1
EXHIBIT 10.4
LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
COMMONWEALTH ENERGY CORPORATION, ELECTRICAMERICA, INC. AND ELECTRIC.COM,
INC.
AND
COAST BUSINESS CREDIT,
A DIVISION OF SOUTHERN PACIFIC BANK
DATED AS OF JUNE 28, 2000
- --------------------------------------------------------------------------------
2
TABLE OF CONTENTS
PAGE
- -----------------------------------------------------------------------------------
1. DEFINITIONS......................................................... 1
2. CREDIT FACILITIES................................................... 7
2.1 Loans........................................................ 7
- -----------------------------------------------------------------------------------
3. INTEREST AND FEES................................................... 7
3.1 Interest..................................................... 7
3.2 Fees......................................................... 7
- -----------------------------------------------------------------------------------
4. SECURITY INTEREST................................................... 7
5. CONDITIONS PRECEDENT................................................ 7
5.1 Status of Accounts at Closing................................ 8
5.2 Minimum Availability......................................... 8
5.3 Landlord Waiver.............................................. 8
5.4 Real Property................................................ 8
5.5 Executed Agreement........................................... 8
5.6 Opinion of Borrower's Counsel................................ 8
5.7 Priority of Coast's Liens.................................... 8
5.8 Insurance.................................................... 8
5.9 Borrower's Existence......................................... 9
5.10 Organizational Documents..................................... 9
5.11 Taxes........................................................ 9
5.12 Due Diligence................................................ 9
5.13 Other Documents and Agreements............................... 9
- -----------------------------------------------------------------------------------
6. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE BORROWER.......................................................... 9
6.1 Existence and Authority...................................... 9
6.2 Name; Trade Names and Styles................................. 10
6.3 Place of Business; Location of Collateral.................... 10
6.4 Title to Collateral, Permitted Liens......................... 10
6.5 Maintenance of Collateral.................................... 10
6.6 Books and Records............................................ 10
6.7 Financial Condition, Statements and Reports.................. 11
6.8 Tax Returns and Payments; Pension Contributions.............. 11
6.9 Compliance with Law.......................................... 11
6.10 Litigation................................................... 11
6.11 Use of Proceeds.............................................. 11
- -----------------------------------------------------------------------------------
7. RECEIVABLES and COLLECTIONS......................................... 12
7.1 Representations Relating to Receivables and Collections...... 12
7.2 Representations Relating to Documents and Legal Compliance... 12
7.3 Schedules and Documents relating to Receivables.............. 12
7.4 Collection of Receivables.................................... 12
7.5 Remittance of Proceeds....................................... 13
7.6 Verification................................................. 13
7.7 No Liability................................................. 13
- -----------------------------------------------------------------------------------
8. ADDITIONAL DUTIES OF THE BORROWER................................... 13
-i-
3
TABLE OF CONTENTS
(continued)
PAGE
- -----------------------------------------------------------------------------------
8.1 Financial and Other Covenants................................ 13
8.2 Insurance.................................................... 13
8.3 Reports...................................................... 14
8.4 Access to Collateral, Books and Records...................... 14
8.5 Negative Covenants........................................... 14
8.6 Litigation Cooperation....................................... 15
8.7 Further Assurances........................................... 15
- -----------------------------------------------------------------------------------
9. TERM................................................................ 15
9.1 Maturity Date................................................ 15
9.2 Early Termination............................................ 16
9.3 Payment of Obligations....................................... 16
- -----------------------------------------------------------------------------------
10. EVENTS OF DEFAULT AND REMEDIES...................................... 16
10.1 Events of Default............................................ 16
10.2 Remedies..................................................... 18
10.3 Standards for Determining Commercial Reasonableness.......... 20
10.4 Power of Attorney............................................ 20
10.5 Application of Proceeds...................................... 22
10.6 Remedies Cumulative.......................................... 22
- -----------------------------------------------------------------------------------
11. GENERAL PROVISIONS.................................................. 22
11.1 Interest Computation......................................... 22
11.2 Application of Payments...................................... 23
11.3 Charges to Accounts.......................................... 23
11.4 Monthly Accountings.......................................... 23
11.5 Notices...................................................... 23
11.6 Severability................................................. 23
11.7 Integration.................................................. 23
11.8 Waivers...................................................... 23
11.9 No Liability for Ordinary Negligence......................... 24
11.10 Amendment.................................................... 24
11.11 Time of Essence.............................................. 24
11.12 Attorneys Fees, Costs and Charges............................ 24
11.13 Benefit of Agreement......................................... 24
11.14 Publicity.................................................... 25
11.15 Paragraph Headings, Construction............................. 25
11.16 Governing Law; Jurisdiction; Venue........................... 25
-ii-
4
COAST BUSINESS CREDIT
LOAN AND SECURITY AGREEMENT
Borrower: Commonwealth Energy Corporation
Address: 15901 Red Hill, Suite 100
Tustin, California 92870
Borrower: electricAMERICA, Inc.
Address: 15901 Red Hill, Suite 100
Tustin, California 92870
Borrower: electric.com, Inc.
Address: 15901 Red Hill, Suite 100
Tustin, California 92870
Date: June 28, 2000
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is entered into on
the above date between COAST BUSINESS CREDIT, a division of Southern Pacific
Bank ("Coast"), a California corporation, with offices at 12121 Wilshire
Boulevard, Suite 1400, Los Angeles, California 90025, and the borrower(s) named
above Jointly and severally, the "Borrower"), whose chief executive office is
located at the above address ("Borrower's Address"). The Schedule to this
Agreement (the "Schedule") shall for all purposes be deemed to be a part of this
Agreement, and the same is an integral part of this Agreement. (Definitions of
certain terms used in this Agreement are set forth in Section 1 below.)
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable or General
Intangible.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Audit" means to inspect, audit and copy Borrower's books and
records and the Collateral.
"Borrower" has the meaning set forth in the introduction to this
Agreement.
"Borrower's Address" has the meaning set forth in the introduction
to this Agreement.
"Business Day" means a day on which Coast is open for business.
"Change of Control" shall be deemed to have occurred at such time as
a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) (other than the current holders of the
ownership interests in any Borrower) becomes the "beneficial owner" (as defined
in Rule l3d-3 under the Securities Exchange Act of 1934), directly or
indirectly, as a result of any single transaction, of more than twenty percent
(20%) of the total voting power of all classes of stock or other ownership
interests then outstanding of any Borrower normally entitled to vote in the
election of directors or analogous governing body.
"Closing Date" means the date of the initial funding under this
Agreement.
"Coast" has the meaning set forth in the introduction to this
Agreement.
1
5
"Code" means the Uniform Commercial Code as adopted and in effect in
the State of California from time to time.
"Collateral" has the meaning set forth in Section 4 hereof.
"Collection Loans" means the Loans described in Section 2(a) of the
Schedule.
"Collections" means the amount of Dollars actually received by
Borrower in immediately available funds without any claim of off-set, set-off,
credit or reduction or deduction of any kind or nature.
"Consolidated Tangible Net Worth" means consolidated Borrower's
equity plus subordinated debt otherwise permitted hereunder, less, goodwill,
patents, trademarks, copyrights, franchises, formulas, leasehold interests,
leasehold improvements, non-compete agreements, engineering plans, deferred tax
benefits, organization costs, prepaid items, and any other assets of Borrower
that would be treated as intangible assets on Borrower's balance sheet prepared
in accordance with GAAP.
"Credit Limit" means the maximum amount of Loans that Coast may make
to Borrower pursuant to the amounts and percentages shown on the Schedule.
"Debt" means, as of the date of determination, the sum, but without
duplication, of any and all of Borrower's: (i) indebtedness heretofore or
hereafter created, issued, incurred or assumed by such Borrower (directly or
indirectly) for or in respect of money borrowed: (ii) obligations for the
deferred purchase price of property or services.
"Debt Service Coverage Ratio" means the ratio, in any fiscal
quarter, whose numerator is EBITDA minus cash capital expenditures minus cash
tax expenses, and whose denominator is all principal payments on Debt plus all
interest payments on Debt plus all capital lease payments.
"Default" means any event which with notice or passage of time or
both, would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the
Code.
"Dollars or $" means United States dollars.
"Early Termination Fee" means the amount set forth on the Schedule
that Borrower must pay Coast if this Agreement is terminated by Borrower or
Coast pursuant to Section 9.2 hereof.
"EBIT" means, in any fiscal period, Borrower's consolidated net
income or net loss (other than extraordinary or non-recurring gains of Borrower
for such period), plus (i) the amount of all interest expense and income tax
expense of Borrower for such period, on a consolidated basis, and plus or minus
(as the case may be) (ii) any other non-cash charges which have been added or
subtracted, as the case may be, in calculating Borrower's consolidated net
income or net loss for such period.
"EBITDA" means, in any fiscal period, Borrower's consolidated net
income or net loss (other than extraordinary or non-recurring gains of Borrower
for such period), plus (i) the amount of all interest expense, income tax
expense, depreciation expense and amortization expense of Borrower for such
period, on a consolidated basis, and plus or minus (as the case may be) (ii) any
other non-cash charges which have been added or subtracted, as the case may be,
in calculating Borrower's consolidated net income or net loss for such period.
"Eligible Collections" means Collections received in the ordinary
course of Borrower's business from the sale of goods or rendition of services,
which Coast, in its sole judgment, shall deem eligible for borrowing, based on
such considerations as Coast may from time to time deem appropriate. Eligible
Collections may include Green-e rebates unless excluded pursuant to Section 8.1
paragraphs 1 and/or 13 of the Schedule but shall not include Customer deposits
and other non-recurring revenue.
2
6
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other goods (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"Event of Default" means any of the events set forth in
Section 10.1 of this Agreement.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"General Intangible" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, causes of action, corporate or other
business records, Deposit Accounts, investment property, inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the goodwill
of the business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit, and including without limitation all farm products), and all materials
and supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or furnishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"Investment Property" has the meaning set forth in Section 9115 of
the Code as in effect as of the date hereof.
"Loan Documents" means this Agreement, the agreements and documents
listed on Section 5 of the Schedule, and any other agreement, instrument or
document executed in connection herewith or therewith.
"Loans" has the meaning set forth in Section 2.1 hereof
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary of Borrower or any guarantor of any of the
Obligations, (ii) the ability of Borrower or any guarantor of any of the
Obligations to perform its obligations under this Agreement (including, without
limitation, repayment of the Obligations as they come due) or (iii) the validity
or enforceability of this Agreement or any other agreement or document entered
into by any party in connection herewith, or the rights or remedies of Coast
hereunder or thereunder.
"Maturity Date" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"Maximum Dollar Amount" has the meaning set forth in Section 2 of
the Schedule.
"Minimum Monthly Interest" has the meaning set forth in Section 3 of
the Schedule.
3
7
"Net Worth" means Borrower's equity plus subordinated debt otherwise
permitted hereunder.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees (including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
"Permitted Liens" means the following:
(a) purchase money security interests in specific items of
Equipment;
(b) leases of specific items of Equipment;
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in writing
by Coast, which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially concurrently
with this Agreement;
(f) liens of materialmen, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (a) or (b) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; or
(h) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent under
subparagraph (d) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Coast's then standard form, acknowledge
that the security interest is subordinate to the security interest in favor of
Coast, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement,
"Person" means any individual, sole proprietorship, general
partnership, limited partnership, limited liability partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, government, or any agency or political division
thereof, or any other entity.
"Prime Rate" means the actual "Reference Rate" or the substitute
therefor of the Bank of America NT & SA whether or not that rate is the lowest
interest rate charged by said bank. If the Prime Rate, as defined, is
unavailable, "Prime Rate" shall mean the highest of the prime rates published in
the Wall Street Journal on the first business day of the applicable month, as
the base rate on corporate loans at large U.S. money center commercial banks.
4
8
"Real Property" means Borrower's real property located in 15901 Red
Hill, Tustin, California 92870.
"Receivables" means all of Borrower's now owned and hereafter
acquired accounts (whether or not earned by performance), letters of credit,
contract rights, chattel paper, instruments, securities, documents, securities
accounts, security entitlements, commodity contracts, commodity accounts,
investment property and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, all merchandise returned
to or repossessed by Borrower, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party.
"Renewal Date" shall mean the Maturity Date if this Agreement is
renewed pursuant to Section 9.1 hereof, and each anniversary thereafter that
this Agreement is renewed pursuant to Section 9.1 hereof
"Renewal Fee" means the fee that Borrower must pay Coast upon
renewal of this Agreement pursuant to Section 9.1 hereof, in the amount set
forth on the Schedule.
"Solvent" means, with respect to any Person on a Coast Business
Credit particular date, that on such date (a) at fair valuations, all of the
properties and assets of such Person are greater than the sum of the debts,
including contingent liabilities, of such Person, (b) the present fair salable
value of the properties and assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Tangible Net Worth" means Borrower's equity plus subordinated debt
otherwise permitted hereunder, less, goodwill, patents, trademarks, copyrights,
franchises, formulas, lease hold interests, leasehold improvements, non-compete
agreements, engineering plans, deferred tax benefits, organization costs,
prepaid items, and any other assets of Borrower that would be treated as
intangible assets on Borrower's balance sheet prepared in accordance with GAAP.
"Term" means the period of time between the Closing Date and
Maturity Date of this Agreement.
"Other Terms" All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
2. CREDIT FACILITIES.
2.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts and
in percentages to be determined by Coast in its good faith discretion, up to the
Credit Limit, provided no Default or Event of Default has occurred and is
continuing. In addition, Coast may create reserves against or reduce its advance
rates based upon Eligible Receivables or Eligible Inventory without declaring a
Default or an Event of Default if it determines that there has occurred a
Material Adverse Effect.
3. INTEREST AND FEES.
3.1 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on
5
9
the last day of the month. Interest may, in Coast's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Regardless of the amount of Obligations that may be
outstanding from time to time, Borrower shall pay Coast Minimum Monthly Interest
during the term of this Agreement with respect to the Collection Loans in the
amount set forth on the Schedule.
3.2 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule, which
are in addition to ail interest and other sums payable to Coast and are deemed
fully earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when
due, Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Inventory, Equipment, Investment Property, and General
Intangibles, including, without limitation, Borrower's domain and/or URL name,
patents, trademarks and copyrights, all of Borrower's Deposit Accounts, and all
money, and all property now or at any time in the future in Coast's possession
(including claims and credit balances), and all proceeds of any of the foregoing
(including proceeds of any insurance policies, proceeds of proceeds, and claims
against third parties), all products of any of the foregoing, and all books and
records related to any of the foregoing (all of the foregoing, together with all
other property in which Coast may now or in the future be granted a lien or
security interest, is referred to herein, collectively, as the "Collateral").
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the
satisfaction, in the sole discretion of Coast, at or prior to the first advance
of funds hereunder, of each, every and all of the following conditions:
5.1 STATUS OF ACCOUNTS AT CLOSING. No account payable shall be due and
unpaid ninety (90) days past its invoice date except for such accounts payable
being contested in good faith in appropriate proceedings and for which adequate
reserves have been provided.
5.2 MINIMUM AVAILABILITY. Borrower shall have minimum availability
immediately following the initial funding in the amount set forth on the
Schedule.
5.3 LANDLORD WAIVER. Coast shall have received duly executed
5.4 landlord waivers and access agreements in form and substance
satisfactory to Coast, in Coast's sole and absolute discretion, and, when deemed
appropriate by Coast, in form for recording in the appropriate recording office,
with respect to all leased locations where Borrower maintains any inventory or
equipment.
5.5 mortgagee waivers in form and substance satisfactory to Coast, in
Coast's sole and absolute discretion, and when deemed appropriate by Coast, in
form for recording in the appropriate recording office, with respect to all
mortgaged locations where Borrower maintains any inventory or equipment.
5.6 warehouse waivers in form and substance satisfactory to Coast, in
Coast's sole and absolute discretion, and when deemed appropriate by Coast, in
form for recording in the appropriate recording office, with respect to all
warehouse locations where Borrower maintains any inventory or equipment.
5.7 REAL PROPERTY. Coast shall have received duly executed mortgages
and/or deeds of trust in form and substance satisfactory to Coast, in Coasts
sole and absolute discretion, in form for recording in the appropriate recording
office, with respect any real property owned by Borrower.
5.8 EXECUTED AGREEMENT. Coast shall have received this Agreement duly
executed and in form and substance satisfactory to Coast in its sole and
absolute discretion.
6
10
5.9 OPINION OF BORROWER'S COUNSEL. Coast shall have received an opinion of
Borrower's counsel, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.10 PRIORITY OF COAST'S LIENS. Coast shall have received the results of
"of record" searches satisfactory to Coast in its sole and absolute discretion,
reflecting its Uniform Commercial Code filings against Borrower indicating that
Coast has a perfected, first priority lien in and upon all of the Collateral,
subject only to Permitted Liens.
5.11 INSURANCE. Coast shall have received copies of the insurance binders
or certificates evidencing Borrower's compliance with Section 8.2 hereof,
including lender's loss payee endorsements.
5.12 BORROWER'S EXISTENCE. Coast shall have received copies of Borrower's
articles or certificate of incorporation and all amendments thereto, and a
Certificate of Good Standing, each certified by the Secretary of State of the
state of Borrower's organization, and dated a recent date prior to the Closing
Date, and Coast shall have received Certificates of Foreign Qualification for
Borrower from the Secretary of State of each state wherein the failure to be so
qualified could have a Material Adverse Effect.
5.13 ORGANIZATIONAL DOCUMENTS. Coast shall have received copies of
Borrower's By-laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.
5.14 TAXES. Coast shall have received evidence from Borrower that Borrower
has complied with all tax withholding and Internal Revenue Service regulations,
in form and substance satisfactory to Coast in its sole and absolute discretion.
5.15 DUE DILIGENCE. Coast shall have completed its due diligence with
respect to Borrower.
5.16 OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received such other
agreements, instruments and documents as Coast may require in connection with
the transactions contemplated hereby, all in form and substance satisfactory to
Coast in Coast's sole and absolute discretion, and in form for filing in the
appropriate filing office, including, but not limited to, those documents listed
in Section 5 of the Schedule.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER
In order to induce Coast to enter into this Agreement and to make
Loans, Borrower represents and warrants to Coast as follows, and Borrower
covenants that the following representations will continue to be true, and that
Borrower will at all times comply with all of the following covenants:
6.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a Material Adverse Effect. The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (a) have
been duly and validly authorized, (b) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), and (c) do not violate Borrower's
articles or certificate of incorporation, or Borrower's by-laws, or any law or
any material agreement or instrument which is binding upon Borrower or its
property, and (d) do not constitute grounds for acceleration of any material
indebtedness or obligation under any material agreement or instrument which is
binding upon Borrower or its property.
6.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior
7
11
trade names. Borrower shall give Coast thirty (30) days' prior written notice
before changing, its name or doing business under any other name. Borrower has
complied, and will in the future comply, with all laws relating to the conduct
of business under a fictitious business name.
6.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Coast at least thirty (30) days'
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule.
6.4 TITLE TO COLLATERAL, PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Coast now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend Coast and the Collateral against all claims of others. None of the
Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. Borrower is not and will not become a
lessee under any real property lease pursuant to which the lessor may obtain any
rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by Coast, use its best efforts to cause such third party to execute
and deliver to Coast, in form acceptable to Coast, such waivers and
subordinations as Coast shall specify, so as to ensure that Coast's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
6.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower shall file a patent application on all patentable
material and register any trademarks, copyrights and copyrightable material
which comprises the Collateral and advise Coast of the acquisition, existence,
filing and/or registration thereof. Borrower will immediately advise Coast in
writing of any material loss or damage to the Collateral.
6.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
6.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Coast have been, and will be, prepared in
conformity with GAAP (except, in the case of unaudited financial statements, for
the absence of footnotes and subject to normal year-end adjustments) and now and
in the future will fairly reflect the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such statement provided to Coast and the date hereof, there has been no Material
Adverse Effect. Borrower is now and will continue to be Solvent.
6.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral. As of the date hereof, Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the
8
12
Pension Benefit Guaranty Corporation or its successors or any other governmental
agency. Borrower shall, at all times, utilize the services of an outside payroll
service providing for the automatic deposit of all payroll taxes payable by
Borrower.
6.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, the Fair Labor Standards Act, and those relating to Borrower's ownership of
real or personal property, the conduct and licensing of Borrower's business and
environmental matters.
6.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in a Material Adverse Effect.
Borrower will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower involving an amount set forth on the Schedule.
6.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
7. RECEIVABLES and COLLECTIONS.
7.1 REPRESENTATIONS RELATING TO RECEIVABLES AND COLLECTIONS. Borrower
represents and warrants to Coast as follows: All Collections with respect to
which Loans are requested by Borrower shall, on the date each Loan is requested
and made, represent receipt of payment of an undisputed bona fide existing
unconditional obligation of the Account Debtor created by the sale, delivery and
acceptance of goods or the rendition of services in the ordinary course of
Borrower's business.
7.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables and/or Collections are and shall be true and correct and all
such invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be.
All sales and other transactions underlying or giving rise to each Receivable
and/or Collections are and shall be Account Debtors that Coast has been granted
a security genuine, and all such documents, instruments and agreements are and
shall be legally enforceable in accordance with their terms.
7.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Coast via facsimile, unless otherwise directed by Coast, at such
locations and at such intervals as Coast may request, transaction reports and
loan requests, schedules of Receivables, and schedules of Collections, all on
Coast's standard forms; provided, however, that Borrower's failure to execute
and deliver the same shall not affect or limit Coast's security interest and
other rights in all of Borrower's Receivables or Collections, nor shall Coast's
failure to advance or lend against a specific Receivable affect or limit Coast's
security interest and other rights therein. Loan requests received after 10:30
A.M. Los Angeles, California time, will not be considered by Coast until the
next Business Day. Together with each such schedule, or later if requested by
Coast, Borrower shall furnish Coast with copies (or, at Coast's request,
originals) of all contracts, orders, invoices, and other similar documents, and
all original shipping instructions, delivery receipts, bills of lading, and
other evidence of delivery, for any goods the sale or disposition of which gave
rise to such Receivables, and Borrower warrants the genuineness of all of the
foregoing. Borrower shall also furnish to Coast an aged accounts receivable
trial balance in such form and at such intervals as Coast shall request. In
addition, Borrower shall deliver to Coast the originals of all instruments,
chattel paper, security agreements, guarantees and other documents and property
evidencing or securing any Receivables and/or Collections, upon receipt thereof
and in the same form as received, with all necessary endorsements, all of which
shall be with recourse. Borrower shall also provide Coast with copies of all
credit memos as and when requested by Coast.
9
13
7.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect
all Receivables, unless and until an Event of Default has occurred. Borrower
shall hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall determine.
Coast may, in its discretion, require that all proceeds of Collateral be
deposited by, Borrower into a lockbox account, or such other "blocked account"
as Coast may specify, pursuant to a blocked account agreement in such form as
Coast may specify. Coast or its designee may, at any time, notify Account
Debtors that Coast has been granted a security interest in the Receivables.
7.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one (1) Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower's
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Coast. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
7.6 VERIFICATION. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.
7.7 NO LIABILITY. Coast shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Coast be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Coast from liability for its
own gross negligence or willful misconduct.
8. ADDITIONAL DUTIES OF THE BORROWER.
8.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
8.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lender's loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than the amount set forth in Section 8 of the
Schedule, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Coast may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Coast copies of all reports made to insurance companies,
8.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in Section 8 of the Schedule, and ' such other written
reports with respect to Borrower (including budgets, sales projections,
operating plans and other financial documentation), as Coast shall from time to
time reasonably specify.
8.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but not
less frequently than quarterly and on one (1) Business Day's notice, Coast, or
its agents, shall have the right to perform Audits. Coast shall take reasonable
steps to keep confidential all confidential information obtained in any Audit,
but Coast shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any
10
14
subpoena or other legal process. The Audits shall be at Borrower's expense and
the charge for the Audits shall be Seven Hundred Fifty Dollars (S750) per person
per day (or such higher amount as shall represent Coast's then current standard
charge for the same), plus reasonable out-of-pocket expenses. Borrower will not
enter into any agreement with any accounting firm, service bureau or third party
to store Borrower's books or records at any location other than Borrower's
Address, without first notifying Coast of the same and obtaining the written
agreement from such accounting firm, service bureau or other third party to give
Coast the same, rights with respect to access to books' and records and related
rights as Coast has under this Loan Agreement. Borrower shall also take all
necessary steps to assure that this material accounting and software systems and
applications, and those of its accounting firm, service bureau or any other
third party vendor or supplier, will, on a timely basis, adequately and
completely address the Year 2000 Problem in all material respects.
8.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior written
consent, do any of the following:
8.6 merge or consolidate with another entity, except in a transaction in
which (i) the owners of the Borrower hold at least fifty percent (50%) of the
ownership interest in the surviving entity immediately after such merger or
consolidation, and (ii) the Borrower is the surviving entity;
8.7 acquire any assets, except (i) in the ordinary course of business, or
(ii) in a transaction or a series of transactions not involving the payment of
an aggregate amount in excess of the amount set forth in Section 8 of the
Schedule;
8.8 enter into any other transaction outside the ordinary course of
business;
8.9 sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business" and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;
8.10 store any Inventory or other Collateral with any warehouseman or
other third party;
8.11 sell any Inventory on a sale-or-return, guaranteed sale, consignment,
or other contingent basis;
8.12 make any loans of any money or other assets, except (i) advances to
customers or suppliers in the ordinary course of business, (ii) travel advances,
employee relocation loans and other employee loans and advances 'in the ordinary
course of business, and (iii) loans to employees, officers and directors for the
purpose of purchasing equity securities of the Borrower,
8.13 incur any debts, outside the ordinary course of business, which would
have a Material Adverse Effect;
8.14 guarantee or otherwise become liable with respect to the obligations
of another party or entity;
8.15 pay or declare any dividends or distributions on the ownership
interests in Borrower (except for dividends or distributions payable solely in
stock form of ownership interests in Borrower);
8.16 make any change in Borrower's capital structure which would have a
Material Adverse Effect; or
8.17 dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section
are only permitted if no Default or Event of Default is continuing, or would
occur as a result of such transaction.
8.18 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
11
15
8.19 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
9. TERM.
9.1 MATURITY DATE. This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be extended,
and this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to the
other, not less than one hundred twenty (120) days prior to the Maturity Date or
the next Renewal Date, that such party elects to terminate this Agreement
effective on the Maturity Date or such next Renewal Date. If this Agreement is
renewed under this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the
amount shown in Section 3 of the Schedule. The Renewal Fee shall be due and
payable on the Renewal Date and thereafter shall bear interest at a rate equal
to the rate applicable to the Receivable Loans.
9.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the amount
shown in Section 3 of the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Collection Loans.
9.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of Coast's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that, without limiting the fact that
Loans are subject to the discretion of Coast, Coast may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of Coast, nor shall any such
termination relieve Borrower of any Obligation to Coast, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, Coast shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be required to fully terminate Coast's security
interests.
10. EVENTS OF DEFAULT AND REMEDIES.
10.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Coast immediate written notice thereof:
(a) Any warranty, representation, statement, report or certificate
made or delivered to Coast by Borrower or any of Borrower's officers, employees
or agents, now or in the future, shall be untrue or misleading and results in a
Material Adverse Effect; or
(b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral to
Coast as provided in Section 7.5 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 8.4 above, or shall
breach any negative covenant set forth in Section 8.5 above; or
12
16
(e) Borrower shall fail to comply with the financial covenants (if
any) set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within five (5) Business Days after the
date due; or
(g) Any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within ten (10) days after the occurrence of the same; or
(h) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation, which has
or may reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or business
failure of Borrower or any guarantor of any of the Obligations; or appointment
of a receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or
(k) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is (i) not
timely controverted, or (ii) not cured by the dismissal thereof within thirty
(30) days after the date commenced; or
(l) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower or any guarantor of any of the Obligations makes any
payment on account of any indebtedness or obligation which has been subordinated
to the Obligations, other than as permitted in the applicable subordination
agreement, or if any Person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or
(o) Except as permitted under Section 8.5(a), Borrower shall suffer
or experience any Change of Control without Coast's prior written consent, which
consent shall be in the discretion of Coast in the exercise of its reasonable
business judgment; or]
(p) Borrower shall generally not pay its debts as they become due,
or Borrower shall conceal, remove or transfer any part of its property, with
intent to hinder, delay or defraud its creditors, or make or suffer any transfer
of any of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or
(q) Borrower shall fail to file a patent application on any
patentable material or register any trademark, copyright or copyrightable
material which is part of the Collateral or advise Coast of the acquisition,
creation, existence, filing on or registration of any such Collateral.
(r) there shall be any Material Adverse Effect.
13
17
Coast may cease making any Loans or extending any credit hereunder during any of
the above cure periods.
10.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following:
(a) Cease making Loans or otherwise extending any credit to Borrower under
this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;
(c) Take possession of any or all of the Collateral wherever it may be
found, and for that purpose Borrower hereby authorizes Coast without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store or remove any of the Collateral. and remain
on the premises or cause a custodian to remain on the premises in exclusive
control thereof, without charge for so long as Coast deems it reasonably
necessary in order to complete the enforcement of its rights under this
Agreement or any other agreement; provided, however, that should Coast seek to
take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives:
(i) any bond and any surety or security relating thereto required by
any statute, court rule or otherwise as an incident to such possession;
(ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and
(iii) any requirement that Coast retain possession of, and not
dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and make it
available to Coast at places designated by Coast which are reasonably convenient
to Coast and Borrower, and to remove the Collateral to such locations as Coast
may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral
prior to a disposition thereof and, for such purpose and for the purpose of
removal, Coast shall have the right to use Borrower's premises, vehicles,
hoists, lifts, cranes, equipment and all other property without charge. Coast is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Coast's benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Coast to endorse or sign Borrower's name on all
14
18
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value; and
(h) Demand and receive possession of any of Borrower's federal and state
income tax returns and the books and records utilized in the preparation thereof
or referring thereto.
All attorneys' fees, expenses, costs, liabilities and obligations
incurred by Coast (including attorneys' fees and expenses incurred in connection
with bankruptcy) with respect to the foregoing shall be due from the Borrower to
Coast on demand. Coast may charge the same to Borrower's loan account, and the
same shall thereafter bear interest at the same rate as is applicable to the
Receivable Loans. Without limiting any of Coast's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional three percent per annum.
10.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7) days prior
to the sale, and, in the case of a public sale, notice of the sale is published
at least seven (7) days before the sale in a newspaper of general circulation in
the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general, non-specific
terms;
(c) The sale is conducted at a place designated by Coast, with or without
the Collateral being present:
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m. Los
Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's check or wire
transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast may (but is
not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and selling
the Collateral, in its discretion, if they are commercially reasonable.
10.4 POWER OF ATTORNEY. Borrower grants to Coast an irrevocable power of
attorney coupled with an interest, authorizing and permitting Coast (acting
through any of its employees, attorneys or agents) at any time, at its option,
but without obligation, with or without notice to Borrower, and at Borrower's
expense, to do any or all of the following, in Borrower's name or otherwise, but
Coast agrees to exercise the following powers in a commercially reasonable
manner:
(a) Execute on behalf of Borrower any documents that Coast may, in its
sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of Borrower
or Coast, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or to lease (as
lessor or lessee) any real or personal property which is part of Coast' s
Collateral or in which Coast has an interest;
(c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;
15
19
(d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Coast' s
possession;
(e) Endorse all checks and other forms of remittances received by Coast;
(f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same;
(g) Grant extensions of time to pay, compromise claims and settle
Receivables and General Intangibles for less than face value and execute all
releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to secure the
release of any liens therefor, or both;
(i) Settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Coast the same rights of
access and other rights with respect thereto as Coast has under this Agreement;
and
(k) Take any action or pay any sum required of Borrower pursuant to this
Agreement and any other present or future agreements.
Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees and
expenses incurred pursuant to bankruptcy) with respect to the foregoing shall be
added to and become part of the Obligations, and shall be payable on demand.
Coast may charge the foregoing to Borrower's loan account and the foregoing
shall thereafter bear interest at the same rate applicable to the Receivable
Loans. In no event shall Coast's rights under the foregoing power of attorney or
any of Coast's other rights under this Agreement be deemed to indicate that
Coast is in control of the business, management or properties of Borrower.
Borrower shall pay, indemnify, defend, and hold Coast and each of its officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits , actions, investigations,
proceedings, and damages, and all attorneys fees and disbursements and other
costs and expenses actually incurred in connection therewith (as and when they
are incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person hereunder with respect to any Indemnified Liability that a
court of competent jurisdiction finally determines to have resulted from the
gross negligence or willful misconduct of such Indemnified Person. This
provision shall survive the termination of this Agreement and the repayment of
the Obligations.
10.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Coast first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Coast in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
16
20
10.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, Coast shall have all the other rights and remedies accorded a
secured party in equity, under the Code, and under all other applicable laws,
and under any other instrument or agreement now or in the future entered into
between Coast and Borrower, and all of such rights and remedies are cumulative
and none is exclusive. Exercise or partial exercise by Coast of one or more of
its rights or remedies shall not be deemed an election, nor bar Coast from
subsequent exercise or partial exercise of any other rights or remedies. The
failure or delay of Coast to exercise any rights or remedies shall not operate
as a waiver thereof, but all rights and remedies shall continue in full force
and effect until all of the Obligations have been indefeasibly paid and
performed.
11. GENERAL PROVISIONS.
11.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations three (3) Business Days after
receipt by Coast of immediately available funds, and, for purposes of the
foregoing, any such funds received after 10:30 AM Los Angeles, California time,
on any day shall be deemed received on the next Business Day. Coast shall be
entitled to charge Borrower's account for such three (3) Business Days of
"clearance" or "float" at the rate(s) set forth in Section 3 of the Schedule on
all checks., wire transfers and other items received by Coast, regardless of
whether such three (3) Business Days of "clearance" or "float" actually occur,
and shall be deemed to be the equivalent of charging three (3) Business Days of
interest on such collections. This across-the-board three (3) Business Day
clearance or float charge on all collections is acknowledged by the parties to
constitute an integral aspect of the pricing of Coast's financing of Borrower.
Coast shall not, however, be required to credit Borrower's account for the
amount of any item of payment which is unsatisfactory to Coast in its sole
discretion, and Coast may charge Borrower's loan account for the amount of any
item of payment which is returned to Coast unpaid.
11.2 APPLICATION OF PAYMENTS. Subject to Section 10.5 hereof, all payments
with respect to the Obligations may be applied, and in Coast's sole discretion
reversed and re-applied, to the Obligations, in such order and manner as Coast
shall determine in its sole discretion.
11.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan account, in which event they will bear interest from the date due to the
date paid at the same rate applicable to the Loans.
11.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
11.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, facsimile or certified mail return
receipt requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Coast shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, faxed (at time of confirmation of
transmission), or at the expiration of one (1) Business Day following delivery
to the private delivery service, or two (2) Business Days following the deposit
thereof in the United States mail, with postage prepaid.
11.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
11.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
no oral understandings, representations or agreements between
17
21
the parties which are not set forth in this Agreement or in other written
agreements signed by the parties in connection herewith.
11.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any Default shall not waive or affect any other
Default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
11.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
11.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
11.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
11.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast
for all attorneys' fees (including attorneys' fees and expenses incurred
pursuant to bankruptcy) and all filing, recording, search, title insurance,
appraisal, audit, and other costs incurred by Coast, pursuant to, or in
connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any attorneys' fees and costs (including
attorneys' fees and expenses incurred pursuant to bankruptcy) Coast incurs in
order to do the following: prepare and negotiate this Agreement and the
documents relating to this Agreement; obtain legal advice in connection with
this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce Coast's
security interest in, the Collateral; and otherwise represent Coast in any
litigation relating to Borrower. If either Coast or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its costs and attorneys' fees
(including attorneys' fees and expenses incurred pursuant to bankruptcy),
including (but not limited to) attorneys' fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgment. Borrower shall also pay Coast's standard charges for returned checks
and for wire transfers, in effect from time to time. All attorneys' fees, costs
and charges (including attorneys' fees and expenses incurred pursuant to
bankruptcy) and other fees, costs and charges to which Coast may be entitled
pursuant to this Agreement may be charged by Coast to Borrower's loan account
and shall thereafter bear interest at the same rate as the Receivable Loans.
11.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
Borrower from its liability for the Obligations. Coast may assign its rights and
delegate its duties hereunder by the sale of assignment or participation
interests, all without the consent of Borrower. Coast reserves the right to
syndicate all or a portion of the transaction created herein or sell, assign
transfer, negotiate, or grant participation's in
18
22
all or any part of, or any interest in Coast's rights and benefits hereunder. In
connection with any such syndication., assignment or participation, Coast may
disclose all documents and information which Coast now or hereafter may have
relating to Borrower or Borrower's business. To the extent that Coast assigns
its rights and obligations hereunder to a third Person, Coast thereafter shall
be released from such assigned rights and obligations to Borrower.
11.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.
11.15 PARAGRAPH HEADINGS, CONSTRUCTION. Paragraph headings are only used
in this Agreement for convenience. Borrower and Coast acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or Borrower under any rule
of construction or otherwise.
11.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the internal laws of the State of California, without
regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower: (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles, and that the exclusive
venue therefor shall be Los Angeles County; (b) consents to the jurisdiction and
venue of any such court and consents to service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and (c)
waives any and all rights Borrower may have to object to the jurisdiction of any
such court, or to transfer or change the venue of any such action or proceeding.
11.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PARENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
Commonwealth Energy Corporation
By: /s/ James L. Oliver
-----------------------------------
Name: James L. Oliver
Title: Chief Financial Officer
And by: /s/ John A. Barthrop
-----------------------------------
Name: John A. Barthrop
Title: Secretary
electricAMERICA, Inc.
By: /s/ James L. Oliver
-----------------------------------
Name: James L. Oliver
Title: Chief Financial Officer
And by: /s/ John A. Barthrop
-----------------------------------
Name: John A. Barthrop
Title: Secretary
19
23
Electric.com, Inc.
By: /s/ James L. Oliver
-----------------------------------
Name: James L. Oliver
Title: Chief Financial Officer
And by: /s/ John A. Barthrop
-----------------------------------
Name: John A. Barthrop
Title: Secretary
COAST:
Coast Business Credit,
a division of Southern Pacific Bank
By: /s/ Robert D. Peters
-----------------------------------
Name: Robert D. Peters
Title: Vice President
20
24
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
Borrower: Commonwealth Energy Corporation
Address: 15901 Red Hill, Suite 100
Tustin, California 92870
Borrower: electricAMERICA, Inc.
Address: 15901 Red Hill, Suite 100
Tustin, California 92870
Borrower: electric.com, Inc.
Address: 15901 Red Hill, Suite 100
Tustin, California 92870
Date: June 30, 2000
This Schedule forms an integral part of the Loan and Security
Agreement between Coast Business Credit, a division of Southern Pacific Bank,
and the above-borrower of even date.
SECTION 2 - CREDIT FACILITIES
SECTION 2.1 - CREDIT LIMIT: Loans in a total amount at any time
outstanding not to exceed the lesser of a total of FIFTEEN MILLION DOLLARS
($15,000,000.00) ("Maximum Dollar Amount"), or the total sum outstanding under
(a)(i) or (a)(ii) below:
(a) Collection Loans in an amount not to exceed the lesser of
(i) One (1.0) times the total monthly Eligible
Collections, during the months October through April, measured monthly on a
rolling three (3) month moving average, or
(ii) One and one-half (1.5) times the total
monthly Eligible Collections, during the months May through September, measured
monthly on a rolling three (3) month moving average.
The increase in the Collections multiple from one (1) to one and
one-half (1.5) during the months May through September shall not be permitted
until Coast has received and approved Borrower's final July 31, 1998 and July 3
1, 1999 fiscal year end audited financial statements.
In the event quarterly Eligible Collections based on a rolling
twelve (12) month average drop twenty percent (20%) or more, Coast shall have
the right, in its sole and absolute discretion, to adjust the Collections
multiples set forth above.
SECTION 3 - INTEREST AND FEES
SECTION 3.1 - INTEREST RATE: A rate equal to the Prime Rate plus
1.75% per annum, calculated on the basis of a 360-day year for the actual number
of days elapsed. The interest rate applicable to all Loans shall be adjusted
monthly effective as of the first day of each month, and the interest to be
charged for each month shall be based on the highest Prime Rate in effect during
the prior month, but in no event shall the rate of interest charged on any Loans
in any month be less than 9.00% per annum.
SECTION 3.1 - MINIMUM MONTHLY INTEREST: An amount equal to the
Interest Rate described above charged against an outstanding daily loan balance
equal to thirty-five percent (35%) of the Maximum Dollar Amount.
1
25
SECTION 3.2 - LOAN FEE: Three Hundred Thousand Dollars
($300,000.00), such amount being fully earned on the Closing Date, and payable
One Hundred Fifty Thousand Dollars ($150,000.00), on the Closing Date, and
Seventy-five Thousand Dollars ($75,000.00) on each of the first two (2)
anniversaries of the Closing Date thereafter.
SECTION 9.1 - RENEWAL FEE: 0.50% of the Maximum Dollar Amount per
year.
SECTION 9.2 - EARLY TERMINATION FEE: An amount equal to one percent
(1%) of the Maximum Dollar Amount (as defined in the Schedule) if early
termination occurs.
