REVOLVING AND TERM CREDIT AND SECURITY AGREEMENT

 

 

 

 

between

 

 

 

 

AEROSONIC CORPORATION
AVIONICS SPECIALTIES, INC.

"Borrowers"

 

 

 

and

 

 

 

 

WACHOVIA BANK, NATIONAL ASSOCIATION

"Bank"

 

 

 

 

Dated:  February 24, 2004

004.125630.1004.416083.5

TABLE OF CONTENTS

Page

 

2.

The Loan.

 

2.1.

Revolving Loan Credit Facility

 

2.2.

Revolving Note

 

2.3.

Term Loan.

 

2.4.

Collections Account.

 

2.5.

Treasury Services

 

2.6.

Advances.

 

2.7.

Repayment of Loan.

 

2.8.

Overdue Amounts

 

2.9.

Calculation of Interest

 

2.10.

Sales Tax

 

2.11.

Fees

 

2.12.

Statement of Account

 

2.13.

Clean-up Requirement.

 

3.

Conditions Precedent to Borrowing

 

3.1.

Conditions Precedent to Initial Advance

 

3.2.

Conditions Precedent to Each Advance

 

4.

Representations and Warranties

 

4.1.

Valid Existence and Power

 

4.2.

Authority

 

4.3.

Financial Condition

 

4.4.

Litigation

 

4.5.

Agreements, Etc

 

4.6.

Authorizations

 

4.7.

Title

 

4.8.

Collateral

 

4.9.

Jurisdiction of Organization; Location

 

4.10.

Taxes

 

4.11.

Labor Law Matters

 

4.12.

Accounts

 

4.13.

Judgment Liens

 

4.14.

Subsidiaries

 

4.15.

Environmental

 

4.16.

ERISA

 

4.17.

Investment Company Act

 

4.18.

Names

 

4.19.

Insider

 

4.20.

Compliance with Covenants; No Default

 

4.21.

Full Disclosure

 

4.22.

Additional Representations

 

4.23.

Perfection Certificate

 

5.

Affirmative Covenants of Borrower

 

5.1.

Use of Loan Proceeds

 

5.2.

Maintenance of Business and Properties

 

5.3.

Insurance

 

5.4.

Notice of Default

 

5.5.

Inspections

 

5.6.

Financial Information

 

5.7.

Maintenance of Existence and Rights

 

5.8.

Payment of Taxes, Etc

 

5.9.

Subordination

 

5.10.

Compliance; Hazardous Materials

 

5.11.

Compliance with Assignment Laws

 

5.12.

Reports

 

5.13.

Further Assurances

 

5.14.

Covenants Regarding Collateral

 

6.

Negative Covenants of Borrower

 

6.1.

Debt

 

6.2.

Liens

 

6.3.

Loans and Other Investments

 

6.4.

Change in Business

 

6.5.

Accounts

 

6.6.

Transactions with Affiliates

 

6.7.

No Change in Name, Offices; Removal of Collateral

 

6.8.

No Sale, Leaseback

 

6.9.

Margin Stock

 

6.10.

Tangible Collateral

 

6.11.

Subsidiaries

 

6.12.

Change of Control

 

6.13.

Change of Management

 

6.14.

Liquidation, Mergers, Consolidations and Dispositions of Substantial Assets

 

6.15.

Change of Fiscal Year or Accounting Methods

 

7.

Other Covenants of Borrower

 

7.1.

Total Liabilities to Effective Tangible Net Worth Ratio

 

7.2.

Cash Flow Coverage Ratio

 

7.3.

Deposit Relationship

 

7.4.

Dividends

 

8.

Default.

 

8.1.

Events of Default

 

8.2.

Remedies

 

8.3.

Receiver

 

8.4.

Deposits; Insurance

 

9.

Security Agreement.

 

9.1.

Security Interest.

 

9.2.

Net Cash Position

 

9.3.

Financing Statements; Power of Attorney

 

9.4.

Entry

 

9.5.

Other Rights

 

9.6.

Accounts

 

9.7.

Waiver of Marshaling

 

9.8.

