Reimbursement Contract

Exhibit 10.70

 

REIMBURSEMENT AGREEMENT

 

Between

 

PROVENA FOODS INC.

 

And

 

WELLS FARGO BANK, NATIONAL ASSOCIATION

 

Dated as of December 1, 2005

 

(Letter of Credit No. NZS558449 for $6,221,813.00)

REIMBURSEMENT AGREEMENT

 

REIMBURSEMENT AGREEMENT , dated as of December 1, 2005 (the “ Agreement ”) between PROVENA FOODS INC. (the “ Borrower ”) and WELLS FARGO BANK, NATIONAL ASSOCIATION (the “ Bank ”)

 

WHEREAS , pursuant to that certain Indenture of Trust dated as of December 1, 2003 between the Borrower and U. S. Bank National Association (the “ Trustee ”) (the “ Indenture ”), the Borrower has issued its Variable/Fixed Rate Demand Bonds Series 2003A (the “ Bonds ”) in the aggregate principal amount of $6,300,000.00; and

 

WHEREAS , as a condition precedent to the issuance of the Bonds, the Trustee required that the Borrower obtain and deliver to the Trustee, for the benefit of the holders of the Bonds, an irrevocable letter of credit to secure payment of the Bonds;

 

WHEREAS , at the time of the issuance of the Bonds, Comerica Bank issued such irrevocable letter of credit (“ Comerica LC ”);

 

WHEREAS , the Borrower has requested that the Bank issue an irrevocable direct-pay letter of credit to the Trustee, in replacement of the Comerica LC, substantially in the form attached hereto as Exhibit A (the “ Letter of Credit ”), and the Bank has agreed to issue such Letter of Credit upon and subject to the terms and conditions hereinafter set forth.

 

NOW, THEREFORE , in consideration of the foregoing recitals and the covenants contained herein, and in order to induce the Bank to issue the Letter of Credit, the Borrower and the Bank hereby agree as follows. (Capitalized terms used herein and not otherwise defined have the meaning set forth in Section 17 hereof.)

 

SECTION 1. TERMS AND AMOUNT OF LETTER OF CREDIT .

 

The Bank hereby agrees, on the terms and subject to the conditions set forth in this Agreement, to issue its irrevocable direct-pay Letter of Credit for the account of the Borrower in favor of the Trustee in an initial amount not to exceed the Stated Amount, which amount approximates the aggregate principal amount of the Bonds plus forty-five (45) days’ interest calculated at ten percent (10%), based on the actual number of days elapsed in a year of 365 days. The Letter of Credit shall be issued on the date on which the Bank, in its sole discretion, shall determine that all of the conditions precedent set forth in Section 4 of this Agreement shall have been satisfied, and shall expire on the Expiration Date. Notwithstanding anything herein to the contrary, this Agreement shall not expire or be otherwise terminated until such time as all payment obligations to the Bank due or to become due hereunder have been paid.

 

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SECTION 2. REIMBURSEMENT AND OTHER PAYMENTS .

 

(a) Reimbursement Obligations . Except as provided in Section 2(b) hereof, the Borrower agrees to pay to the Bank (i) on the day that the Bank pays a Drawing made by the Trustee under the Letter of Credit, all amounts paid by the Bank pursuant to the Letter of Credit to or on behalf of the Borrower in respect of such Drawing; and (ii) interest on any and all amounts unpaid by the Borrower when due under this Agreement from the date such amounts become payable until payment in full (collectively, the “ Reimbursement Obligations ”). Except as provided in Section 2(b) hereof, interest shall accrue on unpaid Reimbursement Obligations at a rate per annum equal to the Default Rate.

 

(b) Tender Reimbursement Obligations .

 

(i) Each Tender Drawing paid by the Bank under the Letter of Credit shall constitute a Tender Reimbursement Obligation which obligation shall be due and payable by the Borrower as set forth below. The Trustee shall use the proceeds of Tender Drawings only for the purpose of purchasing Bonds tendered or deemed tendered for purchase pursuant to Article 3.01 of the Indenture.

