EXHIBIT 99.2
ACCOUNTS RECEIVABLE LOAN AGREEMENT
This Agreement ("Agreement") is entered into as of January 10, 2002, by
and between EMERGENT INFORMATION TECHNOLOGIES, INC., a California corporation
("Borrower"), and CITY NATIONAL BANK, a national banking association ("CNB").
1. DEFINITIONS. As used in this Agreement, these terms have the following
meanings:
1.1 "ACCOUNT" or "ACCOUNTS" has the meaning given in the Code, and
includes, but is not limited to, any right to payment for goods sold or leased
or for services rendered which is not evidenced by an instrument or chattel
paper from any Person, whether now existing or hereafter arising or acquired,
whether or not it has been earned by performance.
1.2 "ACCOUNT DEBTOR" means the Person obligated on an Account.
1.3 "AFFILIATE" means any Person directly or indirectly controlling,
controlled by, or under common control with Borrower, and includes any employee
stock ownership plan of Borrower or an Affiliate. "Control" (including with
correlative meaning, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities, by
contract or otherwise.
1.4 "AUDIT FEE" is $2,500.00 for each field examination and audit of
Borrower's operations, books and records and the Collateral, not to exceed
$5,000.00 per annum.
1.5 "BORROWER'S LOAN ACCOUNT" means the statement of daily balances on
the books of CNB in which will be recorded Revolving Credit Loans made by CNB to
Borrower, payments made on such loans, and other appropriate debits and credits
as provided by this Agreement. CNB will provide a statement of account for
Borrower's Loan Account at least once each month on a date established by CNB,
which statement will be accepted by and conclusively binding upon Borrower
unless it notifies CNB in writing to the contrary, within five (5) business days
of receipt of such statement, or ten (10) business days after sending of such
statement if Borrower does not notify CNB of its non-receipt of the statement.
Statements regarding other credit extended to Borrower will be provided
separately.
1.6 "BORROWING BASE" will be in an amount, determined by CNB, equal to
seventy five percent (75%) of the Eligible Accounts. In no event will the
Borrowing Base exceed the Revolving Credit Commitment.
1.7 "BORROWING BASE CERTIFICATE" means the certificate, in form and
satisfactory to CNB, executed by Borrower to evidence the Borrowing Base.
1.8 "CODE" means the Uniform Commercial Code of California, as currently
in effect and as amended and replaced from time to time, except where the
Uniform Commercial Code of another state governs the perfection of a security
interest in Collateral located in that state.
1.9 "COLLATERAL" means all property securing the Obligations, as
described in Section 8.
1.10 "COMMERCIAL LETTERS OF CREDIT" means letters of credit issued
pursuant to this Agreement and in response to Borrower's submission of an
Irrevocable Letter of Credit Application and Security Agreement.
1.11 "COMMITMENT" means CNB's commitment to make the Loans and issue
Letters of Credit in the aggregate principal amount outstanding at any one time
of up to SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000.00).
1
1.12 "DEBT" means, at any date, the aggregate amount of, without
duplication, (a) all obligations of Borrower or any Subsidiary for borrowed
money, or reimbursement for open letters of credit and banker's acceptances, (b)
all obligations of Borrower or any Subsidiary evidenced by bonds, debentures,
notes or other similar instruments, (c) all obligations of Borrower or any
Subsidiary to pay the deferred purchase price of property or services, (d) all
capitalized lease obligations of Borrower or any Subsidiary, (e) all obligations
or liabilities of others secured by a lien on any asset of Borrower or any
Subsidiary, whether or not such obligation or liability is assumed, (f) all
obligations guaranteed by Borrower or any Subsidiary, (g) all obligations,
direct or indirect, for letters of credit, and (h) any other obligations or
liabilities which are required by GAAP to be shown as liabilities on the balance
sheet of Borrower or any Subsidiary.
1.13 "DEMAND DEPOSIT ACCOUNT" means Borrower's demand deposit account
No. 023-809958 maintained with CNB.
1.14 "DILUTION" will be determined at the end of each month by CNB for
the preceding three-month period by dividing total reductions, excluding cash
collections of Accounts, by gross sales which gave rise to the Accounts for such
three-month period.
1.15 "ELIGIBLE ACCOUNT" means an Account of Borrower:
1.15.1 Upon which Borrower's right to receive payment is
absolute and not contingent upon the fulfillment of any condition;
1.15.2 Against which is asserted no defense, counterclaim,
discount or set-off, whether well-founded or otherwise;
1.15.3 That is a true and correct statement of a bona fide
indebtedness incurred in the amount of the Account with respect to a money
obligation owed by the Account Debtor, including but not limited to obligations
arising, for goods sold or leased and delivered to, or for services rendered to
and accepted by, the Account Debtor;
1.15.4 That is owned by Borrower free and clear of all liens,
encumbrances, charges, interests and rights of others, except the security
interests granted to CNB;
1.15.5 That does not arise from a sale or lease to or for
services rendered to an employee, stockholder, director, Subsidiary or Affiliate
of Borrower or any entity in which any employee, stockholder, director,
Subsidiary or Affiliate of Borrower has any interest;
1.15.6 That is not the obligation of an Account Debtor that is
the federal government unless perfected under the Federal Assignment of Claims
Act of 1940, as amended;
1.15.7 That is not the obligation of an Account Debtor located
in a foreign country, except Canada, unless the obligation is insured by foreign
credit insurance satisfactory to CNB or through a letter of credit negotiated
through CNB with drawing documents in order;
1.15.8 That is due and payable not more than thirty (30) days
from the original invoice date unless otherwise agreed to in writing by CNB;
1.15.9 As to which not more than ninety (90) days has elapsed
since the original invoice date;
1.15.10 As to which the Account Debtor has not:
2
(a) died, suspended business, made a general assignment
for the benefit of creditors, become the subject of a petition under the
Bankruptcy Code or consented to or applied for the appointment of a receiver,
trustee, custodian or liquidator for itself or any of its property;
(b) become more than sixty (60) days past due, under the
original terms of sale, with respect to 20% or more of the amounts owed by such
Account Debtor to Borrower;
(c) had its check in payment of an Account returned
unpaid; or
(d) become or appear to have become unable, as
determined by CNB in good faith and in exercise of reasonable business
judgement, to pay the Account in accord with its terms;
1.15.11 That does not, when added to all other Accounts that are
obligations of the Account Debtor to Borrower, result in a total sum that
exceeds twenty percent (20%) of the total balance then due on all Accounts;
provided, however, with respect to Account Debtors, Boeing, Lockheed and
Raytheon, the foregoing is thirty percent (30%); and
1.15.12 That is not an obligation owed by the Account Debtor
which is evidenced by chattel paper or an instrument as those terms are defined
in the Code.
1.16 "FACILITY FEE" is $18,750.00.
1.17 "GAAP" means generally accepted accounting principles, consistently
applied.
1.18 "GUARANTOR(s)" is STEVEN MYERS & ASSOCIATES, INC., a California
corporation.
1.19 "INVENTORY" means goods held for sale or lease in the ordinary
course of business, work in process and any and all raw materials used in
connection with the foregoing.
1.20 "LETTERS OF CREDIT" means Standby Letters of Credit.
1.21 "LETTERS OF CREDIT COMMITMENT" is $3,000,000.00.
1.22 "LOAN" or "LOANS" means the loans extended by CNB to Borrower
pursuant to Section 2.