Control

 

10.

Miscellaneous.

 

10.1.

No Waiver, Remedies Cumulative

 

10.2.

Survival of Representations

 

10.3.

Indemnity By Borrower; Expenses

 

10.4.

Notices

 

10.5.

Governing Law

 

10.6.

Successors and Assigns

 

10.7.

Counterparts

 

10.8.

Usury

 

10.9.

Powers

 

10.10.

Approvals

 

10.11.

Definition of Day

 

10.12.

Participations

 

10.13.

Dealings with Multiple Borrowers.

 

10.14.

Waiver of Certain Defenses

 

10.15.

Integration

 

10.16.

Limitation on Liability; Waiver of Punitive Damages

 

10.17.

Waiver of Jury Trial

 

SCHEDULE OF EXHIBITS

 

004.416083.5 26

 

 

REVOLVING AND TERM CREDIT AND SECURITY AGREEMENT

THIS AGREEMENT (the "Agreement"), dated as of February 24, 2004 between AEROSONIC CORPORATION , a Delaware corporation and AVIONICS SPECIALTIES, INC. , a Virginia corporation (collectively, jointly and severally, the "Borrower"), and WACHOVIA BANK, NATIONAL ASSOCIATION , a national banking association ("Bank");

W I T N E S S E T H :

In consideration of the premises and of the mutual covenants herein contained and to induce Bank to extend credit to Borrower, the parties agree as follows:

Table of Contents

1.

Definitions

.  Capitalized terms that are not otherwise defined herein shall have the meanings set forth in Exhibit  hereto.

2.

The Loan.

2.1.

Revolving Loan Credit Facility

.  Bank agrees, on the terms and conditions set forth in this Agreement, to make Advances from time to time during the Revolving Credit Period in amounts such that the aggregate principal amount of Advances at any one time outstanding will not exceed the lesser of (i) the Maximum Revolving Loan Amount and (ii) the Borrowing Base (the "Revolving Loan").  Notwithstanding the foregoing, the aggregate amount of the Advances by Bank from time to time shall be subject to any Reserves that Bank in its sole and absolute discretion may deem proper and/or necessary under the Borrowing Base.  Within the foregoing limit, Borrower may borrow, prepay and reborrow Advances at any time during the Revolving Credit Period.

2.2.

Revolving Note

.  The Revolving Loan shall be evidenced by a promissory note in the face amount of the Maximum Revolving Loan Amount (the "Revolving Note") and shall be payable in accordance with the terms of the Revolving Note and this Agreement.

2.3.

Term Loan.

(a)

Subject to the terms and conditions contained herein and provided that no Default or Event of Default has occurred, the Bank shall lend to the Borrower on a term basis the amount of $211,500 (the “Equipment Loan”) and $3,000,000 (the “Mortgage Loan,” and together with the Equipment Loan, the “Term Loans”).  The Term Loans shall be evidenced by and payable in accordance with the terms of promissory notes in the face amount of $211,500 (the “Equipment Note”) and $3,000,000 (the “Mortgage Note,” and together with the Equipment Note, the “Term Notes”).  The Term Notes and Revolving Note are herein collectively called the “Notes.”)  Proceeds of the Equipment Loan shall be used to purchase the following equipment:  a new Mori Seiki SL-154SY (Serial No. 1922).

(b)

Bank agrees that, so long as no Default exists, it will release its security interest in the Virginia real property and fixtures that Borrower has provided as Collateral for the Loan if the following conditions have been satisfied in Bank’s sole and absolute discretion:

(i)

Bank has received the audited financial statements of the Borrower for the year ended January 31, 2004 showing compliance with all financial covenants set forth in Section  hereof;

(ii)

All litigation pending against the Borrower as of the date of this Agreement has been settled and there is no additional pending or threatened litigation relating to securities laws or any other matter which, if adversely determined, would have a Material Adverse Effect on the financial condition or business of Borrower or any Subsidiary;

(iii)

Borrower has submitted to Bank a plan of repayment for professional services by the Borrower’s former accounting firm which Bank approves in writing, in its sole and absolute discretion; and

(iv)

There has not been a change in the condition, financial or otherwise, or prospects, of either Borrower which has had or would have a Material Adverse Effect on either Borrower

0.1.