 

(ii) Upon receiving, or receiving notification of, any Tender Drawing, the Bank shall notify the Borrower of such Tender Drawing and the amount of the Tender Drawing. The amount of any Tender Drawing shall be due and payable within five (5) days of the date the Tender Drawing is paid by the Bank (the “ Tender Drawing Date ”), unless within said five (5) day period the Borrower shall execute and deliver to the Bank a Notice of Intent to Borrow in the form attached hereto as Exhibit B . Interest shall accrue at the Default Rate on all Tender Drawing amounts from the Tender Drawing Date to the date such Tender Drawing is reimbursed in full, unless a Notice of Intent to Borrow with respect to that Tender Drawing is returned within five (5) days of the Tender Drawing Date, in which case interest shall accrue from the Tender Drawing Date at the Tender Drawing Rate; provided , however, that Borrower shall have the option to reimburse a portion of the Tender Drawing amount, in which case Borrower shall, within the applicable five (5) day period, pay to the Bank the amount of the reimbursed portion of the Tender Drawing, together with any accrued interest on said amount calculated from the Tender Drawing Date at the Tender Drawing Rate, and deliver the Notice of Intent to Borrow to the Bank specifying the amount of the Tender Drawing which is reimbursed and unreimbursed.

 

(iii) The Borrower agrees to pay to the Bank, within five (5) Business Days after the Tender Drawing Date, the amount of any Tender Drawing with respect to which Borrower has executed and returned a Notice of Intent to Borrow in accordance with the preceding subsection (ii). The unreimbursed amount of any such Tender Drawing shall bear interest at the Tender Drawing Rate from the Tender Drawing Date of such Tender Drawing until the date that payment of the principal amount of the Tender Drawing becomes due hereunder

 

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and at the Default Rate thereafter. Interest due on such amounts shall be paid to the Bank on the last day of each month commencing with the month on which last day occurs at least ten (10) calendar days after the Tender Drawing Date, and on the date that reimbursement of the principal amount of such Tender Drawing is due and payable. Borrower shall submit to the Bank, together with every payment of Tender Drawing amounts and interest due thereon under this Section 2, a statement specifying the amounts paid, the principal and interest portions of such payments, and the basis upon which Borrower calculated such amounts.

 

(iv) The Borrower may, upon at least one (1) Business Day’s notice to the Bank, prepay the outstanding amount of any Tender Reimbursement Obligation in whole or in part (but not in sums less than $10,000.00 per prepayment), together with accrued interest at the Tender Drawing Rate from the Tender Drawing Date related to such Tender Reimbursement Obligation to the date of such prepayment on the amount prepaid; provided, however , that prepayments shall be credited first to interest due and owing on any Reimbursement Obligations outstanding hereunder other than Tender Reimbursement Obligations, then to interest due and owing on any Tender Reimbursement Obligations, and finally to principal due and owing on any Tender Reimbursement Obligations, applied in the order in which Drawings connected therewith were paid by the Bank; provided , further , that the proceeds paid to the Bank from any redemption of Bank Bonds pursuant to the Indenture or from any remarketing of Bank Bonds pursuant to Section 3.02 of the Indenture will be credited toward the Tender Reimbursement Obligations of the Borrower, applied in the order in which Drawings connected therewith were paid by the Bank.

 

(v) All proceeds of the sale by the Remarketing Agent (as provided in Section 3.02 of the Indenture) of Bank Bonds, shall be remitted by the Tender Agent to the Bank to prepay any then outstanding Tender Reimbursement Obligations, applied in the order in which the Drawings connected therewith were paid by the Bank.

 

(vi) The Trustee shall deliver all Bonds purchased with the proceeds of a Tender Drawing to the Bank (or its designated nominee) and shall register the Bank (or its designated nominee) as owner of such Bonds in its registration books, which Bonds shall evidence the corresponding Tender Reimbursement Obligation. Such Bonds shall be deemed Bank Bonds and shall be entitled to all of the rights and privileges of and shall be governed by all of the terms and conditions of the Bonds and the Indenture; provided , however , that:

 

a.

such Bonds shall be redeemed or purchased and all principal and interest owing thereon shall be payable to the Bank;

 

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b.

if the Bank receives reimbursement in full of amounts paid by the Bank with respect to any Tender Drawing by 5:00 p.m. (San Francisco time) on the Tender Drawing Date of such Tender Drawing, no interest shall be payable by the Borrower with respect thereto;

 

c.

such Bonds may not be tendered for purchase pursuant to Section 3.01 of the Indenture;

 

d.

such Bonds shall not be entitled to payment of any premium upon redemption.

 

(c) Initial Fee . The Borrower shall pay to the Bank an initial fee upon the issuance of the Letter of Credit as set forth in the Credit Agreement.

