Exhibit 10.3
LOAN AGREEMENT
THIS LOAN
AGREEMENT (the
"Agreement") is entered into effective as of the
7th day of August,
2006, by and among
FIFTH THIRD
BANK, a Michigan banking
corporation with its
office and principal
place of business at 250 West Main
Street, Suite 100,
Lexington,
Kentucky 40507 (the
"Bank"); VACUMATE,
LLC, a
Kentucky limited
liability company with
its principal place of business at 201
West Short Street, Suite 800, Lexington, Kentucky 40507
("Borrower") and WILLIAM
CRAIG TURNER whose address is 201 W. Short Street, Suite 800 (the "Guarantor").
(Borrower and
Guarantor are herein sometimes referred to collectively as
"Obligors").
RECITALS:
WHEREAS,
Borrower desires to obtain from the Bank
two (2) loans,
to-wit
(i) a term loan in the
original principal
amount of Five
Million and No/100
Dollars
($5,000,000.00) (the
"Term Loan") and (ii) a revolving line of credit
loan in an amount
not to exceed
Five Hundred Thousand and No/100 Dollars
($500,000.00) (the
"Revolving
Loan", and together with the Term Loan, the
"Loans"), pursuant to which Borrower may obtain advances, all upon
the terms and
conditions stated herein;
WHEREAS,
one of the conditions
to the Bank's
extending the Loans is that
Obligors enter
into this Loan Agreement setting forth certain terms and
conditions upon
which Bank shall extend the credit and other terms and
conditions binding
upon Obligors, all of
which terms and
conditions
Obligors
acknowledge are supported by good, valuable and sufficient
consideration.
NOW,
THEREFORE, in consideration of their mutual covenants, the financial
accommodations
extended to
Borrower and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the
parties do hereby agree to and affirm the foregoing recitals and further agree
as follows:
Article I. CERTAIN DEFINITIONS.
Section 1.01
"Advance" shall mean any disbursement of funds to the Borrower
under any of the Notes pursuant to Section 2.01 hereof subject to the
limitations set forth herein.
Section 1.02 "Affiliate" means, when used with reference to
a specified Person,
any Person that
directly or indirectly through one or more intermediaries
controls or is controlled by, or is under common
control with, the specified
Person. For purposes
of the preceding
sentence, the term
"control" means
the
power, direct or
indirect, to direct or
cause the direction of the management
and policies of a Person through voting securities, contract or
otherwise.
Section 1.03
"Agreement" shall mean
this Loan Agreement,
as further
amended,
supplemented or modified from time to time.
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Section 1.04 "Business
Day" shall mean, as to
notices to or matters
affecting
Bank, a day other than a Saturday, Sunday or a public holiday under
the laws of
the Commonwealth of Kentucky or of the United States.
Section 1.05
"Collateral"
shall mean all of the assets in which a security
interest or mortgage lien is granted to Bank to secure the
Indebtedness, all
as
more particularly described in the Security Documents.
Section 1.06 "Debt
shall mean any and all (i) indebtedness or liability for
borrowed money,
or for the
deferred purchase price of property or services
(excluding trade obligations incurred in the ordinary course of
business); (ii)
obligations as lessee under capital leases (as defined in
accordance with GAAP);
(iii) obligations
under letters of credit issued for the account of any Person;
(iv) guarantees,
endorsements
(other than for collection or deposit in the
ordinary course of business), and other contingent obligations to purchase, to
provide funds for payment, to supply funds to invest in any Person,
or otherwise
to assure a creditor
against loss; and/or
(v) obligations not
included within
(i) through
(iv) above
secured by any Lien on
property owned by the Person,
whether or not the obligations have been assumed.
Section 1.07 "Default" or "Event of Default" means any of the events
specified
in Article VII herein,
whether or not any requirement for the giving of notice,
the lapse of time, or both, or any other condition, has been
satisfied.
Section 1.08
"Financing Statements"
shall mean all
financing statements
and
continuations
thereof pursuant
to the Uniform Commercial Code of the
Commonwealth of Kentucky, which may be filed by Bank from time to
time.
Section 1.09 "GAAP" shall mean generally accepted accounting principles as in
effect in the United States from time to time, consistently applied. Whenever
any accounting term is used herein which is not otherwise defined,
it shall have
the meaning ascribed thereto under GAAP.
Section 1.10 "Guaranty" shall mean, that certain
guarantee of the
indebtedness
and the obligations as described therein, as evidenced by a Guaranty of
Payment
and Performance
executed and
delivered by the
Guarantor and given in order to
induce Bank to make the Loans, all as more particularly identified in Section
2.03 hereof.
Section 1.11 "Indebtedness" shall mean all items of indebtedness,
obligations or
liability, whether
matured or unmatured,
liquidated or
unliquidated,
direct,
indirect, or
contingent, joint or
several, whether
evidenced by the Notes
or
otherwise, which may
be due or payable to
Bank from time to time by any of the
Obligors.