Collections Account .

(a)

Within a reasonable time following the funding of the Term Loans, the Borrower shall establish a lockbox under the control of Bank to which all Account Debtors shall forward payments on the Accounts.  Borrower shall pay all of Bank’s standard fees and charges in connection with such lockbox arrangement and Collections Account as such fees and charges may change from time to time.  Borrower shall notify Account Debtors on the Accounts to forward payments on the Accounts to the lockbox; provided, however, that Bank shall have the right to directly contact Account Debtors at any time to ensure that payments on the Accounts are directed to the lockbox.  All payment items received by Borrower on Accounts and sale of Inventory and other Collateral shall be held by Borrower in trust for Bank and not commingled with Borrower’s funds and shall be deposited promptly by Borrower to the Collections Account.  All such items shall be the exclusive property of Bank upon the earlier of  the receipt thereof by Bank or by Borrower.  Borrower hereby grants to Bank a security interest in and lien upon all items and balances held in the lockbox and the Collections Account as collateral for the Indebtedness.

(b)

Borrower hereby irrevocably appoints Bank (and any duly authorized Person designated by Bank) as Borrower’s attorney-in-fact to endorse Borrower’s name on any checks, drafts, money orders or other media of payment which come into Bank’s possession or control; this power being coupled with an interest is irrevocable so long as any of the Indebtedness remain outstanding.  Such endorsement by Bank under power of attorney shall, for all purposes, be deemed to have been made by Borrower (prior to any subsequent endorsement by Bank) in negotiation of the item.

(c)

For the purpose of calculating interest due under this Agreement, payment items received into the Collections Account shall be deemed applied by Bank on account of the Loan as collected by Bank, subject to chargebacks for uncollected payment items.  No payment item received by Bank shall constitute payment to Bank until such item is actually collected by Bank and credited to the Collections Account; provided, however, Bank shall have the right to charge back to the Collections Account (or any other account of Borrower maintained at Bank) any item which is returned for inability to collect, plus accrued interest during the period of Bank’s provisional credit for such item prior to receiving notice of dishonor.

0.2.

Treasury Services

.  If Borrower subscribes to Bank’s treasury services and such services are applicable to the Loan, the terms of such services, as set forth in the Services Agreement and the Commercial Deposit Account Agreement applicable to Borrower's Deposit Accounts at Bank, shall control matters related to such services, including but not limited to the manner in which funds are transferred between the Demand Deposit Account and the Loan for credit or debit to the Loan and termination of such services.

0.3.

Advances .

(a)

Bank, in its discretion, may require from Borrower a signed written request for an Advance in form satisfactory to Bank, which request shall be delivered to Bank no later than 12:00 noon (local time in Tampa, Florida) on the date of the requested Advance, and shall set forth the calculation of the Borrowing Base and a reconciliation to the previous request or Borrowing Base Certificate, specify the date (which shall be a Business Day) and the amount of the proposed Advance and provide such other information as Bank may require.  Bank’s acceptance of such a request shall be indicated by its making the Advance requested.  Such an Advance shall be made available to Borrower in immediately available funds at Bank’s address referred to in Section .

(b)

Notwithstanding the foregoing, Bank may, in its sole and absolute discretion, make or permit to remain outstanding Advances under the Revolving Loan in excess of the original principal amount of the Revolving Note, and all such amounts shall  be part of the Indebtedness evidenced by the Revolving Note,  bear interest as provided herein,  be payable upon demand by Bank, and  be entitled to all rights and security as provided under the Loan Documents.

0.4.

Repayment of Loan .

(a)

Interest on the Loan shall accrue and be payable as set forth in the Notes.  Each Loan shall mature, and the principal amount thereof and all accrued and unpaid interest, fees, expenses and other amounts payable under the Loan Documents shall be due and payable, as set forth in the Notes.