 

(d) Continuing Letter of Credit Fees . The Borrower agrees to pay to the Bank continuing nonrefundable letter of credit fees (the “ Continuing Fees ”) in an amount equal to one and one-half of one percent (1.5%) per annum of the Stated Amount less the amounts drawn under the Letter of Credit which are not reinstated. Said fees shall be payable in advance on a monthly basis, on the first day of each month. In addition, the Borrower shall pay to Bank upon the amendment or transfer of the Letter of Credit and upon the negotiation of each draft presented under the Letter of Credit, fees and charges determined by Bank in accordance with Bank’s standard fees and charges in effect at the time the Letter of Credit is amended or transferred or any draft is paid.

 

(e) Computation of Interest and Fees . Interest and Letter of Credit Fees payable hereunder (including interest at the Default Rate and the Tender Drawing Rate) shall be computed on the basis of the actual number of days elapsed in a year of 360 days.

 

(f) Payment of Amounts Due From Borrower . The Borrower agrees to pay, in lawful currency of the United States and in immediately available funds, all amounts due the Bank under this Agreement directly to the Bank at its address listed on the signature page hereof until such time as the Borrower is notified in writing by the Bank of a different address.

 

(g) Method of Payment of Amounts Due . Bank shall, and Borrower hereby authorizes Bank to, debit any demand deposit account of Borrower with Bank designated by Borrower in writing, or if no such account is designated by Borrower, any demand deposit account of Borrower with Bank as Bank shall determine in its sole discretion, for all payments of principal, interest, fees and other payments payable under this Agreement, as they become due. Should, for any reason whatsoever, the good funds in any such demand deposit account be insufficient to pay all such sums when due, Borrower shall immediately upon demand remit to Bank the full amount of any such delinquency.

 

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(h) Payments to be made on a Business Day . If any amount payable hereunder shall fall due on a day that is not a Business Day, then such due date shall be extended to the next succeeding Business Day, and interest at the rates provided herein shall continue to accrue during such extension. Nothing contained in this Agreement shall be deemed to establish or require the payment of a rate of interest in excess of the maximum rate permitted by applicable law.

 

SECTION 3. AMORTIZATION PAYMENTS; INTEREST PAYMENTS; SECURITY INTEREST IN COLLATERAL; OPTIONAL REDEMPTION OF BONDS

 

Scheduled Redemptions of Bonds . The Borrower agrees to redeem portions of the Bonds (the “ Scheduled Redemptions ”) annually on the Interest Payment Date (as defined in the Indenture) for January of each year (each a “ Scheduled Redemption Date ”), and continuing through the earlier to occur of (x) the date that all amounts due under the Reimbursement Agreement shall have been paid in full, or (y) the Expiration Date. The principal amount of each Scheduled Redemption shall be in an amount equal to the largest integral multiple of the Authorized Denomination (as defined in the Indenture) for the Bonds that can be paid with the amounts required to be deposited with the Bank during the twelve months prior to the applicable January Interest Payment Date under this Section 8.1 :

 

 

Scheduled Redemptions shall be effected by A Drawings and B Drawings under the Letter of Credit. Borrower shall provide the Trustee with sixty (60) days prior written notice of any optional redemption of the Bonds to be made in connection with the Scheduled Redemptions, and shall provide Bank a copy of any such notice concurrently therewith. The amounts required to reimburse the Bank for the draws on the Letter of

 

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Credit made in order to accomplish such Scheduled Redemptions shall be deposited into the Reimbursement Account (defined below) on a quarterly basis as set forth in the table above on the first day of each quarter (with each such payment hereafter referred to as a “ Redemption Payment ”).

 

(a) Deposit of Interest Payment Amounts . Borrower shall also deposit into the Reimbursement Account, at least 10 Business Days prior to each Interest Payment Date (as defined in the Indenture), an amount sufficient (the “ Interest Payment Amount ”) to reimburse Bank for the F Drawing (and, to the extent applicable, the A Drawing) which shall be made by the Trustee on such Interest Payment Date.

 

(b) Reimbursement Account For Payments . Borrower shall maintain with Bank, and Borrower hereby grants to Bank a security interest in, an interest bearing deposit account over which Borrower shall have no control (the “ Reimbursement Account ”) and into which Borrower shall deposit the Redemption Payments and the Interest Payment Amounts. Bank shall, and Borrower hereby authorizes Bank to, debit the Reimbursement Account on each Redemption Payment Date and on each Interest Payment Date to fund the A Drawing or the B Drawing pursuant to which the Scheduled Redemption was effected or the F Drawing pursuant to which the interest payment was made.

