.
(
)
Lien . Any lien, mortgage, security interest, tax
lien, pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure
the payment of any indebtedness or performance of any obligation,
whether arising by agreement or under any statute or law, or
otherwise.
(
)
Loan Documents . This Agreement, the Note and all
other documents now or hereafter executed or delivered in
connection with the Loan.
(c)
Loan . As defined in Paragraph 1.0
hereof.
(
)
Long Term Debt . Financing that has a maturity of
greater than one year.
(y)
Maintenance Capital . Expenditures defined by GAAP to
be capitalized that are necessary to maintain the operations of the
existing restaurants.
(z)
Material Adverse Effect . Any event or condition that
either (i) would have a material adverse effect upon the
validity, performance or enforceability of this Agreement, or any
of the other Loan Documents, (ii) is material and adverse to
the properties, financial condition, credit or business operations
and prospects of Borrower or any Subsidiary, (iii) would
impair the ability of Borrower to fulfill its obligations under
this Agreement, or any of the other Loan Documents, or
(iv) causes an Event of Default or an event or condition that
with notice or lapse of time or both, would become an Event of
Default.
3
(
)
Termination Date . Shall mean June 5, 2012; provided,
however, upon the request of Borrower, such date may be extended in
writing by Lender in its sole and absolute discretion.
(d)
Note . As defined in Paragraph 2.0
hereof.
(
)
Obligations . Any and all of the representations,
warranties, covenants and other obligations made or undertaken by
Borrower in this Agreement or in any of the other Loan
Documents.
(
)
PBGC . The Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under
ERISA.
(
)
Permitted Liens . (i) Liens granted to Lender;
(ii) existing Liens approved by Lender and listed on Exhibit
“B” hereto, (iii) future Liens approved in writing
by Lender in its sole discretion; (iv) Liens for taxes,
assessments and other governmental charges that are not past due or
delinquent; (v) Liens imposed by law, such as mechanics’
liens, arising in the ordinary course of business and that secure
payments not yet due; (vi) Mortgage Liens secured by a
Facility where Lender has been notified in writing in advance of
such lien being recorded; and (vii) Liens on other assets to the
extent that such Liens secure financing for the acquisition of that
asset.
(
)
Plan . Each pension, profit sharing, stock bonus,
thrift, savings, and employee stock ownership plan established or
maintained, or to which contributions have been made, by Borrower
or any trade or business which together with Borrower would be
treated as a single employer under ERISA.
(
)
Primary Lender . M&I Marshall & Ilsley
Bank.
(
)
SEC . The United States Security and Exchange
Commission.
(
)
Subsidiary . Any corporation fifty percent (50%) or
more of which is owned, directly or indirectly, by
Borrower.
(
)
Total Funded Debt . All financings, capitalized lease
obligations and outstanding letters of credit.
(kk)
Total Funded Debt to EBITDA . The ratio Total Funded
Debt to EBITDA calculated on a rolling four (4) quarter
basis.
2.0
Other Terms . All accounting and financial terms used
and not otherwise defined in this Agreement shall have the meanings
accorded them under GAAP.
SECTION
3.
LOAN
1.0
Loan . Subject to the conditions herein set forth,
Lender agrees to loan to or for the benefit of Borrower, and
Borrower agrees to borrow, in the manner and upon the terms and
conditions herein expressed, amounts that shall not exceed at any
time the Commitment (the “ Loan ”). The
“ Commitment ” shall be the principal sum of
$1,400,000.00.
4
2.0
Note . The Loan shall be evidenced by a promissory
note of Borrower, executed and delivered simultaneously with the
execution of this Agreement, in the amount of the $1,400,000.00
payable to Lender upon the terms and conditions contained therein
(the “ Note ”).
3.0
Advances . Omitted.
4.0
Readvances . Omitted.
5.0
Other Disbursements by Lender . Lender, from time to
time in its sole discretion, may make disbursements in payment of
interest accrued and payable upon the Loan and any charges and
expenses that are the obligation of Borrower under this Agreement
or any of the other Loan Documents and any charges or matters
necessary to cure any Event of Default, all of which shall be added
to and be part of the Indebtedness.