(b)

Bank may debit the Demand Deposit Account, the Collections Account and/or make Advances to Borrower (whether or not in excess of the lesser of the Maximum Revolving Loan Amount and the Borrowing Base) and apply such amounts to the payment of interest, fees, expenses and other amounts to which Bank may be entitled from time to time with respect to all Indebtedness and Bank is hereby irrevocably authorized to do so without the consent of Borrower.

(c)

Subject to the terms of any treasury services to which Borrower may subscribe, Borrower shall make each payment of principal of and interest on the Loan and fees hereunder not later than 12:00 noon (local time Tampa, Florida) on the date when due, without set off, counterclaim or other deduction, in immediately available funds to Bank at its address referred to in Section .  Whenever any payment of principal of, or interest on, the Loan or of fees shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day.  If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.

(d)

To the extent that the aggregate amount of all Advances under the Revolving Loan exceeds the Borrowing Base, the amount of such excess will be paid immediately to Bank upon Bank’s demand.

(e)

Any prepayment shall not affect Borrower's obligation to continue making payments under any swap agreement (as defined in 11 U.S.C. § 101), which shall remain in full force and effect notwithstanding such prepayment, subject to the terms of such swap agreement.

0.5.

Overdue Amounts

.  Any payments not made as and when due shall bear interest from the date due until such payment is paid at the Default Rate, in Bank’s discretion.

0.6.

Calculation of Interest

.  All interest under the Notes or hereunder shall be calculated on the basis of the Actual/360 Computation, as defined in the Notes.

0.7.

Sales Tax

.  Borrower shall notify Bank if any Account includes any sales or other similar tax and Bank may, but shall not be obligated to, remit any such taxes directly to the taxing authority and make Advances or charge the Demand Deposit Account therefor.  In no event shall Bank be liable for any such taxes.

0.8.

Fees

.  Borrower shall pay to Bank a non-refundable facility fee equal to .25% of the sum of the Maximum Revolving Loan Amount and the amount of the Term Loans, payable on the date of this Agreement, to the extent not previously paid.

0.9.

Statement of Account

.  If Bank provides Borrower with a statement of account on a periodic basis, such statement will be presumed complete and accurate and will be definitive and binding on Borrower, unless objected to with specificity by Borrower in writing within forty-five (45) days after receipt.

0.10.

Clean-up Requirement.

.  The outstanding principal balance of the Revolving Loan shall be reduced to $500,000 or less for at least forty-five consecutive days in every 12-month period beginning on the date hereof.

1.

Conditions Precedent to Borrowing

.  Prior to any Advance, the following conditions shall have been satisfied, in the sole opinion of Bank and its counsel or waived by Bank in writing:

1.1.

Conditions Precedent to Initial Advance

.  In addition to any other requirement set forth in this Agreement, Bank will not make the initial Advance under the Loan unless and until the following conditions shall have been satisfied:

(a)

Loan Documents .  Borrower and each other party to any Loan Document, as applicable, shall have executed and delivered this Agreement, the Notes, and other required Loan Documents, all in form and substance satisfactory to Bank.

(b)

Supporting Documents .  Borrower shall cause to be delivered to Bank the following documents:

(i)

A copy of the governing instruments of Borrower and each Subsidiary, and a good standing certificate of Borrower and each Subsidiary, certified by the appropriate official of its state of incorporation and the State of Florida if different;

(ii)

Incumbency certificate and certified resolutions of the board of directors (or other appropriate governing body) of Borrower and each other Person executing any Loan Documents, signed by the Secretary or another authorized officer of Borrower or such other Person, authorizing the execution, delivery and performance of the Loan Documents;

(iii)

The legal opinion of Borrower’s and any Guarantor’s legal counsel addressed to Bank regarding such matters as Bank and its counsel may request;

(iv)

A satisfactory Borrowing Base Certificate duly completed by Borrower, together with all supporting statements, schedules and reconciliations as required by Bank and Borrower shall have at least One Million Dollars ($1,000,000.00) of availability under the Revolving Loan;

(v)

Satisfactory evidence of payment of all fees due and reimbursement of all costs incurred by Bank, and evidence of payment to other parties of all fees or costs which Borrower is required under this Agreement to pay by the date of the initial Advance;

(vi)

UCC-11 searches and other Lien searches showing no existing security interests in or Liens on the Collateral other than Permitted Liens;

(vii)

Any lien waivers requested by Bank pursuant to Section  hereof; and

(viii)

A satisfactory Perfection Certificate duly completed by Borrower.