 

(c) Collateral . The Borrower grants to the Bank as security for the performance by Borrower of its obligations hereunder, a first priority lien on all real property and improvements constituting the Project (the “ Real Property ”), and a first priority security interest in all personal property, fixtures, machinery and equipment now owned or hereafter acquired by Borrower, located in or on, related to, or to be used in connection with the Project, the Reimbursement Account, all funds maintained pursuant to the Indenture (the “ Bond Funds ”) and the Pledged Bonds (as defined in the Indenture) and all proceeds of the foregoing (collectively, the “ Collateral ”). Borrower hereby represents and warrants to the Bank that (i) the Real Property and the Collateral are free and clear of liens and encumbrances and shall continue to remain free and clear of liens and encumbrances until such time as all amounts due under this Agreement have been paid in full, and (ii) the Collateral is free and clear of liens and encumbrances and shall continue to remain free and clear of liens and encumbrances until such time as all amounts due under this Agreement have been paid in full.

 

(d) Perfection of Security Interest . Borrower agrees to take any and all action and to execute any and all documents as the Bank, in its sole discretion, may deem necessary or desirable in order to perfect a first priority lien and security interest in the Real Property and Collateral in favor of the Bank as referenced in Section 3(e) hereof.

 

(e) Optional Redemptions of Bonds . Any optional redemption of the Bonds, other than the Scheduled Redemptions, shall require prior written consent of Bank, as well as receipt by Bank of satisfactory evidence of Borrower’s ability to reimburse Bank for any drawing under the Letter of Credit for such redemption.

 

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SECTION 4. ISSUANCE OF THE LETTER OF CREDIT .

 

(a) Agreement of the Bank . Subject to the terms and conditions of this Agreement, on the Date of Issuance and subject to satisfaction of the conditions set forth in Subparagraph (b) below, the Bank shall issue the Letter of Credit in the Stated Amount effective on the Date of Issuance.

 

(b) Conditions Precedent to Issuance of the Letter of Credit . The obligation of the Bank to issue the Letter of Credit is subject to the following conditions precedent:

 

(i) The Bank shall have received on or before the Date of Issuance the following, each dated such date and in such form and substance as is satisfactory to the Bank and its counsel:

 

(A) A Deed of Trust with Assignment of Rents, in form and substance satisfactory to the Bank, duly executed and acknowledged by Borrower, constituting a first priority lien on the Real Property (the “ Deed of Trust ”);

 

(B) A Security Agreement: Equipment and Fixtures, in form and substance satisfactory to Bank, duly executed by Borrower, granting to Bank a first priority security interest in the Collateral located on the Real Property or related thereto (the “ Security Agreement: Equipment and Fixtures ”);

 

(C) Executed copies of security agreements granting to the Bank a security interest in the Reimbursement Account as security for Borrower’s obligations hereunder (collectively the “ Security Agreement ”);

 

(D) Executed copies of a general pledge agreement granting to the Bank a security interest in the Pledged Bonds and Bond Funds as security for Borrower’s obligations hereunder (the “ Pledge Agreement ”);

 

(E) Acknowledgment copies of proper UCC-1 Financing Statements duly filed in the office of the Secretary of State of the State of California, in the Office of the County Recorder of San Joaquin County, State of California, and in all other jurisdictions as may be necessary or, in the opinion of the Bank, desirable to perfect the security interests in favor of the Bank created by the security agreements referenced hereinabove;

 

(F) Certified copies of Requests for Information (Form UCC-3 or equivalent reports) listing the Financing Statements referred to in paragraph (C) above and all other effective financing statements which name the Borrower (under its present name and any previous name) as debtor and which are filed in the jurisdictions referred to in said paragraph (C), together with copies of such other financing statements (none of

 

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which shall cover the collateral purported to be covered by the Security Agreements described in B and C above);

 

(G) Evidence that all other actions necessary or, in the opinion of the Bank, desirable to perfect and protect the security interests and liens created by the Deed of Trust and the Security Agreement: Equipment and Fixtures have been taken;

 

(H) An ALTA policy of title insurance, in an amount not less than the Stated Amount issued by a title insurance company acceptable to Bank and its legal counsel, naming Bank as an insured lender, containing such endorsements as Bank or its legal counsel may request, including, without limitation, endorsement numbers 100, 116 and such other endorsements requested by Bank in its sole discretion, and insuring Bank against any liens, encumbrances and exceptions, except only those exceptions Bank has approved in writing;

 