Section 1.12 "Lien" shall mean any mortgage, deed of trust, pledge, security
interest,
hypothecation, conditional
assignment,
deposit
arrangement,
encumbrance, lien
(statutory
or other),
or preference, priority, or other
security agreement, or preferential arrangement, charge, or encumbrance of any
kind or nature whatsoever (including, without limitation, any conditional sale
or other title
retention agreement, any financing lease having a similar
economic effect
as any of the
foregoing,
and the filing of any financing
statement under the Uniform Commercial
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Code or comparable law of any jurisdiction to evidence any of the
foregoing),
but excluding leases of operating equipment or furniture in the
ordinary course
of business. Section 1.13 "Loan Documents" shall mean this
Agreement, the Notes,
the Guaranty, the Security Documents, the Financing Statements,
any agreements
and documents
relating to any Rate Management Agreements entered into by
Borrower and any other
instruments,
certificates or documents now delivered or
hereafter delivered by
any of the Obligors or
any other person in
connection
with, evidencing, securing or relating to any of the Loans.
Section 1.14 "Loans" shall mean collectively, the Revolving Loan and Term
Loan
from Bank to Borrower, all as evidenced by the Notes.
Section 1.15 "Notes" shall mean the two (2) Promissory Notes made
by Borrower in
favor of the Bank evidencing the Loans, all as more particularly described and
identified in Section
2.01 hereof,
as the same may
supplemented,
amended or
restated from time to time.
Section 1.16
"Obligations" means
the indebtedness
evidenced by the Notes, and
any and all Rate Management Obligations and all obligations of
Obligors under or
relating to any of the other Loan Documents.
Section 1.17
"Person" shall mean any individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever
nature.
Section 1.18
"Prime" or "Prime
Rate" shall mean a
rate per annum equal to the
prime rate of interest
announced from time to time by Bank or its parent (which
is not necessarily the
lowest rate charged to any customer), changing when and
as said prime rate changes.
Section 1.19
"Rate Management Agreement" means any agreement, device or
arrangement providing for payments which are related to
fluctuations of interest
rates, exchange
rates, forward rates, or equity prices, including, but not
limited to,
dollar-denominated or
cross-currency
interest
rate exchange
agreements, forward
currency exchange
agreements, interest
rate cap or collar
protection agreements,
forward rate currency or interest rate options, puts and
warrants, and any agreement pertaining to equity derivative
transactions
(e.g.,
equity or equity index swaps, options, caps, floors, collars and forwards),
including without limitation any ISDA Master Agreement between
Borrower and Bank
or any Affiliate of Fifth Third Bancorp, and any schedules, confirmations and
documents and
other confirming evidence between the parties confirming
transactions
thereunder, all
whether now existing or hereafter arising, and in
each case as amended, modified or supplemented from time to
time.
Section 1.20 "Rate
Management
Obligations" means any
and all obligations
of
Borrower to Bank or any Affiliate of Fifth Third Bancorp, whether absolute,
contingent or
otherwise and however and whenever
(whether now or
hereafter)
created, arising, evidenced or acquired (including all renewals,
extensions and
modifications thereof and substitutions therefor), under or in connection with
(i) any and all Rate Management Agreements, and (ii) any and all
cancellations,
buy-backs, reversals,
terminations
or assignments of any Rate Management
Agreement.
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Section 1.21
"Security Documents" shall mean collectively (i) that certain
Security Agreement dated as of the date hereof from Borrower
encumbering all of
Borrower's personalty
including but not limited to accounts receivables,
inventory and
equipment as more particularly described therein, (ii) the
Collateral Assignment
of and Security Interest in Intellectual Property Rights
dated as of the
date hereof from Borrower encumbering all of Borrower's
intellectual property (the "Collateral Assignment") and (iii) any and all
other
documents and
agreements in favor of Bank, whether now existing or
hereinafter
arising, securing the
Indebtedness, any
obligations of Borrower under any Rate
Management Agreements and other obligations as set forth
therein.
The definitions set forth above in this Article I are in addition
to, and not in
lieu of, any other
definitions set forth
elsewhere in this Agreement or the
other Loan Documents.
Article II. AMOUNT AND TERMS OF THE LOANS; INTEREST PROVISIONS; COLLATERAL AND
GUARANTY.
Section 2.01 The Loans. Subject to the terms and
conditions hereof and
relying
upon the
representations and warranties set forth herein, Bank agrees to
extend
credit to the Borrower in the following manner and upon the terms
and conditions
set forth below:
(a)
$500,000
Revolving Loan to Borrower. Simultaneously with execution
of this Agreement,
Borrower shall execute
and deliver to Bank that
certain Revolving Promissory Note payable to Bank dated effective
as
of the date hereof in the face principal amount of $500,000 (the
"Revolving Note") with
a maturity date of August 1, 2008. Borrower
shall repay the
Revolving Note in accordance with the terms and
conditions set
forth therein as the same may be supplemented,
amended and/or modified from time to time, with interest
thereon at
a rate set forth therein.
(b)
$5,000,000 Term
Loan to Borrower.
Simultaneously with
execution of
this Agreement,
Borrower shall execute and deliver to Bank that
certain Term
Promissory Note
payable to Bank dated effective as of
the date hereof in the original principal amount of $5,000,000
(the
"Term Note", and collectively with the Revolving Note, the
"Notes")
with a maturity date
of August 1, 2011.
Borrower shall
repay the
Term Note in
accordance with the
terms and conditions set forth
therein as the same may be supplemented, amended and/or modified
from time to
time, with interest thereon at a rate set forth
therein.