(a)

Insurance .  Borrower shall have delivered to Bank satisfactory evidence of insurance meeting the requirements of Section .

(b)

Perfection of Liens .  UCC-1 financing statements and, if applicable, certificates of title covering the Collateral executed by Borrower shall duly have been recorded or sent for filing in the manner and places required by law to establish, preserve, protect and perfect the interests and rights created or intended to be created by the Security Agreement; and all taxes, fees and other charges in connection with the execution, delivery and filing of the Security Agreement and the financing statements shall duly have been paid.

(c)

Subordinations .  Bank shall have received subordinations satisfactory to it from  all lessors that might have landlord’s Liens on any Collateral and  all Guarantors and Affiliates as required by Section .

(d)

Additional Documents .  Borrower shall have delivered to Bank all additional opinions, documents, certificates and other assurances that Bank or its counsel may require.

(e)

Payment of Fees .  Borrower shall have paid all fees, costs and expenses as required by the Loan Documents in connection with the Closing.

0.1.

Conditions Precedent to Each Advance

.  The following conditions, in addition to any other requirements set forth in this Agreement, shall have been met or performed by the Advance Date with respect to any Advance Request and each Advance Request (whether or not a written Advance Request is required) shall be deemed to be a representation that all such conditions have been satisfied:

(a)

Advance Request .  Borrower shall have delivered to Bank an Advance Request and other information, as required under Section , unless the procedures described in Section  are in effect.

(b)

No Default .  No Default shall have occurred and be continuing or could occur upon the making of the Advance in question and, if Borrower is required to deliver a written Advance Request, Borrower shall have delivered to Bank an officer’s certificate to such effect, which may be incorporated in the Advance Request.

(c)

Correctness of Representations .  All representations and warranties made by Borrower and any Guarantor herein or otherwise in writing in connection herewith shall be true and correct in all material respects with the same effect as though the representations and warranties had been made on and as of the proposed Advance Date, and, if Borrower is required to deliver a written Advance Request, Borrower shall have delivered to Bank an officer’s certificate to such effect, which may be incorporated in the Advance Request.

(d)

No Adverse Change .  There shall have been no change which could have a Material Adverse Effect on Borrower, any Subsidiary or any Guarantor since the date of the most recent financial statements of such Person delivered to Bank from time to time.

(e)

Limitations Not Exceeded .  The proposed Advance shall not cause the outstanding principal balance of the Revolving Loan to exceed the lesser of the Maximum Revolving Loan Amount and the Borrowing Base.  If Borrower is required to deliver a written Advance Request, Bank shall have received a current Accounts Receivable Report and a current Inventory Report (as required by Section ) sufficient in form and substance to calculate and verify the Borrowing Base.

(f)

No Termination .  Bank shall  have timely received all financial information from all Guarantors as required under the Loan Documents, and  not have received notice from any Guarantor or any surety terminating or repudiating such Person’s guaranty of the Indebtedness incurred by Borrower.

(g)

Further Assurances .  Borrower shall have delivered such further documentation or assurances as Bank may reasonably require.

1.

Representations and Warranties

.  In order to induce Bank to enter into this Agreement and to make the Loan provided for herein, each Borrower makes the following representations and warranties, all of which shall survive the execution and delivery of the Loan Documents.  Unless otherwise specified, such representations and warranties shall be deemed made as of the date hereof and, except as previously disclosed in writing to the Bank,  as of the Advance Date of any Advance by Bank to Borrower:

1.1.