(I) Evidence of all insurance required to be maintained by the terms of the Deed of Trust;

 

(J) An opinion of Kutak Rock LLP, Bond Counsel, dated the Date of Issuance and addressed to the Bank, which opinions shall be satisfactory to the Bank and its counsel in form and substance;

 

(K) Executed copies of this Agreement;

 

(L)Review and approval by Bank and its legal counsel of such leases, regulatory agreements, and other contracts and agreements as are designated by Bank;

 

(M)Review and approval of a Phase I Environmental Site Assessment;

 

(N) Review and approval of current financial statements and credit reports for Borrower (collectively, the “ Borrower Financial Statements ”);

 

(O) An appraisal of the real property legally described in the Deed of Trust performed by an appraiser acceptable to Bank;

 

(P) Evidence that the Comerica LC has been returned by the Trustee or has otherwise been terminated;

 

(Q) Issuance of a rating letter, rating the Bonds at a level acceptable tot he Bank in its sole discretion; and

 

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(R) Such other documents, instruments, approvals (and, if requested by Bank, certified duplicates of executed copies thereof) or opinions, including, without limitation, opinions of Borrower’s legal counsel, as Bank may reasonably request.

 

(ii) The following statements shall be true and correct on the Date of Issuance as they pertain to the Borrower, and the Bank shall have received a certificate signed by Borrower dated the Date of Issuance stating that:

 

(A) The representations and warranties contained in Section 7 of this Agreement or in any instrument delivered pursuant to or in connection with this Agreement are correct on and as of the Date of Issuance (and after giving effect to the issuance of the Letter of Credit) as though made on and as of such date;

 

(B) No Default or Event of Default has occurred and is continuing, or would result from the issuance of the Letter of Credit;

 

(C) No material adverse change has occurred in the operations or condition (financial or otherwise) of Borrower since the date of the most recent Borrower Financial Statements, except as disclosed in writing to the Bank, or would result from the issuance of the Letter of Credit; and

 

(D) All conditions precedent to the issuance of the Bonds to be performed by the Borrower shall have been satisfied.

 

(iii) On or prior to the Date of Issuance, the Bank shall have received reimbursement of Bank’s fees and expenses (including, without limitation, allocated in-house counsel fees) incurred in connection with this Agreement and the Letter of Credit.

 

(c) Other Obligations of Borrower . As soon as possible following the Date of Issuance, Borrower shall insure that a complete transcript of proceedings relating to the issuance of the Bonds is delivered to Bank.

 

SECTION 5. OBLIGATIONS ABSOLUTE .

 

Except as hereinafter provided, the obligations of the Borrower under this Agreement shall be absolute, unconditional and irrevocable and shall be paid and performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including, without limitation, the following circumstances:

 

(a) any lack of validity or enforceability of the Letter of Credit or any of the Related Documents, except if such lack of validity or enforceability shall be the result of any action or omission of the Bank;

 

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(b) any amendment or waiver of, or any consent to, this Agreement or any Related Documents;

 

(c) the existence of any claim, set-off, defense or other rights which the Borrower may have at any time against the Trustee, any beneficiary, or any transferee of the Letter of Credit (or any Person for whom the Trustee, any such beneficiary, or any such transferee may be acting), the Bank or any other Person, whether in connection with this Agreement, the Related Documents or any unrelated transaction; provided, however, that nothing in this Section 5 shall prevent the assertion of any such claim by separate suit or counterclaim;

 

(d) any statement in any certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever;

 

(e) payment by the Bank under the Letter of Credit against presentation of a draft or certificate which does not comply with the terms of the Letter of Credit except if such payment constitutes the gross negligence or willful misconduct of the Bank or such draft or certificate does not substantially comply with the requirements of the Letter of Credit under which it is presented;

 

(f) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, which results from the Bank’s gross negligence or willful misconduct;

 

(g) any delay, extension of time, renewal, compromise or other indulgence agreed to by the Bank without notice to, or approval of, the Borrower in respect to any of the Borrower’s indebtedness to the Bank under this Agreement;

 

(h) any failure to complete the Project; or

 

(i) any exchange, release or nonperfection of any lien or security interest in any collateral pledged or otherwise provided to secure any of the obligations contemplated herein or in any of the other Related Documents.

 

SECTION 6. REPRESENTATIONS AND WARRANTIES .

 

The Borrower represents and warrants as follows:

 

(a) Legal Status . Borrower is a corporation validly existing and in good standing under the laws of the State of California, and is qualified or licensed to do business in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower.