SECTION 5 - CONDITIONS PRECEDENT
SECTION 5.2 - MINIMUM AVAILABILITY: One Million Dollars
($1,000,000.00) at funding
SECTION 5.13 - OTHER DOCUMENTS AND AGREEMENTS:
1. Joint and Several Borrower Rider;
2. Validity Agreements from Ian Carter, James Oliver and
Borrower's Chief Operating Officer within 30 days of appointment;
3. UCC-1 financing statements, fixture filings and termination
statements;
4. Security Agreements (including those covering domain name,
copyrights, patents and trademarks);
5. Warrants; and
6. Intercreditor and Subordination Agreements.
SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.2 - PRIOR NAMES OF BORROWER: None.
SECTION 6.2 - PRIOR TRADE NAMES OF BORROWER: None.
SECTION 6.2 - EXISTING TRADE NAMES OF BORROWER: None.
SECTION 6.3 - OTHER LOCATIONS AND ADDRESSES: 535 Route 38,
Suite 123, Cherry Hill, NJ 08002
SECTION 6.10 - MATERIAL ADVERSE LITIGATION: Chappell v.
Commonwealth Energy Corporation; Hohl v Commonwealth Energy Corporation;
Wykidal v. Commonwealth Energy Corporation.
SECTION 6.10 - FUTURE CLAIMS AND LITIGATION: Borrower will promptly
inform Coast in writing of any claim, proceeding, litigation or investigation in
the future threatened or instituted by or against Borrower involving any single
claim of Fifty Thousand Dollars ($50,000.00) or more, or involving One Hundred
Thousand Dollars ($ 100,000.00) or more in the aggregate.
SECTION 8 - ADDITIONAL DUTIEES OF BORROWER
SECTION 8.1 - FINANCIAL COVENANTS:
1. At the Closing Date and all times during the Term hereof,
Borrower shall maintain a minimum Tangible Net Worth (as defined in Section I of
the Agreement) in an amount not
2
26
less than Fifteen Million Dollars ($15,000,000.00), which amount shall increase
quarterly by adding eighty percent (80%) of Net Income based on Borrower's
financial projections.
2. At the Closing Date and all times during the Term hereof,
Borrower shall maintain a minimum unencumbered and unrestricted cash and cash
equivalent (including excess loan availability) balance at the beginning of each
month to cover no less than six (6) months of Borrower's cash bum rate, based on
a six (6) month moving average, using the latest three (3) months actual cash
bum combined with the projected next three (3) months cash burn.
3. Audited fiscal year end financial statements must have a
positive gross margin.
SECTION 8.1 - OTHER PROVISIONS:
1. All Collections, including Green-e rebates from the
California Energy Commission, shall be made via a lockbox, in form and substance
approved by Coast. In the event Green-e rebates cannot be deposited directly
into the lockbox, they shall be excluded from Eligible Collections.
2. Satisfactory legal review of Borrower's contracts with
customers, utility companies and suppliers.
3. Coast's receipt of CPA draft audited financial statements
for fiscal -year end July 31, 1998 and fiscal year end July 31, 1999 within
forty-five days from the Closing Date that are not materially different than the
internal statements provided by Borrower.
4. Borrower shall have no accounts payable over ninety (90)
days past invoice date at the time of funding.
5. All of Borrower's applicable taxes shall be paid and
current at the time of funding and at all times during the Term of the Loan and
Security Agreement.
6. Borrower shall ensure that Coast is granted a first
priority and only perfected security interest, except for Permitted Liens and a
software program called TRIUMPH, on all of Borrower's tangible and intangible
assets including, without limitation, accounts receivables, inventory, machinery
and equipment, and all other tangible and intangible assets including domain or
URL names, patents, trademarks and/or copyrights. Security agreements in domain
or URL names, patents, trademarks and copyrights shall be filed with the
appropriate agency prior to the Closing Date.
7. Perfected lien on Borrower's registered domain name
"electric.com".
8. Assignment of contracts as required by Coast.
9. Intercreditor and Subordination Agreements, in form and
substance acceptable to Coast.
10. Subordination of performance bonds in form and substance
acceptable to Coast.
11. Coast to receive 100,000 warrants, in form and substance
acceptable to Coast, in Borrower, Commonwealth Energy Corporation.
12. All existing electricity supplier contracts must remain in
effect unless replaced with contracts acceptable and pre-approved by Coast.
3
27
13. Borrower shall notify Coast immediately in the event any
changes occur to the Green-e rebates. Borrower hereby acknowledges that Coast
retains the right, in its sole and absolute discretion, to exclude the Green-e
rebates from the three (3) month rolling average collections at any time.
SECTION 8.2 - INSURANCE: Subject to the limitations set forth in
Section 8.2 of the Agreement, Coast shall release to Borrower insurance proceeds
with respect to Equipment totaling less than Fifty Thousand Dollars
($50,000.00).
SECTION 8.3 - REPORTING: Borrower shall provide Coast with the
following:
1. Monthly Receivable agings, aged by invoice date, within
five (5) days after the end of each month.
2. Monthly accounts payable agings, aged by invoice date, and
outstanding or held check registers within five (5) days after the end of each
month.
3. Monthly internally prepared financial statements, as soon
as available, and in any event within thirty (30) days after the end of each
month.
4. Monthly chum rate analysis report, in form and substance
acceptable to Coast, within five (5) days after the end of each month.
5. Monthly financial statement projections for the remaining
six (6) months of 2000 within thirty (30) days of the Closing Date. Thereafter,
semi-annual financial statement projections within ninety (90) days of the end
of each six (6) month period.
6. Quarterly internally prepared financial statements, as soon
as available, and in any event within forty-five (45) days after the end of each
fiscal quarter of Borrower.
7. Quarterly customer lists, including customer name, address,
and phone number.
8. Annual CPA audited financial statements, as soon as
available, and in any event within ninety (90) days following the end of
Borrower's fiscal year, containing the unqualified opinion of, and certified by,
an independent certified public accountant acceptable to Coast.
SECTION 8.5 - NEGATIVE COVENANTS (ACQUIRED ASSETS): Fifty
Thousand Dollars ($50,000.00).
SECTION 9 - TERM
SECTION 9.1 - MATURITY DATE: June 30, 2003, subject to automatic
renewal as provided in Section 9.1 of the Agreement, and early termination as
provided in Section 9.2 of the Agreement.
4