Valid Existence and Power

.  Each of Borrower and each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and is duly qualified or licensed to transact business in all places where the failure to be so qualified would have a Material Adverse Effect on it.  Each of Borrower and each other Person which is a party to any Loan Document (other than Bank) has the power to make and perform the Loan Documents executed by it and all such instruments will constitute the legal, valid and binding obligations of such Person, enforceable in accordance with their respective terms, subject only to bankruptcy and similar laws affecting creditors’ rights generally.  Aerosonic Corporation and Avionics Specialties, Inc. are organized under the laws of Delaware and Virginia, respectively, and have not changed the jurisdiction of their organization within the five years preceding the date hereof except as previously reported to Bank.

1.2.

Authority

.  The execution, delivery and performance thereof by Borrower and each other Person (other than Bank) executing any Loan Document have been duly authorized by all necessary action of such Person, and do not and will not violate any provision of law or regulation, or any writ, order or decree of any court or governmental or regulatory authority or agency or any provision of the governing instruments of such Person, and do not and will not, with the passage of time or the giving of notice, result in a breach of, or constitute a default or require any consent under, or result in the creation of any Lien upon any property or assets of such Person pursuant to, any law, regulation, instrument or agreement to which any such Person is a party or by which any such Person or its respective properties may be subject, bound or affected.

1.3.

Financial Condition

.  Other than as disclosed in financial statements delivered on or prior to the date hereof to Bank, neither Borrower nor any Subsidiary nor (to the knowledge of Borrower) any Guarantor has any direct or contingent obligations or liabilities (including any guarantees or leases) or any material unrealized or anticipated losses from any commitments of such Person except as described on Exhibit  (if any).  All such financial statements have been prepared in accordance with GAAP and fairly present the financial condition of Borrower, Subsidiary or Guarantor, as the case may be, as of the date thereof.  Borrower is not aware of any material adverse fact (other than facts which are generally available to the public and not particular to Borrower, such as general economic or industry trends) concerning the conditions or future prospects of Borrower or any Subsidiary or any Guarantor which has not been fully disclosed to Bank, including any adverse change in the operations or financial condition of such Person since the date of the most recent financial statements delivered to Bank. Borrower is Solvent, and after consummation of the transactions set forth in this Agreement and the other Loan documents, Borrower will be Solvent.

1.4.

Litigation

.  Except as disclosed on Exhibit  (if any), there are no suits or proceedings pending, or to the knowledge of Borrower threatened, before any court or by or before any governmental or regulatory authority, commission, bureau or agency or public regulatory body against or affecting Borrower, any Subsidiary or (to Borrower’s knowledge) any Guarantor, or their assets, which if adversely determined would have a Material Adverse Effect on the financial condition or business of Borrower, such Subsidiary or such Guarantor.

1.5.

Agreements, Etc

.  Neither Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any court order, governmental decree or any charter or other corporate restriction, materially and adversely affecting its business, assets, operations or condition (financial or otherwise), nor is any such Person in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any agreement or instrument to which it is a party, or any law, regulation, decree, order or the like.

1.6.

Authorizations

.  All authorizations, consents, approvals and licenses required under applicable law or regulation for the ownership or operation of the property owned or operated by Borrower or any Subsidiary or for the conduct of any business in which it is engaged have been duly issued and are in full force and effect, and it is not in default, nor has any event occurred which with the passage of time or the giving of notice, or both, would constitute a default, under any of the terms or provisions of any part thereof, or under any order, decree, ruling, regulation, closing agreement or other decision or instrument of any governmental commission, bureau or other administrative agency or public regulatory body having jurisdiction over such Person, which default would have a Material Adverse Effect on such Person.  Except as noted herein, no approval, consent or authorization of, or filing or registration with, any governmental commission, bureau or other regulatory authority or agency is required with respect to the execution, delivery or performance of any Loan Document.

1.7.

Title

.  Each of Borrower and each Subsidiary has good title to all of the assets shown in its financial statements free and clear of all Liens, except Permitted Liens.  Borrower alone has full ownership rights in all Collateral.

1.8.

Collateral

.  The security interests granted to Bank herein and pursuant to any other Security Agreement (a) constitute and, as to subsequently acquired property included in the Collateral covered by the Security Agreement, will constitute, security interests under the Code entitled to all of the rights, benefits and priorities provided by the Code and (b) are, and