1.23 "LOAN DOCUMENTS" means, individually and collectively, this
Agreement, any note, guaranty, security or pledge agreement, financing statement
and all other contracts, instruments, addenda and documents executed in
connection with or related to extensions of credit under this Agreement.
1.24 "OBLIGATIONS" means all present and future liabilities and
obligations of Borrower to CNB hereunder and all other liabilities and
obligations of Borrower to CNB of every kind, now existing or hereafter owing,
matured or unmatured, direct or indirect, absolute or contingent, joint or
several, including any extensions and renewals thereof and substitutions
therefor.
1.25 "PERSON" means any individual or entity.
1.26 "POTENTIAL EVENT OF DEFAULT" means any condition that with the
giving of notice or passage of time or both would, unless cured or waived,
become an Event of Default.
1.27 "PRIME LOAN" means any Loan tied to the Prime Rate.
3
1.28 "PRIME RATE" means the rate most recently announced by CNB at its
principal office in Beverly Hills, California as its "Prime Rate." Any change in
the interest rate resulting from a change in the Prime Rate will become
effective on the day on which each change in the Prime Rate is announced by CNB.
1.29 "REVOLVING CREDIT COMMITMENT" means CNB's commitment to make the
Revolving Credit Loans and issue Letters of Credit in the aggregate principal
amount at any one time of up to SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($7,500,000.00).
1.30 "STANDBY LETTERS OF CREDIT" means standby letters of credit issued
pursuant to this Agreement and in response to Borrower's submission of an
Irrevocable Standby Letter of Credit Application and Letter of Credit Agreement.
1.31 "SUBORDINATED DEBT" means Debt of Borrower or any Subsidiary, the
repayment of which is subordinated, on terms satisfactory to CNB, to the
Obligation.
1.32 "SUBSIDIARY" means any corporation, the majority of whose voting
shares are at any time owned, directly or indirectly, by Borrower and/or by one
or more Subsidiaries.
1.33 "TANGIBLE NET WORTH" means the total of all assets appearing on a
balance sheet prepared in accordance with GAAP for Borrower and the Subsidiaries
on a consolidated basis, minus (a) all intangible assets, including, without
limitation, unamortized debt discount, Affiliate, employee, officer and
stockholder receivables or advances, goodwill, research and development costs,
patents, trademarks, the excess of purchase price over underlying values of
acquired companies, any covenants not to compete, deferred charges, copyrights,
franchises and appraisal surplus; minus (b) the amount, if any, at which shares
of stock of a non-wholly owned Subsidiary appear on the asset side of Borrower's
consolidated balance sheet, as determined in accordance with GAAP; minus (c) all
obligations which are required by GAAP to be classified as a liability on the
consolidated balance sheet of Borrower and the Subsidiaries; minus (d) minority
interests; and minus (e) deferred income and reserves not otherwise classified
as a liability on the consolidated balance sheet of Borrower and the
Subsidiaries.
1.34 "TERMINATION DATE" means April 30, 2003, unless the term of this
Agreement is renewed by CNB and Borrower for an additional period under Section
3, or such earlier termination date under Section 9.3 upon the occurrence of an
Event of Default. Upon any renewal, the Termination Date will be the renewed
maturity date determined by CNB and agreed upon by Borrower.
1.35 "TOTAL SENIOR LIABILITIES" means, as of any date of determination,
the amount of all liabilities that should be reflected as a liability on a
consolidated balance sheet of Borrower and the Subsidiaries prepared in
accordance with GAAP, less Subordinated Debt.
2. THE CREDIT.
2.1 REVOLVING CREDIT LOAN. Subject to the terms of this Agreement, CNB
agrees to make loans ("Revolving Credit Loans") to Borrower, from the date of
this Agreement up to but not including the Termination Date, at such times as
Borrower may request, up to the amount of the Borrowing Base as of such date of
determination, less the amount of outstanding Letters of Credit. The Revolving
Credit Loans may be repaid and reborrowed at any time up to the Termination
Date; provided, however, that the aggregate unpaid principal amount of
outstanding Revolving Credit Loans will at no time exceed the Borrowing Base
less the amount of outstanding Letters of Credit.
2.1.1 INTEREST. The Revolving Credit Loans will bear interest
from disbursement until due (whether at stated maturity, by acceleration or
otherwise) at a fluctuating rate equal to:
(i) the Prime Rate plus one percent (1.00%) per year;
4
(ii) the Prime Rate plus one half of one percent (1/2%)
upon the occurrence of a quarter ending with a ratio of Total Senior Liabilities
to Tangible Net Worth plus Subordinated Debt of not more than 3.0 to 1; and
(iii) the Prime Rate upon the occurrence of a quarter
ending with a ratio of Total Senior Liabilities to Tangible Net Worth plus
Subordinated Debt of not more than 2.0 to 1.
Interest on the Revolving Credit Loans and other charges
incurred under this Agreement will be payable monthly in arrears on the first
day of each month for the previous month, commencing on the first such date
after the date hereof, and on the Termination Date.
2.1.2 MINIMUM MONTHLY PAYMENTS. Borrower will pay CNB a monthly
fee from the date hereof until the next Termination Date, whether or not the
Obligations have been repaid, equal to $1,000.00 less the amount of interest
paid by Borrower for Revolving Credit Loans for such month.
2.1.3 PAYMENT FOR AMOUNTS EXCEEDING BORROWING BASE. Borrower
will, immediately upon written demand, repay the amount by which the unpaid
principal amount of Borrower's Loan Account exceeds the amount CNB has agreed to
lend under Section 2.1. The portion of the Revolving Credit Loans exceeding the
Borrowing Base will bear additional interest of three percent (3.0%) per year
over the rate set forth in Section 2.1.1.
2.2 LETTER OF CREDIT FACILITY. CNB will, at the request of the Borrower
any time up to the Termination Date, issue Letters of Credit for the account of
Borrower. The aggregate face amount of outstanding Letters of Credit at any time
will not exceed the lesser of (a) the Letter of Credit Commitment or (b) the
Borrowing Base, less Revolving Credit Loans outstanding.
2.2.1 ISSUANCE OF LETTERS OF CREDIT. Standby Letters of Credit
will be issued in accordance with an Irrevocable Standby Letter of Credit
Application and Letter of Credit Agreement submitted by Borrower and
incorporated herein by this reference, subject to the terms of this Agreement in
the event of any conflict herewith. Letters of Credit will be issued on the
normal documentation used by CNB from time to time in accord with the Uniform
Customs and Practices for Documentary Credits (1993 Revision) International
Chamber of Commerce Publication No. 500. Unless CNB otherwise agrees in writing,
no Letter of Credit may expire after the Termination Date. Standard CNB fees and
charges will apply to the issuance of Letters of Credit.
2.2.2 REIMBURSEMENT FOR FUNDING LETTER OF CREDIT. Any drawing
under a Letter of Credit will be deemed to be an irrevocable request for a
Revolving Credit Loan under this Agreement. Borrower's obligation to reimburse
CNB may also be satisfied by charging Borrower's demand deposit account if
requested by Borrower. CNB's obligation under this Subsection to make a
Revolving Credit Loan will exist irrespective of the existence of any Potential
Event of Default or Event of Default.
2.3 DEFAULT INTEREST RATE. From and after written notice by CNB to
Borrower of the occurrence of an Event of Default (and without constituting a
waiver of such Event of Default), the Loans and any other amounts due CNB
hereunder (and interest to the extent permitted by law) will bear additional
interest at a fluctuating rate equal to five percent (5.0%) per year higher than
the interest rate as determined in Sections 2.1.1 and 2.1.3, until the Event of
Default has been cured. All interest provided for in this Section will be
compounded monthly and payable on demand.