(c)
Purpose of the
Loans. The Revolving
Loan shall be used by
Borrower
solely for its working capital needs. The Term Loan shall be used
by
Borrower solely to finance the start-up of its business.
Section 2.02
Payments and
Renewal. All payments of principal and interest
relating to the Loans shall be made to Bank without offset or other
reduction at
its office at 250 West Main Street, Suite 100, Lexington, Kentucky 40507 in
lawful money of the United States of America and in immediately
available funds,
without deduction
or offset. Whenever any payment to be made under this
Agreement or under the Notes shall be stated to be due on a
Saturday, Sunday
or
a public holiday or
banking holiday,
such payment shall be made on the next
succeeding Business
Day and such extension of time shall in such case be
included in the computation of the
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payment of interest.
Obligors acknowledge
that Bank has not agreed to renewals
or extensions of any of the Notes.
Section 2.03 Guaranty by Guarantor. The Guarantor shall execute and deliver to
Bank a guaranty of payment and performance in which Guarantor
guarantees payment
and performance
of all obligations of Borrower under this Agreement and the
Notes pursuant to the
terms of the Guaranty.
The Guaranty
shall be valid and
enforceable upon
delivery and shall continue to remain in full force and effect
until all of the outstanding Indebtedness referred to in this
Agreement and owed
by Borrower to Bank has been paid in full.
Section 2.04
Collateral.
As security for the payment of the Borrower's
obligations under this
Agreement and the Notes, as well as all other sums that
are recoverable by
Bank under the Loan
Documents, Borrower
shall (a) grant to
Bank a first priority
perfected security
interest in all
personal property of
Borrower pursuant to the Security Agreement and (b) collaterally
assign to Bank
all of its
intellectual property
pursuant to the
Collateral
Assignment
and
Security Agreement.
Section 2.05 Costs and Fees.
(a)
Simultaneously
with the execution of this Agreement, Borrower shall
pay to Bank a fee of $425.00 note processing fee for the Revolving
Loan and upon payment
in full of both
Notes, a fee of $150,000,
which amounts shall be deemed fully earned upon payment
thereof.
(b)
Simultaneously
with the execution hereof or upon demand by Bank,
Obligors shall
pay to Bank
its costs and expenses (including,
without limitation, any filing fees, its reasonable attorney's
fees,
court costs, litigation and other expenses) incurred or paid by
Bank
in negotiating,
documenting,
administering
and enforcing this
Agreement and the Loan Documents and in establishing, maintaining,
protecting, perfecting
or enforcing any of
Bank's rights or any of
the Obligors' obligations including, without limitation, any and
all
such costs and expenses incurred or paid by Bank in defending
Bank's
title or right to the
Collateral
or in collecting or enforcing
payment of the
Collateral
and all costs of filing financing,
continuation or
termination
statements
with
respect to the
Collateral.
Section 2.06
Rate Management Agreement and Covenant of Borrower. It is
contemplated that the Borrower may enter into Rate Management
Agreement(s) with
Lender or an Affiliate
of Fifth Third Bancorp
to hedge the variable
interest
rate risk on one or more of the Notes. In such event, Borrower shall pay all
fees for such Rate Management Agreement(s) pursuant to the terms of the
documents evidencing the Rate Management Agreement(s).
Article III.
CONDITIONS PRECEDENT.
The obligation of Bank to make the Loans
hereunder and any Advances under the Notes is subject to (1) the
performance of
all of the respective
obligations
of Obligors to be
performed hereunder
at,
prior to or subsequent
to the making the Loans, as applicable, and (2) the
satisfaction of all of the following conditions:
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Section 3.01 Loan
Documents.
All Loan Documents shall be duly executed by
Obligors who are parties to such documents, and delivered to Bank, all of
which
shall be in form and substance reasonably satisfactory to Bank and to counsel
for Bank.
Section 3.02
Representations
and Warranties; No Defaults. Each and every
representation and
warranty made by the Obligors contained herein and in any of
the Loan Documents shall be substantially true, complete and accurate as of
the
date hereof and no
Event of Default
shall exist which has not been cured to
Bank's satisfaction as of the date hereof.
Section 3.03 Borrower's Resolutions and Organizational
Documents.
There shall
have been delivered to Bank all of the following for the
Borrower:
(a)
Certified or
unanimous consent resolutions of the Borrower signed by
all Managers thereof and authorizing Borrower to enter into the
Loan
Documents and to take all action relative to this Agreement and
the
other Loan Documents;
authorizing the persons whose names appear on
any Loan Document to sign the same and containing the true
signatures of such persons on which Bank may conclusively rely;
(b)
Certified
copies of the
Articles of Organization and Operating
Agreement of Borrower as in effect on the date hereof; and
(c)
Certificates of
Existence as of a recent date for Borrower.
Section 3.04 Opinion of Legal Counsel. At the sole cost of Obligors,
Obligors
shall deliver to Bank a written opinion of legal counsel to each of
the Obligors
satisfactory to Bank and in form and substance satisfactory to counsel for
Bank
as to such matters incident to the transactions contemplated herein as Bank
may
reasonably request.
Section 3.05 No Change in Condition. There shall have been no material
adverse
change in the
condition, financial
or otherwise, of any
of the Obligors since
the date of the most recent financial information that has been furnished to
Bank.
Section 3.06 UCC-1's and Lien Report. Borrower shall have provided
to Bank or it
shall have otherwise
obtained prior to the initial Advance, (i) acknowledgment
copies for all UCC-1s
duly filed under the Uniform Commercial Code in the
appropriate offices in
all jurisdictions
necessary or, in the opinion of Bank,
desirable to perfect the security interests created by the Security
Documents;
and (ii) a lien report
indicating
that Bank has a first
and prior lien on all
personal property of the Borrower and that no other Persons have
any Lien on any
of the Collateral.
Section 3.07
Insurance.
There shall be delivered to Bank certificates of
casualty and
liability insurance coverage for the Obligors and all of the
Collateral (if applicable), in amounts, with a company and
containing such terms
and conditions
in form and substance satisfactory to Bank in its sole
discretion. All such
policies shall include an agreement by the insurer that no
cancellation of coverage by such insurance policies shall be effective until
no
earlier than thirty (30) days after written notice of such proposed
cancellation
or change is given to Bank by the insurer.
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Section 3.08 Costs and Expenses. Obligors shall have paid all costs
and expenses
of Bank for which
Obligors are
responsible
pursuant to the terms
of the Loan
Documents.
Section 3.09
Miscellaneous
Matters. All legal details and proceedings in
connection with the
transactions
contemplated
by this Agreement and
all Loan
Documents delivered
to or held on behalf
of Bank pursuant
to this Agreement
shall be in form and substance reasonably satisfactory to Bank and to counsel
for Bank, and Bank shall have received all such other counterpart originals or
certified or other copies of such documents and proceedings in connection
with
such transactions,
in form and substance
reasonably
satisfactory to Bank
and
said counsel, as Bank or said counsel may reasonably request.
Section 3.10
Additional
Conditions
to Advances under the Revolving Note.
Advances to Borrower
under the Revolving Note shall be subject to the following
additional conditions and procedures:
(a)
Borrower shall
provide Bank with a request for an Advance. Provided
that such request has
been provided by 10:00
a.m., Bank will
make
Advances under
the Revolving Note available to Borrower in
immediately available
funds by crediting the
amount thereof to the
designated Borrower account with Bank on the same day.
(b)
The following
statements shall be
true and Bank shall have received
a certificate (the "Compliance Certificate") and accounts
receivable
aging report in form and substance acceptable to Bank and signed
by
Borrower and a duly
authorized Manager of
Borrower dated no
later
than the last day of the month preceding the month in which the
Advance is requested,
stating that (i) each of the representations
and warranties
contained in this
Agreement is correct on and as of
the date of such Compliance Certificate as though made on and
as of
such date; (ii) no
Default or Event of Default has occurred and is
continuing, or would
result from such Advance; (iii) there has been
no material adverse change in the financial condition of any of the
Obligors since
the date of the most
recent financial statements
delivered to Bank pursuant to the terms of this Agreement;
and (iv)
all of the covenants
and agreements of Obligors set forth
in this
Agreement and the
other Loan
Documents have been performed and
complied with.
(c)
Bank
shall have received, at Borrower's expense, such other
approvals, opinions or documents as Bank may reasonably
request.
(d)
The making of
such Advance by Bank shall be legally permissible by
the laws and regulations to which Bank is then subject, and
Borrower
shall have delivered
to Bank such
factual certificates or other
factual evidence
as Bank or its counsel may have reasonably
requested in order to establish compliance with this condition.
(e)
Obligors
shall have paid all
costs and expenses
of Bank for which
Obligors are
responsible
pursuant
to the terms of the Loan
Documents.
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Article IV.
REPRESENTATIONS AND
WARRANTIES.
Obligors jointly and severally
represent and warrant
to Bank, as of the date hereof and as of the date of each
subsequent Advance, as follows (each of which shall be deemed to be
a continuing
representation and warranty until such time as all Indebtedness
evidenced by the
Loan Documents
shall have been paid
in full and none of the Obligors has any
further liability to Bank):
Section 4.01 Organization and Qualification. The Borrower:
(a)
is a limited
liability company duly organized, validly existing and
in good standing under the laws of the Commonwealth of
Kentucky;
(b)
has the lawful power to engage in the business it presently
conducts; and
(c)
is duly
licensed or qualified and in good standing as a limited
liability company
in each jurisdiction where the nature of the
business
transacted by
Borrower
makes
such licensing or
qualification necessary.
Section 4.02
Power and Authority. Each of the Obligors have the power and
authority to enter
into and carry out the Loan Documents delivered by each in
connection herewith, to execute and deliver such Loan Documents,
and to perform
each of the
respective
obligations
under the Loan Documents. Each of the
Obligors has the
power and authority to make the borrowings or guaranty
contemplated hereby
and all such
actions have been fully authorized by all
necessary proceedings on the part of Obligors.
Section 4.03 Validity
and Binding Effect.
This Agreement and the other Loan
Documents have been
duly and validly
executed and delivered
by the Obligors.
This Agreement and the other Loan Documents constitute legal, valid and
binding
obligations of the
Obligors enforceable
in accordance
with their
respective
terms, except
as may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting creditors' remedies. No authorization,
approval, exemption
or consent
by any governmental or public body or other
authority is required in connection with the authorization,
execution,
delivery
and carrying out of the terms of the Loan Documents by any of the
Obligors.
Section 4.04 No
Conflict. Neither the execution and delivery of the Loan
Documents, the Obligors' consummation of the transactions
contemplated herein or
therein, nor
compliance with the
terms and provisions
hereof or thereof
will
conflict with or result in any default under or breach or violation
of the terms
and conditions of the
Articles of
Organization or the
Operating Agreement
of
Borrower; any state or
federal law or regulation or any order, writ, injunction
or decree of any court or governmental instrumentality applicable to any
of the
Obligors; or any agreement or instrument to which any of the
Obligors is a party
or to which any of the
Obligors is subject or which will constitute a default
thereunder or which
will result in the
creation or
enforcement
of any lien,
charge or encumbrance whatsoever upon any property of any of the
Obligors.
Section 4.05 Other Agreements. None of the Obligors is a party to
any indenture,
loan, or credit agreement, or to any lease or other agreement or
instrument, or
subject to any charter or company or corporate restriction which could have a
material adverse
effect on the
business, properties, assets, operations or
conditions, financial or otherwise, of Obligors or the ability
of
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Obligors to carry out their respective obligations under the Loan Documents to
which each is a
party. Obligors are not in default in any respect in the
performance,
observance, or
fulfillment
of any of the material
obligations,
covenants, or
conditions contained in any agreement or instrument to which
they
are a party.
Section 4.06
Litigation.
There
are no actions, suits, proceedings or
investigations pending
or threatened
against any of the
Obligors at law or in
equity before
any court or before any federal, state, municipal or any
governmental department, commission, board, agency or
instrumentality,
whether
or not covered by insurance, which, individually or in the
aggregate, may result
in any materially
adverse effect on the business, property or assets or the
condition, financial
or otherwise, of any
of the Obligors or impair any of the
Obligors' ability to perform their obligations under the Loan
Documents. None of
the Obligors are in violation of or in default with respect to any
order, writ,
injunction or any decree of any court or any federal, state, municipal or other
governmental
department, commission
or bureau, agency or instrumentality which
may result in any such materially adverse effect or impairment.
Section 4.07 No Liens
and Encumbrances
on Collateral. There are no security
interests, liens,
claims, or encumbrances upon or against the Collateral except
the Liens in favor of Bank granted herein. Assuming Bank receives all of the
Loan Documents which have been properly executed, duly authorized and properly
recorded, Bank shall
possess a valid and duly perfected first priority security
interest in the
Collateral. Further,
the Collateral is not and shall not be
subject to any other security interest or Lien of any kind
whatsoever
without
the prior written consent of Bank.
Section 4.08 Tax Returns and Taxes. Each Obligor has filed, in a
timely fashion
and will in the future
file in a timely
fashion, all tax returns or reports
(federal, state and
local) required to be filed and has paid, and will promptly
pay in the future, all
taxes, assessments,
fees and governmental
charges and
levies shown or required to be shown thereon to be due,
including interest and
penalties. No material additional assessments currently exist for
which adequate
reserves have not been established.
Section 4.09 General Validity. No representation or warranty by
any of Obligors
contained herein
or made by
Obligors or any other Person in any other Loan
Document contains
any untrue
statement of material fact or omits to state a
material fact
necessary in order to
make such
representation or
warranty not
misleading in light of the circumstances under which it was made. There are
no
facts which materially and adversely affect the business,
operations, affairs or
condition of any of
the Obligors
other than those facts
disclosed to Bank
in
writing prior to the time of closing or as set forth herein.
Section 4.10 Financial Statements; No Adverse Change. The financial
information
and other documents
of the Obligors previously furnished to Bank are true,
complete and accurate and are not misleading in any material
respect. There has
been no material adverse change in the business, operating or financial
condition of any of
the Obligors
since the date of the
most recent
financial
information that has been furnished to Bank. All financial
statements and
other
financial information
furnished to Bank
fairly and accurately
represent the
financial condition of the Obligors as of their respective dates in
all material
respects and have been prepared in
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accordance with GAAP. Obligors do not have any material
liabilities,
direct or
contingent, except as disclosed in their respective financial
statements.
Section 4.11
Operation of Business. Borrower has made application for or
otherwise possesses
all licenses, permits,
franchises,
patents, copyrights,
trademarks and trade
names, or rights thereto, to conduct their business
substantially as now conducted and as presently proposed to be
conducted.
Section 4.12
Regulations Q and U. Borrower has not engaged principally in the
business of extending
credit for the purpose of purchasing or carrying margin
stock (within
the meaning of
Regulation
Q of the Board of
Governors of the
Federal Reserve
System) and will not
use the proceeds of
the Loans to violate
Regulation U of the Board of Governors of the Federal Reserve
System.
Section 4.13 ADA
Compliance. To each
Obligor's knowledge, all real property
owned by Borrower
substantially complies
with applicable provisions of the
Americans With
Disabilities Act which would result in material liability if it
were found to be in non-compliance.
Section 4.14 Not an Investment Company. Borrower is not an "investment
company"
or a company
"controlled by an
investment company"
within the meaning of
the
Investment Company Act of 1940, as amended.
Section 4.15 Accuracy of Information. All factual information furnished
to Bank
by Obligors for purposes of, or in connection with, this Agreement or the
other
Loan Documents is true, complete and accurate in every
material respect on
the
date that such
information was provided to Bank and as of the date of
execution
and delivery of this Agreement to Bank.
Article V. AFFIRMATIVE COVENANTS.
Section 5.01 Affirmative Covenants Other Than Reporting
Requirements. So long as
the Borrower may borrow or make drawings under the Notes and until
payment in
full of the Notes
and all accrued but unpaid interest thereon or unless
otherwise consented to
in writing by Bank,
each of the Obligors hereby jointly
and severally covenants and agrees that they shall:
(a)
Preservation
of Company Existence, etc. If a limited liability
company, maintain its
existence as a limited liability company, and
its respective
licenses or qualifications and good standing in each
jurisdiction in which its ownership, use or lease of property or
the
nature of its business or both makes such licenses or
qualifications
necessary.
(b)
Payment of
Liabilities, Including Taxes, etc. Duly pay and discharge
all obligations
to which such Obligor is subject or which are
asserted against such
Obligor, promptly as
and when the same shall
become due
and payable, including all taxes, assessments and
governmental charges
levied upon such Obligor or any of the
properties, assets,
income or profits of such Obligor, prior to the
date
on which penalties
attach thereto,
except to the extent
that
such obligations, including taxes, assessments or charges, are
being
contested in good faith by
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appropriate
proceedings
diligently
conducted and for which such
reserves or other appropriate provisions, if any, have been made as
required by Bank.
(c)
Visitation
Rights; Audit.
Permit any of the
officers or authorized
employees or representatives of Bank to visit and inspect any of
the
properties of such
Obligor and to examine and audit and make
excerpts from the
books and records and discuss the affairs,
finances and accounts
of such Obligor with their Manager or agent,
all upon reasonable
notice from Bank and at such reasonable times
during normal
business hours and as often as Bank may
reasonably
request.
(d)
Keeping of
Records and Books of
Account. Maintain
and keep proper
books of record and
account in accordance
with GAAP applied on a
consistent basis and
in which full, true
and correct entries shall
be made of all of such Obligor's operations and business and
financial affairs,
except for variations
which in individually and
in the aggregate are not material.
(e)
Compliance with
Loan Documents, etc. Comply in all material respects
with the terms and
conditions of the Loan
Documents and all
other
related instruments
agreements to which
such Obligor is a party or
by which such Obligor
or any of such
Obligor's properties
may be
bound.
(f)
Operation of
Business. Maintain,
conduct and operate such Obligor's
business in substantially the same manner as it has been
heretofore
maintained, conducted and operated.
(g)
Insurance.
At such Borrower's
sole cost, maintain,
or cause to be
maintained, with
one or more reputable insurance companies
satisfactory to the
Bank (i) casualty
insurance on all personal
property in an amount
reasonably
satisfactory to the Bank covering
such risks (including
earthquake damage) as
is usually incurred on
personal property similar thereto; (ii) general liability
insurance
in an amount not less than $1,000,000.00 per accident or
occurrence
for personal injury and $1,000,000.00 per accident or occurrence
for
damage to property
naming the Bank as
additional
insured; (iii)
workers' compensation
insurance on all of
the Borrower's employees
with statutory coverage limits; and (iv) such other insurance as
may
be reasonably required
by the Bank from time to time. Bank shall be
provided with a certificate for all such insurance which shall
name
the Bank as loss payee, and which shall provide for at least 30
days
notice to Bank prior to any cancellation thereof. All such
insurance
shall be with financially sound and reputable insurance companies
or
associations,
reasonably acceptable to Bank and in such amounts and
covering such risks as are reasonably acceptable to Bank.
(h)
Further
Assurances. Upon
request by Bank, promptly cure any defects
in the creation,
issuance and delivery of the Notes and the
execution and delivery of the other Loan Documents, including this
Agreement. Obligors,
at their expense,
shall promptly execute
and
deliver to Bank, upon request, all such other and further
documents,
agreements and instruments reasonably required to ensure
compliance
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with or the
accomplishment
of the covenants and agreements of
Obligors in the Loan
Documents, including
this Agreement, or to
evidence further and
to describe more fully any Collateral or other
property intended
as security for the Notes or to correct any
omissions in
the Loan Documents, or to state more fully the
obligations set out in
this Agreement
or in any of the other
Loan
Documents, or to
perfect, protect or preserve any liens created
pursuant to any of the Loan Documents, or to make any recordings,
to
file any notices or to obtain any consents, all as may be necessary
or determined by Bank in good faith to be reasonably appropriate in
connection therewith.
(i)
No Agreement to
Waive, Etc.
Acknowledge that Bank has no obligation
to waive any rights,
grant any concessions
or extend financing
to
Obligors except to the
limited extent and subject to the terms,
contingencies,
exceptions,
limitations and
conditions
expressly
provided in this
Agreement,
and none of
Obligors shall make any
representation to the contrary to any person or entity.
(j)
Subordination
of Borrower's
Debt to Guarantor.