 

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(b) Business Operations . The Borrower has all powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted.

 

(c) Power and Authority . The execution, delivery and performance by the Borrower of this Agreement and the Related Documents to which it is a party are within the Borrower’s powers, have been duly authorized by all necessary action, do not contravene or constitute a default under any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree or contractual restriction binding on the Borrower or its property, and do not result in or require the creation or imposition of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties, except as contemplated by such Related Documents.

 

(d) Approvals . No further approval, authorization, consent, order, notice to or filing or registration with any governmental authority or any public board or body (other than in connection or in compliance with the provisions of the securities or “ blue sky ” laws of any jurisdiction which were not required on or prior to the Date of Issuance) is legally required with respect to the Borrower’s participation in the issuance of the Bonds and the entering into performance by the Borrower of this Agreement and the Related Documents to which it is a party.

 

(e) Enforceability . This Agreement and the Related Documents to which the Borrower is a party have been or will be duly executed and delivered and are, or upon execution will be, the valid and legally binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws or equitable principles relating to, or limiting, creditors’ rights generally or the availability of equitable remedies.

 

(f) Disclosure of Information . The statements and information contained in the official statement issued in connection with the issuance of the Letter of Credit which relate to the Borrower and/or the Project, and which relate to information provided by the Borrower in connection with the issuance of the Letter of Credit are, and at the Date of Issuance will continue to be, true, correct and complete in all material respects and as to such statements, do not, and at the Date of Issuance will not, omit any statement or information necessary to make the statements and information therein, in the light of the circumstances under which they were made, not misleading in any material respect.

 

(g) Financial Statements . The financial statements of the Borrower, copies of which have been delivered to the Bank, fairly present the financial position of the Borrower as of the date thereof and the results of operations and changes in financial position for the periods indicated. Since the date of the most recent financial statements, there have been no material adverse change in the condition or operations of the Borrower not disclosed in such information, and no event has occurred which materially adversely affects or is likely to affect the business, operations, assets or condition (financial or otherwise) of the Borrower.

 

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(h ) Litigation . Except as disclosed to the Bank in the Credit Agreement, there are no actions, suits or proceedings, including, without limitation, proceedings before any governmental commission, board, bureau or other administrative agency, pending, or, to the knowledge of the Borrower, threatened against or affecting the Borrower which will (to the extent not covered by insurance) in the opinion of the Borrower have a material adverse effect on the Project, the business, the financial condition, or the results of operations of the Borrower or which in any manner questions the validity of this Agreement or any of the Related Documents to which the Borrower is a party.

 

(i) Filing of Tax Returns . The Borrower has filed all United States federal income tax returns, State tax returns and all other material tax returns which are required to be filed by it and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower, except for those which the Borrower is diligently contesting in good faith and with respect to which adequate provision has been made. The charges, accruals and reserves on the books of the Borrower, as determined by the Borrower or an independent certified accountant or firm of accountants, as applicable, in respect of taxes or other governmental charges are adequate in the opinion of the Borrower or such independent certified accountant or firm of accountants, as applicable. The Borrower will promptly notify the Bank of any taxes or assessments that the Borrower is contesting.

 

(j) Government Regulations . The Borrower is not subject to regulation under the Investment Company Act of 1940, the Federal Power Act, the Public Utility Holding Company Act of 1935, or any federal or state statute or regulation limiting its ability to incur indebtedness for money borrowed.

 

(k) Securities Activities . The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin stock (as defined within Regulations G, T and U of the Board of Governors of the Federal Reserve System).

 

(l) Related Documents . The Borrower makes the representations and warranties made by it in the Related Documents to and for the benefit of the Bank as if the same were set forth at length in this Agreement.

 

(m) Changes in Law . To the best of the Borrower’s knowledge, there is not pending any change of law which, if enacted or adopted, could have a material adverse effect on the Borrower’s ability to perform its obligations under the Related Documents.