2.4 PAYMENTS. All payments will be in United States Dollars and in
immediately available funds. Interest will accrue daily and will be computed on
the basis of a 360-day year, actual days elapsed. All payments of principal,
interest, fees and other charges incurred under this Agreement will be made by
charging, and Borrower hereby authorizes CNB to charge, Borrower's Demand
Deposit Account or Borrower's Loan Account. All loan disbursements made pursuant
to this Agreement shall be made by direct deposit to Borrower's Demand Deposit
Account. Borrower also authorizes CNB to charge to Borrower's Demand Deposit
Account or Borrower's Loan Account any payment credited against the Obligations
which is dishonored by the drawee or maker thereof.
5
2.5 AUDIT FEE. Borrower will pay the Audit Fee not to exceed $5,000.00
per annum. Borrower hereby authorizes CNB to charge Borrower's Demand Deposit
Account or Borrower's Loan Account for the amount of each such fee.
3. TERM AND TERMINATION.
3.1 ESTABLISHMENT OF TERMINATION DATE. The term of this Agreement will
begin as of the date hereof and continue until the Termination Date, unless the
term is renewed for an additional period by mutual written agreement between CNB
and Borrower, in which event the Termination Date will mean the renewed maturity
date set forth in such written agreement. Notwithstanding the foregoing, CNB
may, at its option, terminate this Agreement pursuant to Section 9.3; the date
of any such termination will become the Termination Date as that term is used in
this Agreement. Upon renewal, Borrower shall authorize CNB to charge Borrower's
Loan Account with the amount of the Facility Fee and any applicable Audit Fee.
3.2 OBLIGATIONS UPON THE TERMINATION DATE. Borrower will, upon the
Termination Date:
3.2.1 Repay the amount of the balance due as set forth in
Borrower's Loan Account plus any accrued interest, fees and charges;
3.2.2 Pay CNB in immediately available funds the aggregate face
amount of the Letters of Credit outstanding to be held as cash collateral for
Borrower's obligation to reimburse CNB upon the funding of such Letters of
Credit; and
3.2.3 Pay the amounts due on all other Obligations owing to CNB.
In this connection and notwithstanding anything to the contrary contained in the
instruments evidencing such Obligations, the Termination Date hereunder will
constitute the maturity date of such other Obligations.
3.3 SURVIVAL OF RIGHTS. Any termination of this Agreement will not
affect the rights, liabilities and obligations of the parties with respect to
any Obligations outstanding on the date of such termination. Until all
Obligations have been fully repaid, CNB will retain its security interest in all
existing Collateral and Collateral arising thereafter, and Borrower will
continue to assign all Accounts to CNB and to immediately turn over to CNB, in
kind, all collections received on the Accounts.
4. CONDITIONS PRECEDENT.
4.1 EXTENSION OF CREDIT. The obligation of CNB to make any Loan or other
extension of credit hereunder is subject to CNB's receipt of each of the
following, in form and substance satisfactory to CNB, and duly executed as
required by CNB:
4.1.1 All Loan Documents required by CNB, including but not
limited to this Agreement and any guaranties required hereunder;
4.1.2 (a) a copy of Borrower's Articles of Incorporation; (b) a
Resolution of Borrower's Board of Directors approving and authorizing the
execution, delivery and performance of this Agreement and any other documents
required pursuant to this Agreement, certified by Borrower's corporate
secretary; and, (c) a copy of the last certificate filed on behalf of Borrower
containing the information required by California Corporations Code Section
1502(a) or Section 2117(a), as applicable;
4.1.3 (a) a copy of the Articles of Incorporation of Steven
Myers & Associates, Inc., a California corporation; (b) a Resolution of the
Board of Directors of Steven Myers & Associates, Inc. approving and authorizing
the execution, delivery and performance of its continuing guaranty, certified by
its corporate secretary; and, (c) a copy of the last certificate filed on behalf
of Steven Myers & Associates, Inc. containing the information required by
California Corporations Code Section 1502(a) or Section 2117(a), as applicable;
6
4.1.4 (a) copies (and acknowledgement copies to the extent
reasonably available) of financing statements (Form UCC-1) duly filed under the
Code in all such jurisdictions as may be necessary or, in CNB's opinion,
desirable to perfect CNB's security interests created under this Agreement; and
(b) evidence that all filings, recordings and other actions that are necessary
or advisable, in CNB's opinion, to establish, preserve and perfect CNB's
security interests and liens as legal, valid and enforceable first security
interests and liens in the Collateral have been effected;
4.1.5 Evidence that the insurance required by Section 6.6 hereof
is in effect;
4.1.6 A complete list of claims made against Borrower together
with an opinion of Borrower's counsel with respect to such claims, that the
representations contained in Section 5.5 are true and correct as of the date of
this Agreement; and
4.1.7 The Facility Fee through the initial Termination Date
equal to $18,750.00.
4.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The obligation of CNB to
make any Loan or other extension of credit hereunder will be subject to the
fulfillment of each of the following conditions to CNB's satisfaction:
4.2.1 The representations and warranties of Borrower set forth
in Section 5 will be true and correct on the date of the making of each Loan or
other extension of credit with the same effect as though such representations
and warranties had been made on and as of such date;
4.2.2 No Guarantor will have revoked his, her or its guaranty
and no such guaranty will have become otherwise unenforceable with respect to
future advances;
4.2.3 No holder of Subordinated Debt, to the extent the holder
is a party to a Subordination Agreement, will be in violation of his, her or its
Subordination Agreement executed in favor of CNB, and such Subordination
Agreement is enforceable with respect to future advances;
4.2.4 There will be in full force and effect in favor of CNB a
legal, valid and enforceable first security interest in, and a valid and binding
first lien on the Collateral; and CNB will have received evidence, in form and
substance acceptable to CNB, that all filings, recordings and other actions that
are necessary or advisable, in the opinion of CNB, in order to establish,
protect, preserve and perfect CNB's security interests and liens as legal, valid
and enforceable first security interests and liens in the Collateral have been
effected;
4.2.5 There will be no Event of Default or Potential Event of
Default that has occurred and has not been cured or waived; and
4.2.6 All other documents and legal matters in connection with
the transactions described in this Agreement will be satisfactory in form and
substance to CNB.
5. REPRESENTATIONS AND WARRANTIES. Borrower makes the following representations
and warranties, which will survive the making and repayment of the Loans and
other extensions of credit:
5.1 CORPORATE EXISTENCE, POWER AND AUTHORIZATION. Borrower and each
Subsidiary is duly organized, validly existing and in good standing under the
laws of the state its organization, and is duly qualified to conduct business in
each jurisdiction in which its business is conducted. The execution, delivery
and performance of all Loan Documents executed by Borrower are within Borrower's
powers and have been duly authorized by the Board of Directors of Borrower and
do not require any consent or approval of the stockholders of Borrower.
7
5.2 BINDING AGREEMENT. The Loan Documents constitute the valid and
legally binding obligations of Borrower, enforceable against Borrower in
accordance with their terms.
5.3 ANCILLARY DOCUMENTS. To the extent that any security agreement,
subordination agreement or guaranty is required to be executed by a Subsidiary
or Affiliate, the representations and warranties set forth in Sections 5.1 and
5.2 are also true and correct with respect to such Subsidiary and Affiliate and
such document.
5.4 OTHER AGREEMENTS. The execution and performance of the Loan
Documents will not violate any provision of law or regulation (including,
without limitation, Regulations X and U of the Federal Reserve Board) or any
order of any governmental authority, court or arbitration board or the Articles
of Incorporation or Bylaws of Borrower, or result in the breach of or a default
under any provisions of any material agreement to which Borrower is a party.
5.5 LITIGATION. There is no litigation, tax claim, investigation or
proceeding pending, threatened against or affecting Borrower, any Subsidiary or
Guarantor, or any of their respective properties which, if adversely determined,
would have a material adverse effect on the business, operation or condition,
financial or otherwise, of Borrower or any Subsidiary or Guarantor.
5.6 FINANCIAL CONDITION. The most recent financial statements of
Borrower and each Guarantor, if any, copies of which have been delivered to CNB,
have been prepared in accordance with GAAP and are true, complete and correct
and fairly present in all material respects the financial condition of Borrower,
its Subsidiaries and each Guarantor, including operating results, as of the
accounting period referenced therein. There has been no material adverse change
in the financial condition or business of Borrower or any Subsidiary or
Guarantor since the date of such financial statements. Neither Borrower nor any
Subsidiary or Guarantor has any material liabilities for taxes or long-term
leases or commitments, except as disclosed in the financial statements.
5.7 NO VIOLATIONS. Borrower is not, nor is any Subsidiary, in violation
of any law, ordinance, rule or regulation to which it or any of its properties
is subject which violation of would have a material adverse effect on Borrower
or its Subsidiaries.
5.8 COLLATERAL. Borrower owns and has possession of and has the right
and power to grant a security interest in the Collateral, and the Collateral is
genuine and free from liens, adverse claims, set-offs, defaults, prepayments,
defenses and encumbrances except those in favor of CNB. No bills of lading,
warehouse receipts or other documents or instruments of title are outstanding
with respect to the Collateral or any portion of the Collateral, in favor of a
Person other than Borrower. The office where Borrower keeps its records
concerning all Accounts and where it keeps the bulk of its Inventory is 4965
MacArthur Court, 8th Floor, Newport Beach, California 92660.
5.9 ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974
("ERISA"). No "Reportable Event" (as defined in ERISA and the regulations issued
thereunder [other than a "Reportable Event" not subject to the provision for
thirty (30) day notice to the Pension Benefit Guaranty Corporation ("PBGC")
under such regulations]) has occurred with respect to any benefit plan of
Borrower nor are there any unfunded vested liabilities under any benefit plan of
Borrower. Borrower has met its minimum funding requirements under ERISA with
respect to each of its plans and has not incurred any material liability to the
PBGC in connection with any such plan.
5.10 CONSENTS. No consent, license, permit, or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority or agency is required in connection with the
execution, delivery and performance by Borrower of this Agreement or the
transactions contemplated hereby.
5.11 USE OF PROCEEDS. The proceeds of the Revolving Credit Loans will be
used by Borrower solely for working capital purposes in the normal course of
business.
8
5.12 REGULATION U. Borrower is not engaged principally, or as one of its
principal activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations U or X of
the Federal Reserve Board). No part of the proceeds of the Loans will be used by
Borrower to purchase or carry any such margin stock or to extend credit to
others for the purpose of purchasing or carrying such margin stock.
5.13 ENVIRONMENTAL MATTERS.
5.13.1 The operations of Borrower and each Subsidiary comply in
all material respects with all applicable federal, state and local
environmental, health and safety statutes, regulations and ordinances and fully
comply with all terms of all required permits and licenses.
5.13.2 Borrower and each Subsidiary have received no notices of
threatened or pending governmental or private civil, criminal or administrative
proceeding regarding any environmental or health and safety statute, regulation
or ordinance and have not been subject to any federal, state or local
investigations, inspections or orders regarding any environmental or health and
safety statute, regulation or ordinance.
5.13.3 Neither Borrower nor any Subsidiary knows of any facts or
conditions which may exist which may subject Borrower or any Subsidiary to
liability or contingent liability and neither Borrower nor any Subsidiary is
presently liable or contingently liable for any removal, remedial, response or
other costs or damages in connection with any release into the environment of
toxic or hazardous substances or waste included on any federal, state or local
hazardous chemical or substance lists under any federal, state or local statute,
regulation or ordinance.
5.13.4 Borrower will, at all times, indemnify and hold CNB
(which for purposes of this Section and Section 10.8 includes CNB's parent
company and subsidiaries and all of their respective shareholders, directors,
officers, employees, agents, representatives, successors, attorneys and assigns)
harmless from and against any liabilities, claims, demands, causes of action,
losses, damages, expenses (including without limitation reasonable attorneys'
fees [which attorneys may be employees of CNB, or may be outside counsel]),
costs, settlements, judgments or recoveries directly or indirectly arising out
of or attributable to the use, generation, manufacture, production, storage,
release, threatened release, discharge, disposal or presence of a hazardous
substance on, under, or about Borrower's property or operations or property
leased to or used by Borrower. For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as "hazardous" or
"toxic" under any Federal, state, or local law. This indemnity will survive the
Termination Date and the repayment of all Obligations of Borrower to CNB.
6. AFFIRMATIVE COVENANTS. Borrower agrees that until payment in full of all
Obligations, Borrower will comply with the following covenants:
6.1 COLLATERAL.
6.1.1 Borrower will, on receipt of written demand of CNB, make
available to CNB, shipping and delivery receipts evidencing the shipment of the
goods which gave rise to an Account; completion certificates or other
commercially reasonable proof of the satisfactory performance of services which
gave rise to an Account; a copy of the invoice for each Account; and Borrower's
copy of any written contract or order from which an Account arose. Unless
previously requested by Borrower in writing to return such documents, CNB will
be authorized to destroy any such documentation six (6) months after its receipt
by CNB;
6.1.2 Borrower will advise CNB within ten (10) days whenever an
Account Debtor refuses to retain, or returns, any goods from the sale of which
an Account arose, and will comply with any instructions which CNB may give
regarding the sale or other disposition of such returns;
6.1.3 Borrower will give CNB, upon receipt of written request,
specific assignments of Accounts after they come into existence, and schedules
of Accounts, the form and content of such assignments and
9
schedules to be satisfactory to CNB; but, despite this provision for express
assignments to CNB, CNB will have a continuing security interest in all Accounts
irrespective of whether some Accounts are omitted from such assignments or
whether any assignments are ever given; and Borrower will execute and deliver to
CNB any instrument, document, financing statement, assignment or other writing
which CNB may deem necessary or desirable to carry out on the terms of this
Agreement, to perfect CNB's security interest in the Accounts, and any other
Collateral for the Obligations, or to enable CNB to enforce its security
interest in any of the foregoing;
6.1.4 Borrower will maintain, in accord with sound accounting
practices, accurate records and books of account showing, among other things,
all Inventory and Accounts, the proceeds of the sale or other disposition
thereof and the collections therefrom. Borrower will permit representative(s) of
CNB, at any reasonable time during normal business hours, to inspect, audit,
examine and make extracts or copies from all books, records and other data
relating to the Collateral except to the extent such information is classified
or deemed secret or any level of secret or similar classification pursuant to
appropriate governmental authority unless such access is permitted by applicable
governmental regulations, to inspect any of Borrower's properties and to confirm
balances due on Accounts by direct inquiry to Account Debtors, and will give
CNB, promptly upon request, all information regarding the business or finances
of Borrower except as limited herein;
6.1.5 Borrower will, if requested by CNB, mark its records
concerning its Inventory and Accounts in a manner satisfactory to CNB to show
CNB's security interest therein;
6.1.6 Borrower will, if requested by CNB, provide CNB with a
current physical count of its Inventory in the manner specified by CNB;
6.1.7 Borrower will endorse to the order of and deliver to CNB
any negotiable instrument accepted by Borrower in lieu of payment in accord with
the original terms of sale;
6.1.8 Borrower will pay CNB, upon receipt of written demand, the
cost, including, but not limited to reasonable attorneys' fees and expenses
(which counsel may be CNB employees) expended or incurred by CNB (or allocable
to CNB's in-house counsel) in the collection or enforcement of any Accounts or
other Collateral if CNB itself undertakes such collection or enforcement,
together with all taxes, charges and expenses of every kind or description paid
or incurred by CNB under or with respect to loans hereunder or any Collateral
therefor and Borrower authorizes CNB to charge the same to any deposit account
of Borrower or Borrower's Loan Account maintained with CNB;
6.1.9 Borrower will promptly notify CNB of any occurrence or
discovery of any event which would cause or has caused a previously Eligible
Account to become ineligible;
6.1.10 Borrower will maintain the tangible Collateral in good
condition and promptly notify CNB of any event causing loss or reduction of
value of Collateral and the amount of such loss or reduction; and
6.1.11 Borrower will, upon request by CNB, but in no event less
than once every six (6) months, supply CNB with a current list of the names and
addresses of all Account Debtors.
6.2 FINANCIAL STATEMENTS. Borrower will furnish to CNB on a continuing
basis:
6.2.1 Within thirty (30) days after the end of month, or sooner
if available, a financial statement consisting of not less than a balance sheet,
income statement, reconciliation of net worth and statement of cash flows, with
notes thereto, prepared in accordance with GAAP, which financial statement may
be internally prepared;
6.2.2 Within one hundred twenty (120) days after the close of
Borrower's fiscal year, a copy of the annual audit report for Borrower and the
Subsidiaries, including therein a balance sheet, income statement,
reconciliation of net worth and statement of cash flows, with notes thereto, the
balance sheet, income statement and
10
statement of cash flows to be audited by a certified public accountant
acceptable to CNB, certified by such accountant to have been prepared in
accordance with GAAP and accompanied by the following: (a) supporting schedules
of costs of goods sold, operating expenses and other income and expense items,
and (b) Borrower's certification as to whether any event has occurred which
constitutes an Event of Default or Potential Event of Default, and if so,
stating the facts with respect thereto;
6.2.3 Upon request by CNB, a copy of the Federal Income Tax
Return of Borrower;
6.2.4 Within thirty (30) days of filing, a copy of the Federal
Income Tax Return of each Guarantor, if any; and
6.2.5 Within three business days of filing, a copy of any filing
made by the Borrower with the Securities and Exchange Commission, which copy may
be in electronic form.
6.3 COLLATERAL REPORTS. Borrower will supply the following collateral
reports, together with such additional information, reports and/or statements as
CNB may reasonably request, within fifteen (15) days after the end of each
month:
6.3.1 A listing and aging by invoice date of all accounts
receivable and accounts payable (together with sales and payment terms, and
detail of outstanding balances due by invoice date from all Account Debtors);
6.3.2 A reconciliation of such aging with the previous aging
delivered to CNB and CNB account records;
6.3.3 A listing of all Inventory, setting out types, locations
and dollar value, which dollar value is in conformity with GAAP, in form
acceptable to CNB; and
6.3.4 A Borrowing Base Certificate.
6.4 FINANCIAL STATEMENTS OF GUARANTORS. No later than one hundred twenty
(120) days after Borrower's fiscal year end of each year, Borrower will provide
CNB with the financial statement, in form and substance satisfactory to CNB, of
each Guarantor certified by such Guarantor to be true and correct.
6.5 TAXES AND PREMIUMS. Borrower will, and will cause each Subsidiary
to, pay and discharge all taxes, assessments, governmental charges, and real and
personal taxes including, but not limited to, federal and state income taxes,
employee withholding taxes and payroll taxes, and all premiums for insurance
required hereunder, prior to the date upon which penalties are attached thereto.
CNB may pay, for the account of Borrower, any of the foregoing which Borrower
fails to pay; any such amounts will be debited to Borrower's Loan Account and
will be paid by Borrower to CNB, with interest thereon at the rate stated in
Section 2.1.1, upon receipt of written demand.
6.6 INSURANCE.
6.6.1 Borrower will, and will cause each Subsidiary to, (a) keep
its Inventory, equipment and any other tangible personal property which is
Collateral insured for the benefit of CNB under a standard mortgagee protection
clause (to whom any loss will be payable) in such amounts, by such companies and
against such risks as may be reasonably satisfactory to CNB; (b) pay the cost of
all such insurance; and (c) deliver certificates evidencing such insurance to
CNB (and copies of policies if requested); and Borrower hereby assigns to CNB
all right to receive proceeds of such insurance, and agrees to direct any
insurer to pay all proceeds directly to CNB, and authorizes CNB to endorse
Borrower's name to any draft or check for such proceeds;
6.6.2 In addition to the insurance required above, Borrower
will, and will cause each Subsidiary to, maintain insurance of the types and in
amounts customarily carried in its lines of business, including,
11
but not limited to, fire, public liability, property damage, business
interruption and worker's compensation, such insurance to be carried with
companies and in amounts reasonably satisfactory to CNB, and deliver to CNB,
upon request, schedules setting forth all insurance then in effect; and
6.6.3 If Borrower fails to provide and maintain the policies of
insurance required hereunder after written notice by CNB of such insurance
deficiency, CNB may, but is not obligated to, procure such insurance, and
Borrower will pay all reasonable premiums thereon promptly upon receipt of
written demand by CNB, together with interest thereon at the rate set forth in
Section 2.1.1 hereof from the date of expenditure until reimbursement by
Borrower.
6.7 NOTICE. Borrower will promptly advise CNB in writing of (a) the
opening of any new, or the closing of any existing, places of business, each
location at which Inventory or equipment is or will be kept, and any change of
Borrower's name, trade name or other name under which it does business or of any
such new or additional name; (b) the occurrence of any Event of Default or
Potential Event of Default; (c) any litigation pending or threatened where the
amount or amounts in controversy exceed $100,000.00; (d) any unpaid taxes which
are more than fifteen (15) days delinquent; and (e) any other matter which might
materially affect Borrower's or any Subsidiary's or Guarantor's financial
condition, property or business.
6.8 FAIR LABOR STANDARDS ACT. Borrower will, and will cause each
Subsidiary to, comply with the requirements of, and all regulations promulgated
under, the Fair Labor Standards Act.
6.9 CORPORATE EXISTENCE. Borrower will, and will cause each Subsidiary
to, maintain its corporate existence and all of its rights, privileges and
franchises necessary in the normal course of its business.
6.10 COMPLIANCE WITH LAW. Borrower will, and will cause each Subsidiary,
to exercise all due diligence in order to comply with all requirements of all
applicable laws, rules, regulations (including, but not limited to, ERISA with
respect to each of their benefit plans, and all environmental and hazardous
materials laws), orders of any governmental agency and all material agreements
to which they are a party.
6.11 FINANCIAL TESTS. Borrower will maintain at all times:
6.11.1 Tangible Net Worth plus Subordinated Debt of not less
than $3,750,000.00 through June 30, 2002; and thereafter $3,750,000.00 plus
$1,500,000.00 times the number of fiscal quarters which have ended after June
30, 2002; and
6.11.2 A ratio of Total Senior Liabilities to Tangible Net Worth
plus Subordinated Debt of not more than 5.0 to 1 through March 31, 2002; (a) 4.0
to 1 as of March 31, 2002 and until June 30, 2002; (b) 3.0 to 1 as of June 30,
2002 and until September 30, 2002 and (c) 2.0 to 1 thereafter.
7. NEGATIVE COVENANTS. Borrower agrees that until payment in full of all the
Obligations, Borrower will not, nor will it permit any Subsidiary to, do any of
the following, without CNB's prior written consent:
7.1 BORROWING. Create, incur, assume or permit to exist any Debt except
(a) Debt to CNB, (b) Subordinated Debt, and (c) trade Debt in the ordinary
course of Borrower's business.
7.2 SALE OF ASSETS. Sell, lease or otherwise dispose of any of
Borrower's or any Subsidiary's assets, other than merchandise Inventory in the
ordinary course of business.
7.3 LOANS. Make loans or advances to any Person, except credit extended
to employees or to customers in the ordinary course of business.
7.4 CONTINGENT LIABILITIES. Assume, guarantee, endorse, contingently
agree to purchase or otherwise become liable for the obligation of any Person,
including Borrower, a Subsidiary or Affiliate, except (a) by the
12
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, and (b) contingent liabilities
in favor of CNB.
7.5 INVESTMENTS. Purchase or acquire the obligations or stock of, or any
other interest in, any partnership, joint venture or corporation, except (a)
direct obligations of the United States of America; (b) investments in
certificates of deposit issued by, and other deposits with, commercial banks
organized under the United States or a State thereof having capital of at least
One Hundred Million Dollars ($100,000,000.00).
7.6 MORTGAGES, LIENS, ETC. Mortgage, pledge, hypothecate, grant or
contract to grant any security interest in any property or assets, except (a)
all existing liens; (b) purchase money liens upon or in any property acquired or
held by Borrower or any Subsidiary in the ordinary course of business to secure
the purchase price of such property or to secure indebtedness incurred solely
for the purpose of financing the acquisition of such property; (c) liens
associated with any operating leases; and (d) liens securing the Obligations
("Permitted Liens") .
7.7 INVOLUNTARY LIENS. Permit any involuntary liens to arise with
respect to any property or assets including but not limited to those arising
from the levy of a writ of attachment or execution, or the levy of any state or
federal tax lien which lien will not be removed within a period of thirty (30)
days.
7.8 SALE AND LEASEBACK. Enter into any sale-leaseback transaction.
7.9 MERGERS AND ACQUISITIONS. Enter into any merger or consolidation, or
acquire all or substantially all the assets of any Person, except (a) a
Subsidiary may be merged into or consolidated with another Subsidiary or with
Borrower; (b) Borrower may consummate any acquisition so long as the acquired
assets or business are directly related to the business of the Borrower or any
Subsidiary and after giving effect to such acquisition to the Borrower remains
in compliance with all of the financial covenants set forth herein; and (c)
Borrower may form additional Subsidiaries under clause (b) of this Section,
provided within fifteen (15) days of this formation or acquisition such
Subsidiary shall execute and deliver to CNB any agreement with CNB to which
Steven Myers & Associates is a party.
7.10 DIVIDENDS AND PURCHASE OF STOCK. Redeem or repurchase stock or
partnership interests, declare or pay any dividends or make any distribution,
whether of capital, income or otherwise, and whether in cash or other property,
except that any Subsidiary may declare distributions to Borrower.
7.11 EVENT OF DEFAULT. Permit a default to occur under any document or
instrument evidencing Debt with a principal amount in excess of $100,000.00
incurred under any indenture, agreement or other instrument under which such
Debt may be issued, or any event to occur under any of the foregoing which would
result in acceleration thereunder and cause same to become due and payable
before its stated maturity.
8. SECURITY AGREEMENT.
8.1 GRANT OF SECURITY INTEREST. To secure all Obligations hereunder as
well as all other Obligations to CNB, Borrower hereby grants and transfers to
CNB a continuing security interest in the following property whether now owned
or hereafter acquired:
8.1.1 All of Borrower's Inventory;
8.1.2 All of Borrower's Accounts;
8.1.3 All of Borrower's general intangibles as that term is
defined in the Code;
8.1.4 All of Borrower's equipment, as that term is defined in
the Code;
13
8.1.5 All of Borrower's interest in any patents (now existing or
pending), copyrights, trade names, trademarks and service marks useful to the
operation of Borrower's business;
8.1.6 All notes, drafts, acceptances, instruments, documents of
title, policies and certificates of insurance, chattel paper, guaranties and
securities now or hereafter received by Borrower or in which Borrower has or
acquires an interest;
8.1.7 All cash and noncash proceeds of the foregoing property,
including, without limitation, proceeds of policies of fire, credit or other
insurance;
8.1.8 All of Borrower's books and records pertaining to any of
the Collateral described in this Section 8.1; and
8.1.9 Any other Collateral which CNB and Borrower may designate
as additional security from time to time by separate instruments.
8.2 NOTIFICATION OF ACCOUNT DEBTORS. CNB will have the right to notify
any Account Debtor to make payments directly to CNB, take control of the cash
and noncash proceeds of any Account, and settle any Account, which right CNB may
exercise at any time upon the occurrence of a Potential Event of Default or an
Event of Default has occurred or whether Borrower was theretofore making
collections thereon. Until CNB elects to exercise such right, Borrower is
authorized on behalf of CNB to collect and enforce the Accounts. Immediately
upon CNB's request, Borrower will deliver to CNB for application in accord with
this Agreement, all checks, drafts, cash and other remittances in payment or on
account of payment of its Accounts on the banking day following the receipt
thereof, and in precisely the form received, except for the endorsement of
Borrower where necessary to permit collection of the items, which endorsement
Borrower hereby agrees to make. Pending such delivery, Borrower will not
commingle any such checks, cash, drafts and other remittances with any of its
other funds or property, but will hold them separate and apart therefrom
expressly in trust for CNB. All such remittances will be accompanied by such
statements and reports of collections and adjustments as CNB may specify.
8.3 ATTORNEY-IN-FACT. CNB or any of its officers is hereby irrevocably
made the true and lawful attorney for Borrower with full power of substitution
to do the following: (a) endorse the name of Borrower upon any and all checks,
drafts, money orders and other instruments for the payment of moneys which are
payable to Borrower and constitute collections on Accounts; (b) execute in the
name of Borrower any schedules, assignments, instruments, documents and
statements which Borrower is obligated to give CNB hereunder; (c) receive, open
and dispose of all mail addressed to Borrower; (d) notify the Post Office
authorities to change the address for delivery of mail addressed to Borrower to
such address as CNB will designate; and (e) do such other acts in the name of
Borrower which CNB may deem necessary or desirable to enforce any Account or
other Collateral. The powers granted CNB hereunder are solely to protect its
interests in the Collateral and will not impose any duty upon CNB to exercise
any such powers. The appointment of CNB as Borrower's attorney and the rights
and powers set forth in this Section shall remain in effect until such time as
this Agreement is terminated and the Obligations have been paid.
9. EVENTS OF DEFAULT AND PROCEEDINGS UPON DEFAULT.
9.1 EVENTS OF DEFAULT. After expiration of any applicable cure period
set forth in Section 9.2, the following will constitute Events of Default under
this Agreement:
9.1.1 Borrower fails to pay when due any installment of
principal or interest or any other amount payable under this Agreement,
including but not limited to amounts payable under Section 2.1.3;
9.1.2 Any Person, or any Subsidiary of any Person, which is a
party to any Loan Document fails to perform or observe any of the terms,
provisions, covenants, agreements or obligations;
14
9.1.3 Any financial statement, representation or warranty made
or furnished by Borrower or any Subsidiary or Guarantor in connection with the
Loan Documents proves to be in any material respect incorrect;
9.1.4 The entry of an order for relief or the filing of an
involuntary petition with respect to Borrower or any Subsidiary or Guarantor
under the United States Bankruptcy Code; the appointment of a receiver, trustee,
custodian or liquidator of or for any part of the assets or property of Borrower
or any Subsidiary or Guarantor; or Borrower or any Subsidiary or Guarantor makes
a general assignment for the benefit of creditors;
9.1.5 CNB's security interest in or lien on any portion of the
Collateral becomes impaired or otherwise unenforceable;
9.1.6 Any Person obtains an order or decree in any court of
competent jurisdiction enjoining or prohibiting Borrower or CNB from performing
this Agreement, and such proceedings are not dismissed or such decree is not
vacated within ten (10) days after the granting thereof;
9.1.7 Borrower or any Subsidiary neglects, fails or refuses to
keep in full force and effect any governmental permit, license or approval which
is necessary to the operation of its business;
9.1.8 All or substantially all of the property of Borrower or
any Guarantor or Subsidiary is condemned, seized or otherwise appropriated;
9.1.9 The occurrence of (a) a Reportable Event (as defined in
ERISA) which CNB determines in good faith constitutes grounds for the
institution of proceedings to terminate any pension plan by the PBGC, (b) an
appointment of a trustee to administer any pension plan of Borrower, or (c) any
other event or condition which might constitute grounds under ERISA for the
involuntary termination of any pension plan of Borrower, where such event set
forth in (a), (b) or (c) results in a significant monetary liability to
Borrower;
9.1.10 Dilution exceeds five percent (5.00%);
9.1.11 STEVEN S. MYERS no longer controls at least fifteen
percent (15%) of the stock of Borrower;
9.1.12 Any obligee of Subordinated Debt fails to comply with the
provisions of the documents evidencing such Subordinated Debt or any
Subordination Agreement; and
9.1.13 Any Guarantor revokes its Guaranty, or such Guaranty
becomes otherwise unenforceable with respect to future advances.
9.2 NOTICE OF DEFAULT AND CURE OF POTENTIAL EVENTS OF DEFAULT. Except
with respect to the Events of Default specified in Sections 9.1.1, 9.1.4 or
9.1.5 above, and subject to the provisions of Section 9.4, CNB will give
Borrower at least ten (10) business days' written notice of any event which
constitutes, or with the lapse of time would become, an Event of Default, during
which time Borrower will be entitled to cure same.
9.3 CNB'S REMEDIES. Upon the occurrence of an Event of Default, at the
sole and exclusive option of CNB, and upon written notice to Borrower, CNB may
(a) declare the principal of and accrued interest on the Loans immediately due
and payable in full, whereupon the same will immediately become due and payable;
(b) terminate this Agreement as to any future liability or obligation of CNB,
but without affecting CNB's rights and security interest in the Collateral and
without affecting the Obligations owing by Borrower to CNB; and/or (c) exercise
its rights and remedies under the Loan Documents and all rights and remedies of
a secured party under the Code and other applicable laws with respect to the
Collateral.
9.4 ADDITIONAL REMEDIES. Notwithstanding any other provision of this
Agreement, upon the occurrence of any event, action or inaction by Borrower, or
if any action or inaction is threatened which CNB
15
reasonably believes will materially affect the value of the Collateral, CNB may
take such legal actions as it deems necessary to protect the Collateral,
including, but not limited to, seeking injunctive relief and the appointment of
a receiver, whether an Event of Default or Potential Event of Default has
occurred under this Agreement.
10. MISCELLANEOUS.
10.1 REIMBURSEMENT OF COSTS AND EXPENSES. Borrower will reimburse CNB
for all costs and expenses relating to this Agreement including, but not limited
to, filing, recording or search fees, audit or verification fees, appraisals of
the Collateral and other out-of-pocket expenses, and reasonable attorneys' fees
and expenses expended or incurred by CNB (or allocable to CNB's in-house
counsel) in documenting or administering the Loan Documents or collecting any
sum which becomes due CNB under the Loan Documents, irrespective of whether suit
is filed, or in the protection, perfection, preservation or enforcement of any
and all rights of CNB in connection with the Loan Documents, including, without
limitation, the fees and costs incurred in any out-of-court work-out or a
bankruptcy or reorganization proceeding.
10.2 DISPUTE RESOLUTION.
10.2.1 MANDATORY ARBITRATION. At the request of CNB or Borrower,
any dispute, claim or controversy of any kind (whether in contract or tort,
statutory or common law, legal or equitable) now existing or hereafter arising
between CNB and Borrower and in any way arising out of, pertaining to or in
connection with: (1) this Agreement, and/or any renewals, extensions, or
amendments thereto; (2) any of the Loan Documents; (3) any violation of this
Agreement or the Loan Documents; (4) all past, present and future loans; (5) any
incidents, omissions, acts, practices or occurrences arising out of or related
to this Agreement or the Loan Documents causing injury to either party whereby
the other party or its agents, employees or representatives may be liable, in
whole or in part, or (6) any aspect of the present or future relationships of
the parties, will be resolved through final and binding arbitration conducted at
a location determined by the arbitrator in Los Angeles, California, and
administered by the American Arbitration Association ("AAA") in accordance with
the California Arbitration Act (Title 9, California Code of Civil Procedure
Section 1280 et. seq.) and the then existing Commercial Rules of the AAA.
Judgment upon any award rendered by the arbitrator(s) may be entered in any
state or federal courts having jurisdiction thereof.
10.2.2 REAL PROPERTY COLLATERAL. Notwithstanding the provisions
of Section 10.2.1, no controversy or claim will be submitted to arbitration
without the consent of all the parties if, at the time of the proposed
submission, such controversy or claim arises from or relates to an obligation
owed to CNB which is secured in whole or in part by real property collateral. If
all parties do not consent to submission of such a controversy or claim to
arbitration, the controversy or claim will be determined as provided in Section
10.2.3.
10.2.3 JUDICIAL REFERENCE. At the request of any party, a
controversy or claim which is not submitted to arbitration as provided and
limited in Sections 10.2.1 and 10.2.2 will be determined by a reference in
accordance with California Code of Civil Procedure Sections 638 et. seq. If such
an election is made, the parties will designate to the court a referee or
referees selected under the auspices of the AAA in the same manner as
arbitrators are selected in AAA-sponsored proceedings. The presiding referee of
the panel, or the referee if there is a single referee, will be an active
attorney or retired judge. Judgment upon the award rendered by such referee or
referees will be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
10.2.4 PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No
provision of this Agreement will limit the right of any party to: (1) foreclose
against any real property collateral by the exercise of a power of sale under a
deed of trust, mortgage or other security agreement or instrument, or applicable
law, (2) exercise any rights or remedies as a secured party against any personal
property collateral pursuant to the terms of a security agreement or pledge
agreement, or applicable law, (3) exercise self help remedies such as setoff, or
(4) obtain provisional or ancillary remedies such as injunctive relief or the
appointment of a receiver from a court having jurisdiction before, during or
after the pendency of any arbitration or referral. The institution and
maintenance of an
16
action for judicial relief or pursuit of provisional or ancillary remedies, or
exercise of self help remedies will not constitute a waiver of the right of any
party, including the plaintiff, to submit any dispute to arbitration or judicial
reference.
10.2.5 POWERS AND QUALIFICATIONS OF ARBITRATORS. The
arbitrator(s) will give effect to statutes of limitation, waiver and estoppel
and other affirmative defenses in determining any claim. Any controversy
concerning whether an issue is arbitratable will be determined by the
arbitrator(s). The laws of the State of California will govern. The arbitration
award may include equitable and declaratory relief. All arbitrator(s) selected
will be required to be a practicing attorney or retired judge licensed to
practice law in the State of California and will be required to be experienced
and knowledgeable in the substantive laws applicable to the subject matter of
the controversy or claim at issue.
10.2.6 DISCOVERY. The provisions of California Code of Civil
Procedure Section 1283.05 or its successor section(s) are incorporated herein
and made a part of this Agreement. Depositions may be taken and discovery may be
obtained in any arbitration under this Agreement in accordance with said
section(s).
10.2.7 MISCELLANEOUS. The arbitrator(s) will determine which is
the prevailing party and will include in the award that party's reasonable
attorneys' fees and costs (including allocated costs of in-house legal counsel).
Each party agrees to keep all controversies and claims and the arbitration
proceedings strictly confidential, except for disclosures of information
required in the ordinary course of business of the parties or by applicable law
or regulation.
10.3 CUMULATIVE RIGHTS AND NO WAIVER. All rights and remedies granted to
CNB under the Loan Documents are cumulative and no one such right or remedy is
exclusive of any other. No failure or delay on the part of CNB in exercising any
right or remedy will operate as a waiver thereof, and no single or partial
exercise or waiver by CNB of any such right or remedy will preclude any further
exercise thereof or the exercise of any other right or remedy.
10.4 APPLICABLE LAW. This Agreement will be governed by California law.
10.5 LIEN AND RIGHT OF SET-OFF. Borrower grants to CNB a continuing lien
for all Obligations of Borrower to CNB upon any and all moneys, securities and
other property of Borrower and the proceeds thereof, now or hereafter held or
received by or in transit to CNB from or for Borrower, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, and also upon any and
all deposits (general or special) and credits of Borrower with, and any and all
claims of Borrower against, CNB at any time existing. Upon the occurrence of any
Event of Default, CNB is hereby authorized at any time and from time to time,
without notice to Borrower or any other Person to setoff, appropriate and apply
any or all items hereinabove referred to against all Obligations of Borrower
whether under this Agreement or otherwise, and whether now existing or hereafter
arising.
10.6 NOTICES. Any notice required or permitted under any Loan Document
will be given in writing and will be deemed to have been given when personally
delivered or when sent by the U.S. mail, postage prepaid, certified, return
receipt requested, properly addressed. For the purposes hereof, the addresses of
the parties will, until further notice given as herein provided, be as follows:
CNB: CITY NATIONAL BANK
118111 Von Karman Avenue, Suite 120
Irvine, California 92612
Attention: Account Manager
17
with copy to: CITY NATIONAL BANK, Legal Department
400 North Roxbury Drive
Beverly Hills, California 90210-5021
Attention: Managing Counsel, Credit Unit
RIORDAN & MCKINZIE
300 South Grand Avenue, 29th Floor
Los Angeles, California 90071
Attention: Thomas Waldman, Esq.
Borrower: EMERGENT INFORMATION TECHNOLOGIES, INC.
4965 MacArthur Court, 8th Floor
Newport Beach, CA 92660
Attention: Cathy L. Wood, CFO/Secretary
10.7 ASSIGNMENTS. The provisions of this Agreement are hereby made
applicable to and will inure to the benefit of CNB's successors and assigns and
Borrower's successors and assigns; provided, however, that Borrower may not
assign or transfer its rights or obligations under this Agreement without the
prior written consent of CNB. CNB may assign this Agreement and its rights and
duties hereunder. CNB reserves the right to sell, assign, transfer, negotiate,
or grant participations in all or any part of, or any interest in CNB's rights
and benefits hereunder. In connection therewith, CNB may disclose all documents
and information which CNB now or hereafter may have relating to Borrower or
Borrower's business.
10.8 INDEMNIFICATION. Borrower will, at all times, defend and indemnify
and hold CNB harmless from and against any and all liabilities, claims, demands,
causes of action, losses, damages, expenses (including without limitation
reasonable attorneys' fees [which attorneys may be employees of CNB, or may be
outside counsel]), costs, settlements, judgments or recoveries arising out of or
resulting from (a) any breach of the representations, warranties, agreements or
covenants made by Borrower herein; (b) any suit or proceeding of any kind or
nature whatsoever against CNB arising from or connected with the transactions
contemplated by this Agreement, the Loan Documents or any of the rights and
properties assigned to CNB hereunder; and/or (c) any suit or proceeding that CNB
may reasonably deem necessary or advisable to institute, in the name of CNB,
Borrower or both, against any other Person, for any reason whatsoever to protect
the rights of CNB hereunder or under any of the documents, instruments or
agreements executed or to be executed pursuant hereto, including attorneys' fees
and court costs and all other costs and expenses incurred by CNB (or allocable
to CNB's in-house counsel), all of which will be charged to and paid by Borrower
and will be secured by the Collateral. Any obligation or liability of Borrower
to CNB under this Section will survive the Termination Date and the repayment of
all Loans and other extensions of credit and the payment or performance of all
other Obligations of Borrower to CNB.
10.9 COMPLETE AGREEMENT. This Agreement, together with other Loan
Documents, constitutes the entire agreement of the parties and supersedes any
prior or contemporaneous oral or written agreements or understandings, if any,
which are merged into this Agreement. This Agreement may be amended only in a
writing signed by Borrower and CNB.
10.10 HEADINGS. Section headings in this Agreement are included for
convenience of reference only and do not constitute a part of the Agreement for
any purpose.
10.11 ACCOUNTING TERMS. Except as otherwise stated in this Agreement,
all accounting terms and financial covenants and information will be construed
in conformity with, and all financial data required to be submitted will be
prepared in conformity with, GAAP as in effect on the date hereof.
10.12 SEVERABILITY. Any provision of the Loan Documents which is
prohibited or unenforceable in any jurisdiction, will be, only as to such
jurisdiction, ineffective to the extent of such prohibition or unenforceability,
but all the remaining provisions of the Loan Documents will remain valid.
18
10.13 COUNTERPARTS. This Agreement may be signed in any number of
counterparts which, when taken together, will constitute but one agreement.
10.14 JOINT AND SEVERAL. Should more than one Person sign this
Agreement, the obligations of each signer will be joint and several.
IN WITNESS WHEREOF, CNB and Borrower have caused this Agreement to be
executed as of the date first specified at the beginning of this Agreement.
EMERGENT INFORMATION TECHNOLOGIES, INC.,
a California corporation
By: /s/ Steven S. Myers
-------------------------------------
Steven S. Myers, COB/President
By: /s/ Cathy L. Wood
-------------------------------------
Cathy L. Wood, CFO/Secretary
CITY NATIONAL BANK, a national
banking association
By: /s/ Christine Borrelli
-------------------------------------
Christine Borrelli, Vice President
19