Agree that any and
all debts or
obligations of
Borrower to Guarantor, whether now
existing or
hereafter created, shall be, and hereby are, fully
subordinated as to
priority and payment to the Indebtedness of
Borrower to Bank.
(k)
Depository
Relationship.
Borrower
shall maintain all of its
depository accounts with the Bank.
(l)
Collateral
Maintenance. Keep and
preserve all Collateral pledged to
Bank in good working
order and condition
(ordinary wear and
tear,
insured casualty
damages or taking through the power of eminent
domain excepted)
including,
but not limited to,
maintaining
all
equipment according to any manufacturer's standards (including any
and all scheduled maintenance).
(m)
Maintenance of
Financial Covenants.
Maintain compliance with the
following covenants:
(i) Debt Service
Coverage Ratio.
Beginning on December
31, 2007,
the ratio of Borrower's (a) net income plus interest, income
taxes, depreciation,
and amortization expense, divided by (b)
the sum of its (i) annual interest expense and (ii) current
maturities (due within one year) of long term debt shall equal
or exceed 1.50:1 on December 31, 2007 and at all times
hereafter to the
extent any
Obligor is obligated to Bank
hereunder. This ratio
shall be tested quarterly as of the end
of each fiscal
quarter of Borrower
and based on
Borrower's
performance for the previous 12-month period.
(ii) Tangible
Net Worth.
Beginning on December 31, 2007, the
Borrower's tangible
net worth (net worth less intangible
assets) shall meet or exceed (a) $4,500,000 as of December 31,
2007, (b) $5,000,000 as of December 31,
2008, (c) $5,500,000
as of December 31, 2009, and (d) $6,000,000 as
12
<PAGE>
of December
31, 2010, and at all times thereafter to the
extent Borrower is obligated to Bank hereunder. This covenant
shall be tested quarterly as of the end of each fiscal quarter
of Borrower.
(iii) Debt to Tangible
Net Worth Ratio. Beginning on December
31,2007, the
ratio of Borrower's (a) total outstanding
liabilities minus its
debt to persons
other than Bank
which
has been subordinated
to Bank pursuant to a written agreement
acceptable to Bank in its sole discretion, to (b) tangible net
worth (net worth less intangible assets) plus Borrower's debt
to persons other than Bank which has been subordinated to Bank
pursuant to a written agreement acceptable to Bank in its sole
discretion, shall not exceed (a) 2.00:1, from December 31 2007
through December 30, 2008, (b) 1.75:1, from December 31, 2008
through December 30, 2009, (c) 1.50:1, from December 31, 2009
through December 30, 2010 and (d) 1.25:1, on December 31, 2010
and at all times thereafter to the extent Borrower is
obligated to Bank
hereunder.
This ratio shall be tested
quarterly as of the end of each fiscal quarter of Borrower.
Section 5.02 Reporting
Requirements.
Obligors covenant that, so long as the
Borrower may borrow or make drawings hereunder and until payment in
full of the
Notes and all accrued but unpaid interest thereon or unless
otherwise
consented
to in writing by Bank, they will furnish, or cause to be furnished,
to Bank the
following:
(a)
Borrower's
Interim
Financial
Statements
and Borrowing Base
Certificate and Quarterly Covenant Compliance Certificate.
Beginning
on December
31, 2006, within thirty (30) days after the end of
fiscal quarter of
Borrower, financial statements for Borrower,
including without
limitation a balance
sheet and income statement,
and a Compliance
Certificate as of the end of such fiscal quarter,
along with an accounts
receivable
aging report and an accounts
payable aging
report, all in reasonable detail and in form and
substance acceptable to Bank. In addition, at the end of each
fiscal
quarter, Borrower
shall include with the foregoing a Covenant
Compliance Certificate in form and substance acceptable to
Bank.
(b)
Annual
Financial Statements and Tax Returns for Borrower. On or
before 120 days
from the end of each
fiscal year, CPA reviewed
annual financial
statements
of Borrower
consisting
of a balance
sheet, statements
of profit and loss, application of funds and
change in financial
position and any other necessary or relevant
statements, prepared
and reviewed in
accordance
with GAAP and an
independent certified
public accountant of recognized standing
acceptable to the
Bank. On or before the
earlier of one hundred
twenty (120)
days from the end of each calendar year or within
thirty (30) days of filing, Borrower shall also provide Bank with
copies of such
Borrower's most recent
federal income tax returns
(with all schedules).
(c) Financial Statements and Tax Returns for
Guarantors.
On or before
120 days from the end of each calendar year, a financial statement
for Guarantor, for and
as of the calendar year just ended, in form
and substance reasonably acceptable to the
13
<PAGE>
Bank. On or before the earlier of one hundred twenty (120) days
from
the end of each
calendar year or within thirty (30) days of filing,
Guarantor shall also
provide Bank with copies of Guarantor's most
recent federal income tax returns (with all schedules).
(d)
Manager
Certification. With
the statements submitted under Sections
5.02(a) and 5.02(b)
above, a certificate signed by a Manager of
Borrower: (i)
stating that he is familiar with all documents
relating to Bank and
that no Event of
Default specified in this
Agreement, nor any
event which upon or lapse of time, or both would
constitute such an
Event of Default, has
occurred, or if any
such
condition or event existed or exists, specifying it and describing
what action such
Manager has taken or proposed to take with respect
thereto, and (ii)
setting forth, in
summary form, figures
showing
the financial
status of such
Borrower in respect of
the financial
restrictions contained in this Agreement.
(e)
Notice of
Litigation. Promptly after commencement thereof but in any
event within thirty (30) days after the service thereof, notice of
all actions, suits, and proceedings before any court or
governmental
department,
commission, board,
bureau, agency, or instrumentality,
domestic or foreign, affecting any Obligor.
(f)
Notice of
Changes in Corporate Documents. Within ten (10) days after
the completion of such change, notice of any change or amendment
to
the Articles of Organization or Operating Agreement of any
Obligor.
(g)
Notice of
Defaults and Events of Default. As soon as possible and in
any event within ten (10) days after the occurrence of each Event
of
Default, a written notice setting forth the details of such Event
of
Default and the action
which is proposed to
be taken with
respect
thereto.
(h)
Financial
Reporting Requirements. All financial statements of
Obligors submitted to
Bank pursuant to this
Agreement and utilized
for purposes of determining compliance with the financial
covenants
of Obligors
as set forth in this
Agreement shall be prepared in
accordance with
GAAP and shall fairly reflect the financial
condition of such Obligor.
(i)
General
Information. Such other information respecting the condition
or operations, financial or otherwise, of Obligors and each of
them,
as Bank may from time to time reasonably request.
Article VI. NEGATIVE COVENANTS. Obligors covenant that, so long as
the Borrower
may borrow or make drawings hereunder and until payment in full of
the Notes and
all accrued but unpaid
interest thereon or
unless otherwise
consented to in
writing by Bank, which
consent shall not be
unreasonably
withheld, Obligors
shall not permit or cause any of the following:
Section 6.01
Liens. Create, incur, assume or suffer to exist any
mortgage,
security interest,
lien or encumbrance
whatsoever on any of
the Collateral or
assign, transfer or
sell all or any part of the Collateral to any party other
than Bank, except:
(a)
Bank Liens.
Liens in favor of Bank;
14
<PAGE>
(b)
Tax Liens and
Contested Liens.
Liens for taxes or
assessments
or
other government charges or levies if not yet due and payable or,
if
due and payable,
if they are being contested in good faith by
appropriate proceedings diligently conducted;
(c)
Statutory
Liens.
Liens
imposed
by law, such as mechanics,
materialmen,
landlords,
warehousemen and
carrier Liens, and other
similar Liens,
securing obligations incurred in the ordinary course
of business which are
not past due or which are being contested in
good faith by appropriate proceedings diligently conducted and for
which appropriate reserve or other appropriate provisions, if any,
have been established as required by Bank; and
(d)
Ordinary
Course Liens.
Liens, deposits, or pledges to secure the
performance of
public or statutory obligations, surety, stay,
appeal, indemnity,
performance
or other similar
bonds, or other
similar obligations
arising in the ordinary course of business (but
not including any
purchase money
security interests of any kind,
which are not allowed without Bank's prior written consent).
Section 6.02 Liquidation or Merger or Sale of Assets. (a) Liquidate or merge or
consolidate with or
into any other Person or take any action in furtherance of
any thereof;
(b) permit
any other Person to consolidate with or merge into
Borrower; (c) sell,
convey, assign, lease
or otherwise transfer or dispose of,
in a single transaction or a series of related transactions,
a material part of
Borrower's assets
having a value in excess of $10,000.00; (d) change its name;
(e) effect any
material change in
Borrower's
capital structure or allow any
change in ownership of more than forty percent (40%) of Borrower's outstanding
membership interests
except for a transfer
in which the transferee is a member
of the Guarantor's
immediate family or an
entity of which he is the beneficial
owner, but in no case
shall any transfer
occur as a result of which Guarantor
shall own less than
fifty one percent (51%) of the Borrower's outstanding
membership interests
after any such
transfer; (f) sell, convey or otherwise
transfer any of the Collateral other than inventory in the ordinary
course of
business; or (g)
purchase all or a substantial part of the assets of any
other
Person.
Section 6.03
Guarantees. Guarantee,
endorse or otherwise
become surety for or
upon the obligation
of others, except in the ordinary course of business
consistent with prudent business practices or if such guarantee is
made in favor
of Bank.
Section 6.04 Lend. Lend any sum of money to any Affiliate or third
party.
Section 6.05 Dividends and Distributions. Without the prior written consent
of
Bank, declare or pay any dividends or other distributions. Notwithstanding the
foregoing, so long as
the Borrower is taxed as a partnership for federal income
tax purposes
and no Event of
Default exists and provided that no Event of
Default would be created by such distributions, distributions by Borrower are
permissible in any calendar year in an amount not in excess of the
lesser of (a)
the tax liability of the principals of the Borrower attributable to such
principal's
distributive share of
taxable income of
Borrower for the previous
calendar year and (b)
forty percent
(40%) of Borrower's net income for the
previous calendar year.
15
<PAGE>
Section 6.06
Transactions
with Affiliates. Borrower to (a) directly or
indirectly issue any
guarantee for the
benefit of any of its
Affiliates, (b)
directly or indirectly
make