 

(n) Environmental Matters . The Project does not contain or incorporate and is not threatened with contamination from Hazardous Materials (hereinafter defined). The Project will not be used and has never been used in connection with the handling, storage, or disposal of Hazardous Materials. There have been no releases and there are no threatened releases of Hazardous Materials on, onto, from, or under the Project. For purposes of this Agreement, the terms “ disposal ,” “ release ,” and “ threatened

 

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release ” shall have the definitions assigned thereto by the Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. Section 9601 et seq. , as amended. “ Hazardous Materials ” means any asbestos, PCB’S, ureaformaldehyde, flammable explosives, chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, radioactive materials, or materials defined under Federal or California laws and regulations as “ hazardous substances ,” “ hazardous materials ,” or “ toxic substances ”, including, without limitation, any substances defined as or included in the definition of “ hazardous substances ”, “ hazardous materials ”, or “ toxic substances ” in the comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.; and those substances defined as “ hazardous wastes ” or “ hazardous substances ” in the California Health & Safety Code; and in the regulations adopted, published and/or promulgated pursuant to said laws. To the best of Borrower’s knowledge, all past and current uses of the Project comply with all federal, state, and local laws regulating Hazardous Materials, owners of the Project have never received notice of a violation of any federal, state, or local law regulating Hazardous Materials applicable to the Project, and no actions have been commenced or threatened for non-compliance with such laws. The Borrower is not required by any law regulating Hazardous Materials to obtain any permit or license to use the Project. The Project does not contain and has never contained an underground storage tank (including, without limitation, a tank for which a permit to operate was obtained under the Underground Storage of Hazardous Substances Act). No event has occurred which requires or required any owner of the Project to give any public entity notice of any spill, release, threatened release, disposal, or existence of Hazardous Materials on the Project. There has been no litigation brought or threatened against any owner of the Project nor have any settlements been reached by or with any party or parties alleging the presence, disposal, release, or threatened release of any Hazardous Materials on, onto, from, or under the Project.

 

(o) No Breach . The consummation of the transactions contemplated hereby and the execution, delivery and performance of this Agreement and the other Related Documents by the Borrower will not violate or constitute or result in a material breach of or a default under any mortgage, deed of trust, lease, loan or security agreement, corporate charter, articles, or bylaws, as applicable, or any other instrument to which the Borrower is a party or by which it may be bound or affected.

 

(p) Americans With Disabilities Act Compliance . The Project has been designed and shall be constructed and completed, and thereafter maintained, in strict accordance and full compliance with all of the requirements of the Americans With Disabilities Act of July 26, 1990, Pub. L. No. 101-336, 104 Stat. 327, 42 U.S.C. 12101, et. seq., as amended from time to time (“ ADA ”). Borrower shall be responsible for all ADA compliance costs.

 

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SECTION 7. COVENANTS OF THE BORROWER .

 

So long as the Expiration Date has not occurred or any amount is due or owing to the Bank hereunder, the Borrower agrees that it will comply with the following covenants:

 

(a) Reporting Requirements . The Borrower will deliver to the Bank the financial statements and other reports as set forth in the Credit Agreement and such other information as the Bank may reasonably request.

 

(b) Consolidations, Mergers, Sales of Assets . The Borrower will not dispose of all or substantially all of its assets and not combine or consolidate with or merge into any other entity, or sell, lease or otherwise transfer all or any substantial part of its assets to any entity, without the prior written consent of the Bank. It is hereby expressly agreed that any disposition of the Project in violation of this subparagraph (b) shall be deemed an Event of Default hereunder and shall be ineffective to relieve the Borrower of its obligations under this Agreement. Nothing in this subparagraph (b) shall affect any provision of the Related Documents to which the Borrower is a party which require the consent of the Bank or the Trustee as a precondition to the disposition of the Project.

 

(c) Maintenance of Property; Insurance . The Borrower will keep all property useful and necessary in its business in reasonably good working order and condition and will maintain, with financially sound and reputable insurance companies, insurance on all its property of the types, in the amounts and against such risks as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business, including but not limited to fire, extended coverage, public liability, property damage, and worker’s compensation, and will deliver to Bank from time to time at Bank’s request schedules setting forth all insurance then in effect.

 

(d) [Intentionally Omitted] .

 

(e) Conduct of Business and Maintenance of Existence . The Borrower will preserve, renew and keep in full force and effect all rights, privileges, contracts and leases necessary or desirable for the normal conduct of Borrower’s business. The Borrower will also continue to conduct its business in an orderly manner without voluntary interruption and remain qualified to do business in the State and in each other jurisdiction where such qualification is required.

 

(f) Compliance with Laws . The Borrower will comply, in all material respects, with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities except where the necessity of compliance therewith is contested in good faith by appropriate proceedings; provided, however, that the foregoing shall not require compliance with any such law, ordinance, rule, regulation and/or requirement so long as failure to comply shall not have a material adverse effect

 

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on the condition of the Borrower and its ability to perform its obligations under this Agreement and the Related Documents.