6.0
Repayment . Borrower, from time to time, may repay the
Loan in whole or in part at any time, without penalty, provided
that any repayment complies with terms then in effect between
borrow and Primary Lender. Borrower shall immediately repay
to Lender, from time to time, an amount equal to any amount by
which the outstanding principal balance of the Loan exceeds the
Commitment.
7.0
Termination . The entire outstanding principal
balance, all accrued and unpaid interest, and all other sums
payable in connection with the Loan shall be due and payable on
that date.
8.0
Application of Payments . So long as no Event of
Default exists, all payments shall be applied first to the payment
of any costs, fees and other charges incurred in connection with
the Loan, next to the payment of any accrued interest and then to
the reduction of the principal balance. Upon the occurrence
and during the continuation of any Event of Default, all payments
shall be applied by Lender to the Indebtedness and Obligations in
such order and manner as Lender shall determine in its sole and
absolute discretion. All payments shall be applied to the
Indebtedness and Obligations only when received in immediately
available funds.
9.0
Prior Performance . Although Lender shall have no
obligation to make any Advance unless and until all of the
requirements and conditions precedent set forth herein have been
satisfied, Lender, at its sole discretion, may make any Advance
prior to that time without waiving or releasing any of the
requirements or conditions precedent of this Agreement; Borrower
shall continue to be strictly obligated to perform, and shall be
subject to, all such requirements and conditions notwithstanding
any such disbursement.
10.0
Right to Advance . Omitted.
SECTION
4. LOAN
FEE
1.0
Loan Fee . Omitted.
2.0
Commitment Fee . Omitted.
5
SECTION
5. CONDITIONS
PRECEDENT FOR CLOSING
The obligation of
Lender to make the Loan, and to make any Advance at Closing, is
subject to the following express conditions precedent, all of which
shall have been satisfied prior to Closing:
1.0
Documents Required . Borrower shall have executed (or
obtained the execution or issuing of) and delivered to Lender the
following documents, all in form satisfactory to Lender:
(
)
This Agreement
(
)
The Note
2.0
Loan Fee . Omitted.
3.0
Items Required . Borrower, at its expense, shall have
obtained and delivered to Lender the following items, all of which
shall be in form and content satisfactory to Lender and shall be
subject to approval in writing by Lender:
(
)
A copy of the articles of incorporation and bylaws of Borrower and
each Subsidiary, including all amendment thereto, certified by the
secretary of Borrower or each Subsidiary, as appropriate, as being
true, complete and correct as of the date of
certification.
(
)
Certificates of good standing for Borrower and each Subsidiary
issued by the Secretary of State of the state of incorporation of
that corporation.
(
)
Resolutions of Borrower approving the execution, delivery and
performance of this Agreement and the other Loan Documents and the
transaction contemplated thereby, duly adopted by Borrower’s
board of directors and accompanied by a certificate of the
Secretary of Borrower stating that such resolutions are true and
correct and are in full force and effect.
(
)
A signed certificate of the secretary of Borrower which shall
certify the names of the officers of Borrower authorized to sign
each of the Loan Documents, together with the true signature of
each such officer.
4.0
Representative and Warranties True . All
representations and warranties by Borrower shall remain true and
correct in all material respects and all agreements that Borrower
is to have performed or complied with by the date hereof shall have
been performed or complied with.
5.0
No Default . No Event of Default exists, and no event
has occurred and no condition exists that, after notice or lapse of
time, or both, would constitute an Event of Default.
SECTION
6. ADDITIONAL
CONDITIONS
The obligation of
Lender to make the Loan shall be subject to the following
additional conditions precedent, all of which shall have been
satisfied and remain satisfied at the time of each Advance of the
Loan:
6
1.2
Prior Conditions . All of the conditions precedent
provided in SECTION 5 hereof shall have been satisfied.
2.0
Request for Advance . Omitted.
3.0
Representatives and Warranties True . All
representations and warranties by Borrower shall remain true and
correct in all material respects and all agreements that Borrower
is to have performed or complied with by the date of the requested
Advance shall have been performed or complied with.
4.0
No Default . No Event of Default exists, and no event
has occurred and no condition exists that, after notice or lapse of
time, or both, would constitute an Event of Default.
SECTION
7. REPRESENTATIONS
AND WARRANTIES
Borrower
represents and warrants to Lender as follows:
1.0
Recitals True . The recitals appearing in this
Agreement are true and correct.
2.0
Organization and Good Standing . Borrower and each
Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and
is qualified to do business and is in good standing in each state
in which the nature of its business and property makes such
qualification necessary or appropriate.
3.0
Power and Authority . Borrower and each Subsidiary has
full power and authority to own its properties and assets and to
carry on its business as now being conducted. Borrower has
full power and authority to execute, deliver and perform this
Agreement and the other Loan Documents to which Borrower is a
party.
4.0
Authorization . Borrower is fully authorized and
permitted to enter into this Agreement, to execute any and all
documentation required herein, to borrow the amounts contemplated
herein upon the terms set forth herein, and to perform the terms of
this Agreement.
5.0
No Breach or Default as to Borrower . The execution,
delivery and performance by Borrower of this Agreement and the
other Loan Documents to which it is a party will not conflict with
or result in a default under: (i) any law, rule or
regulation applicable to Borrower, (ii) the organizational
documents of Borrower, or (iii) the terms, conditions or
provisions of any agreement or instrument under which Borrower is a
party or is obligated.
6.0
Enforceable Obligations . This Agreement and each of
the other Loan Documents to which Borrower is a party are valid and
binding legal obligations of Borrower and each is enforceable in
accordance with its terms, except as limited by bankruptcy,
insolvency or other laws of general application relating to the
enforcement of creditors’ rights.
7.0
No Liens . Except for Permitted Liens, all of the
properties and assets of Borrower and its Subsidiaries are free and
clear of all Liens and other adverse claims of any nature, and such
corporations have good and marketable title to such properties and
assets.
7
8.0
No Adverse Proceedings . No actions, suits or
proceedings are pending or, to the knowledge of Borrower,
threatened against Borrower or any Subsidiary that could result in
a Material Adverse Effect. Neither Borrower nor any
Subsidiary is in default with respect to any order, writ,
injunction or decree, of any court, governmental department,
commission, board, agency or official, which default could result
in a Material Adverse Effect. No actions, suits or
proceedings are pending or threatened against Borrower or any
Subsidiary other than as set forth in
Exhibit ”C.”
9.0
Licenses; Permits; Agreements . Borrower and its
Subsidiaries have obtained, and there remains in full force and
effect, all licenses, permits, rights, approvals and agreements
necessary or appropriate for the operation of their respective
businesses. Neither Borrower nor any Subsidiary is in default
under any material agreement to which it is a party or by which it
or any of its properties is bound.
10.0
Compliance with Laws . Borrower and each of its
Subsidiaries are in compliance with all material laws, rules,
regulations, orders and decrees that are applicable to Borrower or
any Subsidiary, or its or their properties.
11.0
No Violation of Environmental Laws . To the best of
their respective knowledge, neither Borrower nor any Subsidiary,
nor any Facility owned by them or any Affiliate thereof, is in
violation of any Environmental Law and neither Borrower or any
Subsidiary, nor any Facility owned by them or any Affiliate thereof
is subject to any existing, pending or, to the best of their
respective knowledge, threatened investigation by any federal,
state or local governmental authority under or in connection with
any Environmental Law. Borrower has not obtained as the
result of the requirements of any Environmental Law, and is not
required by any Environmental Law to obtain, any permit or license
to construct or use any improvements, fixtures or equipment that
are a part of, or are located on, any Facility or to operate any
business that is being conducted or intended to be conducted on any
Facility. Borrower has not caused or permitted the Release
of, or has any knowledge of the Release or presence of, any
Hazardous Substance on any Facility or the migration of any
Hazardous Substance from or to any other pr