 

(g) Inspection of Property, Books and Records . The Borrower will keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities. The Borrower will permit representatives of the Bank at reasonable times and intervals upon prior written notice to visit and inspect any of Borrower’s properties, books and records, to examine and make copies of any books and records (subject to proprietary and confidentiality policies and agreements binding upon the Borrower), and to discuss its affairs, finances and accounts with his employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired.

 

(h) Notices . The Borrower will promptly give signed written notice to the Bank of the occurrence of any Default or Event of Default at the earliest possible date after discovery of such Default or Event of Default, but in any event no later than three (3) Business Days following discovery of a Default or Event of Default relating to payment obligations of Borrower and five (5) Business Days following discovery of any other Default or Event of Default, setting forth the details of, and the actions which the Borrower proposes to take with respect to, such Default or Event of Default. The Borrower will also promptly give notice to the Bank of any pending or threatened action, suit or proceeding with a claim against Borrower in excess of $100,000.00.

 

(i) Related Documents . The Borrower will comply with the terms and covenants of the Related Documents to which it is a party. The Borrower will not amend, modify or terminate or agree to amend, modify or terminate any Related Documents.

 

(j) Taxes and Other Liabilities . Borrower shall pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real and personal and including federal and state income taxes, except such as the Borrower may in good faith contest or as to which a bona fide dispute may arise, provided provision is made to the satisfaction of the Bank for eventual payment thereof in the event that it is found that the same is an obligation of the Borrower.

 

(k) Other Indebtedness . Regarding the Project, the Borrower shall not create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except the liabilities of the Borrower to the Bank and any other liabilities of the Borrower existing as of, and disclosed to Bank in writing prior to, the date hereof, and indebtedness subordinated to Borrower’s obligations to Bank pursuant to a subordination agreement(s) in form and content acceptable to Bank.

 

(l) Guaranties . The Borrower shall not guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or

 

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collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of the Borrower as security for, any liabilities or obligations of any person or entity, except in favor of Bank.

 

(m) Loans, Advances, Investments . The Borrower shall not make any loans or advances to, or investments in, any person or entity, except as disclosed to the Bank in writing prior to the date hereof and approved by Bank.

 

(n) Pledge of Assets . The Borrower shall not mortgage, pledge, grant or permit to exist a security interest in, or a lien upon, any of its assets now owned or hereafter acquired which are part of, or relate to, the Project, except any of the foregoing in favor of the Bank.

 

SECTION 8. EVENTS OF DEFAULT .

 

The occurrence of any of the following events shall constitute an Event of Default under this Agreement (each herein referred to as an “ Event of Default ”):

 

(a) Misrepresentation . Any representation or warranty made by the Borrower herein or in any certificate, financial or other statement furnished by the Borrower pursuant to this Agreement shall prove to have been untrue or incomplete in any material respect when made;

 

(b) Required Payments . The Borrower shall fail to pay to Bank or deposit with Bank any amount specified in this Agreement when due to be paid or deposited;

 

(c) Other Covenants . The Borrower shall fail to perform or observe any other material term, covenant or agreement on its part to be performed or observed hereunder (other than as specified in (b) above) and any such failure shall remain unremedied for a period of twenty (20) calendar days.

 

(d) Invalidity . Any material provision of this Agreement or any Related Document shall at any time for any reason cease to be in full force and effect or valid and binding on the Borrower, or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by the Borrower or the Borrower shall deny that it has any further liability or obligation under this Agreement, and such event shall have, or be likely to have, a material adverse effect on the condition of the Borrower and its ability to perform its obligations under this Agreement or the Related Documents;

 

(e) Voluntary Insolvency . The Borrower shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian or the like of itself or of its property, (ii) admit in writing its inability to pay its debts generally as they become due, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent, or (v) commence a voluntary case under the federal bankruptcy laws of the United States of America or file a voluntary petition or answer seeking reorganization, an arrangement with creditors, or an order for relief, or seeking to take advantage of any insolvency law, or file an answer admitting the material allegations of

 

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a petition filed against it in any bankruptcy, reorganization or insolvency proceeding; or corporate action shall be taken by it for the purpose of effecting any of the foregoing;

 

(f) Involuntary Insolvency . If without the application, approval or consent of the Borrower, an involuntary case or other proceeding shall be instituted in any court of competent jurisdiction under any law relating to bankruptcy, insolvency, reorganization, or relief of debtors seeking, in respect of the Borrower, an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding-up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator o