EXHIBIT 10.12
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of May 1, 2002, by and between PACER
TECHNOLOGY, a California corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITALS
A. Bank and Borrower previously entered into that certain credit
agreement dated as of January 19, 1999 (as amended from time to time, the "Prior
Credit Agreement").
B. Bank and Borrower wish to amend and restate the Prior Credit
Agreement in its entirety with this Agreement to evidence the extension or
continued extension of credit to Borrower as described below, subject to the
terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
CREDIT TERMS
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including October 1, 2003, not to exceed at any time the aggregate
principal amount of Seven Million Dollars ($7,000,000.00) ("Line of Credit'),
the proceeds of which shall be used for working capital requirements. Borrower's
obligation to repay advances under the Line of Credit shall be evidenced by a
promissory note substantially in the form of Exhibit A attached hereto ("Line of
Credit Note'), all terms of which are incorporated herein by this reference.
(b) Limitation on Borrowings.
(i) Notwithstanding anything to the contrary contained elsewhere
in this Agreement, if Facility Usage (as defined below) under the Line of Credit
at any time exceeds thirty-five percent (35%) of the sum of Borrower's accounts
receivable (exclusive of reserves established by Borrower, if any, for returns,
promotional allowances and bad debt, as set forth on Borrower's collateral
reports) and inventory as reported on Borrower's monthly and annual financial
statements delivered to Bank pursuant to Section 4.3 below (such event being
referred to herein as the "Formula Borrowing Triggering Event"), outstanding
borrowings under the Line of Credit, to a maximum of the principal amount set
forth above, shall not at any time exceed a borrowing base ("Borrowing Base")
equal to the sum of (A) seventy percent (70%) of Borrower's eligible accounts
receivable (exclusive of reserves established by Borrower, if any, for returns,
promotional allowances and bad debt, as set forth on Borrower's collateral
reports), plus (B) forty-six percent (46%) of the cost of Borrower's finished
goods inventory, and thirty-five percent (35%) of the cost of Borrower's raw
materials (exclusive of inventory that is consigned by Borrower or is not
otherwise in Borrower's possession and inventory that is not then subject to a
first priority, lien in favor of Bank, or which is obsolete, unsaleable or
damaged), plus (C) thirty-five percent (35%) of the undrawn amount of commercial
Letters of Credit (as defined in Section 1.1(c) below) issued and outstanding
with respect to inventory acquired by Borrower; provided, however, that
outstanding borrowings against Borrower's inventory and undrawn commercial
Letters of Credit (as described in clauses (B) and (C) above) shall not at any
time exceed 100% of availability for Borrower's eligible accounts receivable
described in clause (A) above. For purposes of the foregoing, "Facility Usage"
shall mean, as of any date of determination, the sum of (x) the aggregate
principal amount of advances then outstanding under the Line of Credit plus (y)
the aggregate undrawn amount of all Letters of Credit then outstanding plus (z)
the aggregate amount of all Acceptances (as defined below) then outstanding.
(ii) All of the foregoing shall he determined by Bank upon
receipt and review of all collateral reports required hereunder and such other
documents and collateral information as Bank may from time to time
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require. Borrower acknowledges that said Borrowing Base was established by Bank
with the understanding that, among other items, the aggregate of all returns,
rebates, discounts, credits and allowances for the immediately preceding three
(3) months at no time shall exceed Borrower's reserves for such amounts as set
forth on Borrower's collateral reports by more than five percent (5%). If the
actual dilution of Borrower's accounts for the immediately preceding three (3)
months at any time exceeds Borrower's reserves by more than five percent (5%)
for said period, or if there at any time exists any other matters, events,
conditions or contingencies which Bank reasonably believes may affect payment of
any portion of Borrower's accounts, Bank, in its sole discretion, may reduce the
foregoing advance rate against eligible accounts receivable to a percentage
appropriate to reflect such additional dilution and/or establish additional
reserves against Borrower's eligible accounts receivable.
(iii) As used herein, "eligible accounts receivable" shall
consist solely of trade accounts created in the ordinary course of Borrower's
business, upon which Borrower's right to receive payment is absolute and not
contingent upon the fulfillment of any condition whatsoever, and in which Bank
has a perfected security interest of first priority, and shall not include:
(A) with respect to accounts with repayment terms of up to 60
days, any such account which is more than 60 days past due; with respect to
accounts with repayment terms of greater than 60 days but not more than 120
days, any such account which is more than 30 days past due; except, in either
case, to the extent that any such account has been excluded in (b) (i) (A) above
as part of the reserves established by Borrower specifically for such account
and attributable to a specific account debtor;
(B) that portion of any account for which there exists any right
of setoff, defense or discount (except regular discounts allowed in the ordinary
course of business to promote prompt payment) or for which any defense or
counterclaim has been asserted;
(C) any account which represents an obligation of any state or
municipal government or of the United States government or any political
subdivision thereof (except accounts which represent obligations of the United
States government and for which the assignment provisions of the Federal
Assignment of Claims Act, as amended or recodified from time to time, have been
complied with to Bank's satisfaction);
(D) any account which represents an obligation of an account
debtor located in a foreign country, (1) except for up to $500,000.00 in the
aggregate of such accounts, (2) except for any account which represents an
obligation of an account debtor located in the Canadian provinces of Alberta,
British Columbia, Manitoba, Ontario, Saskatchewan or the Yukon Territory so long
as, in Bank's determination, such Canadian jurisdictions recognize Bank's first
priority security interest in and right to collect such account as a consequence
of any security agreements and UCC filings in favor of Bank, and (3) except to
the extent any such account, in Bank's determination, is supported by a letter
of credit or insured under a policy of foreign credit insurance, in each case in
form, substance and issued by a party acceptable to Bank;
(E) any account which arises from the sale or lease to or
performance of services for, or represents an obligation of, an employee,
affiliate, partner, member, parent or subsidiary of Borrower;
(F) that portion of any account, which represents interim or
progress billings or retention rights on the part of the account debtor;
(G) any account which represents an obligation of any account
debtor when twenty-five percent (25%) or more of Borrower's accounts from such
account debtor are not eligible pursuant to (A) above;
(H) that portion of any account from an account debtor which
represents the amount by which Borrower's total accounts from said account
debtor exceeds twenty-five percent (25%) of Borrower's total accounts;
(I) any account deemed ineligible by Bank when Bank, in its sole
discretion, deems the creditworthiness or financial condition of the account
debtor, or the industry in which 1:he account debtor is engaged, to be
unsatisfactory.
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(c) Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue or cause
an affiliate to issue standby and/or sight commercial or usance commercial
letters of credit for the account of Borrower to finance Borrower's acquisition
of inventory and other purposes approved by Bank (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided however, that the aggregate undrawn
amount of all outstanding Letters of Credit shall not at any time exceed One
Million Five Hundred Thousand Dollars ($1,500,000.00). The form and substance of
each Letter of Credit shall be subject to approval by Bank, in its sole
discretion. Each commercial Letter of Credit shall be issued for a term not to
exceed one hundred twenty (120) days, as designated by Borrower; provided
however, that no commercial Letter of Credit shall have an expiration date
subsequent to the maturity date of the Line of Credit. Each standby Letter of
Credit shall be issued for a term not to exceed three hundred sixty-five (365)
days, as designated by Borrower; provide however, that no standby Letter of
Credit shall have an expiration date subsequent to the maturity date of the Line
of Credit. The undrawn amount of all Letters of Credit shall be reserved under
the Line of Credit and shall not be available for borrowings thereunder. Each
Letter of Credit shall be subject to the additional terms and conditions of the
Letter of Credit agreements, applications and any related documents required by
Bank in connection with the issuance thereof (each, a "Letter of Credit
Agreement" and collectively, "Letter of Credit Agreements"). Each draft paid
under a Letter of Credit shall be deemed an advance under the Line of Credit and
shall be repaid by Borrower in accordance with the terms and conditions of this
Agreement applicable to such advances; provided however, that if advances under
the Line of Credit are not available, for any reason, at the time any draft is
paid, then Borrower shall immediately pay to Bank the full amount of such draft,
together with interest thereon from the date such draft is paid to the date such
amount is fully repaid by Borrower, at the rate of interest applicable to
advances under the Line of Credit. In such event Borrower agrees that Bank, in
its sole discretion, may debit any account maintained by Borrower with Bank for
the amount of any such draft. Notwithstanding the foregoing, usance commercial
Letters of Credit shall be issued only to finance the importation of goods into
the United States, and shall contain such provisions and be issued in such
manner as to satisfy Bank that any bankers' acceptance created by Bank's
acceptance of a draft thereunder (each, an Acceptance and collectively,
Acceptances) shall be eligible for discount by a Federal Reserve Bank, will not
result in a liability of Bank subject to reserve requirements under any law,
regulation or administrative order, and will not cause Bank to violate any
lending limit imposed upon Bank by any law, regulation or administrative order.
Usance commercial Letters of Credit shall provide for drafts thereunder with
terms which do not exceed the lesser of ninety (90) days or such other period of
time as may be necessary for the Acceptance created thereunder to be eligible
for discount and otherwise comply with this Agreement; provided, however, that
no usance commercial Letter of Credit shall provide for drafts with a term which
ends subsequent to the maturity date of the Line of Credit. The amount of each
matured Acceptance shall be deemed an advance under the Line of Credit and shall
be repaid by Borrower in accordance with the terms and conditions of this
Agreement applicable to such advances; provided, however, that if the Line of
Credit is not available, for any reason whatsoever, at the time any such
Acceptance matures, or if advances are not available under the Line of Credit at
such time due to any limitation on borrowings set forth herein, then Borrower
shall immediately pay to Bank the full amount of such matured Acceptance,
together with interest thereon from the date such Acceptance matures to the date
such amount is fully paid by Borrower, at the rate of interest applicable to
advances under the Line of Credit. In such event, Borrower agrees that Bank, at
Bank's sole discretion, may debit Borrower's deposit account with Bank for the
amount of any such Acceptance.
(d) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of each credit subject
hereto shall bear interest at the rates of interest set forth in each promissory
note or other instrument executed in connection therewith.
(b) Computation and Payment. Interest shall be computed on the basis of a
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in each promissory note or other instrument required hereby.
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(c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
three-eighths percent (.375%) per annum (computed on the basis of a 360-day
year, actual days elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on a fiscal quarter basis by Bank and
shall be due and payable by Borrower in arrears on the last day of each such
fiscal quarter; provided, however, such fee shall be reduced to one-quarter
percent (.25%) per annum if Borrower's EBITDA (as defined in Section 4.9(c)
below) for the fiscal quarters ending March 31, 2002 and June 30, 2002 on a
combined basis is greater than or equal to $1,000,000.00; and provided further,
if the unused commitment fee is reduced as described in the preceding clause,
then it shall continue at such reduced rate during each fiscal quarter
thereafter unless, during any such fiscal quarter, Borrower's EBITDA is less
than $500,000.00, in which case the unused commitment fee shall increase to
three-eighths percent (.375%) per annum. Borrower's EBITDA shall be evidenced by
Borrower's financial statements delivered to Bank pursuant to Section 4.3 below.
Any adjustments to the unused commitment fee hereunder shall be effective as of
the first day of the month following receipt by Bank of Borrower's financial
statements for the applicable fiscal quarter. If Borrower fails to deliver its
financial statements as required under Section 4.3, then until such financial
statements are delivered, the unused commitment fee shall be three-eighths
percent (.375%) per annum.
(d) Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, upon the payment or negotiation of each draft
under any Letter of Credit and upon the occurrence of any other activity with
respect to any Letter of Credit (including without limitation, the transfer,
amendment or cancellation of any Letter of Credit) determined in accordance with
Bank's standard fees and charges then in effect for such activity.
(e) Acceptance Fees. For any Acceptance created hereunder by Bank's
acceptance of a draft presented under a usance commercial Letter of Credit,
Borrower shall pay to Bank, in addition to such processing and other fees as may
be due to Bank in connection with such Letter of Credit, an acceptance fee for
each such Acceptance, payable on the date it is created, determined in
accordance with Bank's standard fees and charges in effect at the time such
Acceptance is created. Bank shall have no obligation to repay all or any portion
of any acceptance fee in the event an Acceptance is paid prior to maturity, by
acceleration or otherwise.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under each credit subject hereto by
charging Borrower's deposit account number 4433-712932 with Bank, or any other
deposit account maintained by Borrower with Bank, for the full amount thereof.
Should there be insufficient funds in any such deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
SECTION 1.4. COLLATERAL.
As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all
Borrower's accounts receivable and other rights to payment, general intangibles,
inventory and equipment.
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements and other documents as Bank shall
reasonably require, all in form and substance satisfactory to Bank. Borrower
shall reimburse Bank immediately upon demand for all costs and expenses incurred
by Bank in connection with any of the foregoing security, including without
limitation, filing and recording fees and costs of appraisals and audits,
provided, however, that so long as no Event of Default or event which with the
passage of time, the giving of notice, or both, would constitute an Event of
Default shall have occurred and remain in effect, Bank agrees that (i) it will
not perform any audit and/or appraisal of Borrower's property more frequently
than once per calendar year and (ii) Borrower's obligation to reimburse Bank for
audit and appraisal costs shall not exceed $2,500 during any calendar year.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of California, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each
promissory note, contract, instrument and other document required hereby or at
any time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated March 31, 2002, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
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SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and each promissory note or other instrument
required hereby.
(ii) Certificate of Incumbency.
(iii) Corporate Resolution: Borrowing.
(iv) Continuing Security Agreement: Rights to Payment and Inventory.
(v) Security Agreement: Equipment.
(vi) UCC Financing Statement.
(vii) A Continuing Standby and Commercial Letter of Credit Agreement.
(viii) One or more applications for letters of credit and related
documents relating to the issuance of Letters of Credit as may be
required by Bank.
(ix) Such other documents as Bank may require under any other Section
of this Agreement.
(c) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
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ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of any credit subject
hereto at any time exceeds any limitation on borrowings applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year,
(i) a consolidated balance sheet of Borrower and its subsidiaries as at the end
of such fiscal year and the consolidated statements of income, retained earnings
and cash flow, in each case of Borrower and its subsidiaries for such fiscal
year, and (ii) consolidating balance sheets and statements of income, retained
earnings and cash flow, in each case as at the end of and for the fiscal year,
all in reasonable detail. Such consolidated balance sheet and consolidated
statements shall be prepared in accordance with generally accepted accounting
principles consistently applied and shall be accompanied by a report of
independent public accountants of recognized standing selected by Borrower and
reasonably satisfactory to Bank, which report shall be prepared in accordance
with generally acceptable auditing standards as at such date, and shall not be
subject to any qualifications or exceptions as to the scope of the audit nor to
any other qualification or exception which are materially adverse to the
interests of Bank;
(b) not later than 20 days after and as of the end of each month, a
consolidated and consolidating financial statement of Borrower and its
subsidiaries, prepared by Borrower, in accordance with generally accepted
principles consistently applied and otherwise consistent with Borrower's prior
practices, to include a balance sheet, an income statement, retained earnings
and a statement of cash flow;
(c) within ten days following the occurrence of the Formula Borrowing
Triggering Event and not later than 15 days after and as of the end of each
month thereafter, a borrowing base certificate, an inventory collateral report,
an aged listing of accounts receivable and accounts payable, and a
reconciliation of accounts;
(d) as soon as practicable and in any event within 60 days after the
last day of each fiscal year of Borrower, a plan and financial forecast for
Borrower's next succeeding fiscal year, prepared on a consolidated and
consolidating basis, including without limitation (i) forecasted balance sheet
and statements of income and cash flow for each fiscal month of such fiscal
year, it being understood that the projections provided pursuant to this Section
4.3(d) are estimates and not guarantees of actual results;
(e) contemporaneously with each annual and quarterly financial statement
of Borrower required hereby, a certificate of the president or chief financial
officer of Borrower that said financial statements are accurate in all material
respects and that there exists no Event of Default nor any condition, act or
event which with the giving of notice or the passage of time or both would
constitute an Event of Default; and
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(f) promptly after the same are available, and in any event within
fifteen (15) days after filing with the Securities and Exchange Commission,
copies of each report, proxy or financial statement or other report or
communication sent to the stockholders of Borrower, and reports and registration
statements which Borrower may file or be required to file with the Securities
and Exchange Commission under Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended (including without limitation Borrower's periodic Form 10-0
statements);
(g) within five (5) days of the release thereof, copies of all press
releases, public statements and filings with any governmental agency or
authority made by Borrower; and
(h) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower with a claim in excess of
$250,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein):
(a) Tangible Net Worth not less than $10,300,000.00 as of the fiscal
quarter ending December 31, 2001, and thereafter not less than the sum of
$10,300,000.00 plus 50% of net profits after income taxes earned thereafter,
calculated as of each fiscal quarter end, with "Tangible Net Worth" defined as
the aggregate of total stockholders' equity plus subordinated debt less any
intangible assets.
(b) Total Liabilities divided by Tangible Net Worth not at any time
greater than 1.50 to 1.0, calculated as of each fiscal quarter end, with "Total
Liabilities" defined as the aggregate of current liabilities and non-current
liabilities less subordinated debt, and with "Tangible Net Worth" as defined
above.
(c) EBITDA Coverage Ratio not less than 2.0 to 1.0 as of each fiscal
quarter end, calculated on an annualized fiscal year to date basis, with
"EBITDA" defined as net profit before tax plus interest expense (net of
capitalized interest expense), depreciation expense and amortization expense,
and with "EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of
total annualized interest expense plus the current period current maturity of
long-term debt and the current period current maturity of subordinated debt.
8
(d) Pre-tax profit not less than $1.00 as of each fiscal quarter end.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower, or any action, claim, investigation,
suit or proceeding pending or asserted by or before any governmental authority,
arbitrator, court or administrative agency challenging or denying Borrower's
qualification for tax treatment as if it were a partnership for income tax
purposes; (c) the occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any funding deficiency with respect to
any Plan; or (d) any termination or cancellation of any insurance policy which
Borrower is required to maintain, or any uninsured or partially uninsured loss
through liability or property damage, or through fire, theft or any other cause
affecting Borrower's property.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
and (b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity, except any of the foregoing existing as
of, and disclosed to Bank prior to, the date hereof, Without in any way limiting
the foregoing, Borrower shall not make any loan or advance to, or investment in,
any subsidiary of Borrower which would at any time cause the aggregate amount of
all such loans, advances and/or investments in or to such subsidiary to exceed
the amount, if any, of any such loans, advances and/or investments in existence
as of the date hereof.
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding;
provided, however, Borrower may repurchase shares of its stock traded on the
open market for a purchase price not to exceed $800,000.00 in the aggregate for
all such purchases made during any given fiscal year, so long as (a) no Event of
Default, or any event which with the giving of notice or the passage of time or
both would constitute an Event of Default, has occurred and is continuing at the
time any such purchase is made, or would exist after giving effect to any such
purchase, (b) such purchase is made in compliance with all applicable law,
including without limitation the provisions of Section 500, et seq., of the
California Corporation Code, and (c) immediately before and after giving
9
effect to any such purchase, Borrower not "insolvent" as defined in 11 U.S.C.
Section 101 (32).
SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of the foregoing in favor of
Bank or which is existing as of, and disclosed to Bank in writing prior to, the
date hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any debt
or other liability to any person or entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower.
(f) Borrower or any subsidiary of Borrower shall become insolvent, or
shall suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment for
the benefit of creditors; Borrower or any subsidiary of Borrower shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower or any subsidiary of
Borrower, or Borrower or any subsidiary of Borrower shall file an answer
admitting the jurisdiction of the court and the material allegations of any
involuntary petition; or Borrower or any subsidiary of Borrower shall be
adjudicated a bankrupt, or an order for relief shall be entered against Borrower
or any subsidiary of Borrower by any court of competent jurisdiction under the
Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in good
faith believes impairs, or is substantially likely to impair, the prospect of
payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The dissolution or liquidation of Borrower; or Borrower, or any of
its directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower
10
under each of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Bank's option and without notice become immediately
due and payable without presentment, demand, protest or notice of dishonor, all
of which are hereby expressly waived by Borrower; (b) the obligation, if any, of
Bank to extend any further credit under any of the Loan Documents shall
immediately cease and terminate; and (c) Bank shall have all rights, powers and
remedies available under each of the Loan Documents, or accorded by law,
including without limitation the right to resort to any or all security for any
credit subject hereto and to exercise any or all of the rights of a beneficiary
or secured party pursuant to applicable law. All rights, powers and remedies of
Bank may be exercised at any time by Bank and from time to time after the
occurrence of an Event of Default, are cumulative and not exclusive, and shall
be in addition to any other rights, powers or remedies provided by law or
equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: Pacer Technology
9420 Santa Anita Avenue
Rancho Cucamonga, CA 91730
Attention: Chief Financial Officer
Telephone: (909) 987-0550
Telecopier:(909) 987-0490
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
Inland Empire Regional Commercial Banking Office
4141 Inland Empire Blvd., Suite 350
Ontario, CA 91764
Attention: Pacer Technology Relationship Manager
Telephone: (909) 481-6500
Telecopier:(909) 941-0900
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents and the preparation of any amendments and
waivers hereto and thereto, (b) subject to the limitations set forth in Section
1.6, Bank's continued administration of this Agreement and the other Loan
Documents and (c) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (d) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to
Borrower or any other person or entity.
11
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any credit subject hereto, Borrower or its business, or any
collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to each credit subject hereto and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This Agreement may be amended or modified only in writing signed by each
party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11 INDEMNITY BY BORROWER. Borrower agrees to indemnify, save
and hold harmless Bank and its directors, officers, agents, attorneys and
employees (collectively, the "Indemnitees") from and against: (a) Any and all
claims, demands, actions or causes of action that are asserted by any person or
entity other than Borrower against any Indemnitee if the claim, demand, action
or cause of action arises out of or relates to the relationship between Borrower
and Bank under any of the Loan Documents or the transactions contemplated
thereby; (b) Any and all administrative or investigative proceedings by any
governmental agency or authority arising out of or related to any claim, demand,
action or cause of action described in clause (a) above; and (c) Any and all
liabilities, losses, costs or expenses (including reasonable attorneys' fees and
disbursements and other professional services) that any Indemnitee suffers or
incurs as a result of the assertion of any of the foregoing; provided that no
Indemnitee shall be entitled to indemnification for any loss caused by its own
or its employees' or agents' gross negligence or willful misconduct or for any
loss asserted against it by another Indemnitee. Each Indemnitee is authorized to
employ counsel in enforcing its rights hereunder and in defending against any
claim, demand, action, cause of action or administrative or investigative
proceeding covered by this Section 7.11; provided that the Indemnitees as a
group may retain only one law firm to represent them with respect to any such
matter unless there is, under applicable standards of professional conduct,
conflict on any significant issue between the positions of any two or more
Indemnitees. Any obligation or liability of Borrower to any Indemnitee under
this Section 7.11 shall be and hereby is covered and secured by the Loan
Documents and the collateral referred to in Section 1.6 and shall survive the
expiration or termination of this Agreement and the repayment of each credit
subject hereto and the payment and performance of all other obligations owed to
Bank.
12
SECTION 7.12. NONLIABILITY OF BANK. Bank acknowledges and agrees that:
(a) Any inspections of collateral made by Bank are for purposes
of administration of each credit subject hereto only and Borrower is not
entitled to rely upon the same;
(b) By accepting or approving anything required to be observed,
performed, fulfilled or given to Bank pursuant to the Loan Documents, including
any certificate, financial statement, insurance policy or other documents, Bank
shall not be deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance or approval thereof shall not constitute
a warranty or representation to anyone with respect thereto by Bank;
(c) The relationship between Borrower and Bank in connection with
this Agreement and the other Loan Documents is, and shall at all times remain
solely that of a borrower and lender; Bank shall not under any circumstance be
construed to be a partner or joint venturer of Borrower; Bank shall not under
any circumstances be deemed to be in a relationship of confidence (except as
provided in Section 7.13) or trust or a fiduciary relationship with Borrower, or
to owe any fiduciary duty to Borrower as a result of the transactions arising
under this Agreement and the other Loan Documents; Bank does not undertake or
assume any responsibility or duty to Borrower to select, review, inspect,
supervise, pass judgment upon or inform Borrower of any matter in connection
with its property, any collateral held by Bank or the operations of Borrower,
Borrower shall rely entirely upon its own judgment with respect to such matters;
and any review, inspection, supervision, exercise of judgment or supply of
information
SECTION 7.15. ARBITRATION.
Arbitration. The parties hereto agree, upon demand by any party, to submit to
binding arbitration all claims, disputes and controversies between or among them
(and their respective employees, officers, directors, attorneys, and other
agents), whether in tort, contract or otherwise arising out of or relating to in
any way (i) the loan and related Loan Documents which are the subject of this
Agreement and its negotiation, execution, collateralization, administration,
repayment, modification, extension, substitution, formation, inducement,
enforcement, default or termination; or (ii) requests for additional credit.
(b) Governing Rules. Any arbitration proceeding will (i) proceed in a
location in California selected by the American Arbitration Association ("AAA");
(ii) be governed by the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
documents between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
MA's commercial dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and
costs in which case the arbitration shall be conducted in accordance with the
AAA's optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to, as applicable, as the "Rules"). If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration following a demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
dispute. Nothing contained herein shall be deemed to be a waiver by any party
that is a bank of the protections afforded to it under 12 U.S.C. Section 91 or
any similar applicable state law.
(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property collateral; (ii) exercise self-help remedies
relating to collateral or proceeds of collateral such as setoff or repossession;
or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference hereunder, including those arising from the exercise of
the actions detailed in sections (i), (ii) and (iii) of this paragraph.
(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in
which the amount in controversy is $5,000,000.00 or less will be decided by a
single arbitrator selected according to the Rules, and who shall not render an
award of greater than $5,000,000.00. Any dispute in which the amount in
controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel
of three arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. The arbitrator will be a neutral
attorney licensed in the State of California or a neutral retired judge of the
state or federal judiciary of California, in either case with a minimum often
years experience in the substantive law applicable to the subject matter of the
dispute to be arbitrated. The
13
arbitrator will determine whether or not an issue is arbitratable and will give
effect to the statutes of limitation in determining any claim. In any
arbitration proceeding the arbitrator will decide (by documents only or with a
hearing at the arbitrator's discretion) any pre-hearing motions which are
similar to motions to dismiss for failure to state a claim or motions for
summary adjudication. The arbitrator shall resolve all disputes in accordance
with the substantive law of California and may grant any remedy or relief that a
court of such state could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award. The arbitrator
shall also have the power to award recovery of all costs and fees, to impose
sanctions and to take such other action as the arbitrator deems necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure, the
California Rules of Civil Procedure or other applicable law. Judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction. The institution and maintenance of an action for judicial relief
or pursuit of a provisional or ancillary remedy shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the controversy or
claim to arbitration if any other party contests such action for judicial
relief.
(e) Discovery. In any arbitration proceeding discovery will be permitted
in accordance with the Rules. All discovery shall be expressly limited to
matters directly relevant to the dispute being arbitrated and must be completed
no later than 20 days before the hearing date and within 180 days of the filing
of the dispute with the MA. Any requests for an extension of the discovery
periods, or any discovery disputes, will be subject to final determination by
the arbitrator upon a showing that the request for discovery is essential for
the party's presentation and that no alternative means for obtaining information
is available.
(f) Class Proceedings and Consolidations. The resolution of any dispute
arising pursuant to the terms of this Agreement shall be determined by a
separate arbitration proceeding and such dispute shall not be consolidated with
other disputes or included in any class proceeding.
(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award
all costs and expenses of the arbitration proceeding.
(h) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no dispute shall be submitted to arbitration if
the dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such dispute is not submitted to arbitration, the dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(i) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
A4.A. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the Loan Documents or the subject matter of the dispute shall
control. This arbitration provision shall survive termination, amendment or
expiration of any of the Loan Documents or any relationship between the parties.
14
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first written above.
WELLS FARGO BANK,
PACER TECHNOLOGY NATIONAL ASSOCIATION
By: /s/ Richard S. Kay By: /s/ Bruce L. Bell
--------------------------- ------------------
Richard Kay Bruce L. Bell
President Vice President
By: /s/ Laurence R. Huff
--------------------------
Laurence R. Huff
Chief Financial Officer
15
REVOLVING LINE OF CREDIT NOTE
$7,000,000.00 Ontario, California
May 1, 2002
FOR VALUE RECEIVED, the undersigned PACER TECHNOLOGY ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank")
at its office at 4141 Inland Empire Boulevard, Suite 350, Ontario, California,
or at such other place as the holder hereof may designate, in lawful money of
the United States of America and in immediately available funds, the principal
sum of Seven Million Dollars ($7,000,000.00), or so much thereof as may be
advanced and be outstanding, with interest thereon, to be computed on each
advance from the date of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth
after each, and any other term defined in this Note shall have the meaning set
forth at the place defined:
(a) "Applicable LIBOR Margin" means two and one-half percent (2.5%) per
annum; provided, however, if Borrowers EBITDA for the fiscal quarters ending
March 31, 2002 and June 30, 2002 on a combined basis is greater than or equal to
$1,000,000.00, then the Applicable LIBOR Margin shall mean two and one-quarter
percent (2.25%) per annum; and provided further, if the Applicable LIBOR Margin
is reduced as described in the preceding clause, then it shall continue at such
reduced rate during each fiscal quarter thereafter unless, during any such
fiscal quarter, Borrowers EBITDA is less than $500,000.00, in which case the
Applicable LIBOR Margin shall increase to two and one-half percent (2.5%) per
annum. Borrower's EBITDA shall be evidenced by Borrowers financial statements
delivered to Bank pursuant to the Credit Agreement. Any adjustments to the
Applicable LIBOR Margin shall be effective (with respect to both existing and
new Fixed Rate Terms) as of the first day of the month following receipt by Bank
of Borrower's financial statements for the applicable fiscal quarter. If
Borrower fails to deliver its financial statements as so required, then until
such financial statements are delivered, the Applicable LIBOR Margin shall be
two and one-half percent (2.5%) per annum.
(b) "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.
(c) "Credit Agreement" shall mean that certain Credit Agreement dated as
of May 1 2002 between Borrower and Bank, as amended, modified or supplemented
from time to time.
(d) "EBITDA" shall have the meaning specified for such term in the
Credit Agreement.
(e) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for one to twelve months (in monthly increments only), as designated
by Borrower, during which all or a portion of the outstanding principal balance
of this Note bears interest determined in relation to LIBOR; provided however,
that no Fixed Rate Term may be selected for a principal amount less than Two
Hundred Fifty Thousand Dollars ($250,000.00); and provided further, that no
Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any
Fixed Rate Term would end on a day which is not a Business Day, then such Fixed
Rate Term shall be extended to the next succeeding Business Day.
(f) LIBOR" means the rate per annum (rounded upward, if necessary, to
the nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBOR = Base LIBOR
--------------------------------
100% - LIBOR Reserve Percentage
(i) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed
by the
16
Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
(g) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
(h) "Prior Note" means that certain revolving line of credit note dated
September 17, 2001 in the maximum principal amount $7,000,000.00, executed by
Borrower and payable to the order of Bank.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum one quarter percent (.25%) below the Prime
Rate in effect from time to time, or (ii) at a fixed rate per annum determined
by Bank to be LIBOR in effect on the first day of the applicable Fixed Rate Term
plus the Applicable LIBOR Margin. When interest is determined in relation to the
Prime Rate, each change in the rate of interest hereunder shall become effective
on the date each Prime Rate change is announced within Bank. With respect to
each LIBOR selection hereunder, Bank is hereby authorized to note the date,
principal amount, interest rate and Fixed Rate Term applicable thereto and any
payments made thereon on Bank's books and records (either manually or by
electronic entry) and/or on any schedule attached to this Note, which notations
shall be prima facie evidence of the accuracy of the information noted.
(b) Selection of Interest Rate Options. At any time any portion of this
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the
interest rate option selected by Borrower; (ii) the principal amount subject
thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed
Rate Term. Any such notice may be given by telephone (or such other electronic
method as Bank may permit) so long as, with respect to each LIBOR selection, (A)
if requested by Bank, Borrower provides to Bank written confirmation thereof not
later than three (3) Business Days after such notice is given, and (B) such
notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate
Term, or at a later time during any Business Day if Bank, at its sole option but
without obligation to do so, accepts Borrower's notice and quotes a fixed rate
to Borrower. If Borrower does not immediately accept a fixed rate when quoted by
Bank, the quoted rate shall expire and any subsequent LIBOR request from
Borrower shall be subject to a redetermination by Bank of the applicable fixed
rate. If no specific designation of interest is made at the time any advance is
requested hereunder or at the end of any Fixed Rate Term, Borrower shall be
deemed to have made a Prime Rate interest selection for such advance or the
principal amount to which such Fixed Rate Term applied.
(c) Taxes and Regulatory Costs. Borrower shall pay to Bank immediately
upon demand, in addition to any other amounts due or to become due hereunder,
any and all (i) withholdings, interest equalization taxes, stamp taxes or other
taxes (except income and franchise taxes) imposed by any domestic or foreign
governmental authority and related in any manner to LIBOR, and (ii) future,
supplemental, emergency or other changes in the LIBOR Reserve Percentage,
assessment rates imposed by the Federal Deposit Insurance Corporation, or
similar requirements or costs imposed by any domestic or foreign governmental
authority or resulting from compliance by Bank with any request or directive
(whether or not having the force of law) from any central bank or other
governmental authority and related in any manner to LIBOR to the extent they are
not included in the calculation of LIBOR. In determining which of the foregoing
are attributable to any LIBOR option available to Borrower hereunder, any
reasonable allocation made by Bank among its operations shall be conclusive and
binding upon Borrower.
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(d) Payment of Interest. Interest accrued on this Note shall be payable
on the first day of each month, commencing June 1, 2002.
(e) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of any document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made hereon
by or for Borrower, which balance may be endorsed hereon from time to time by
the holder. The outstanding principal balance of this Note shall be due and
payable in full on October 1, 2003.
(b) Advances. Advances hereunder, to the total amount of the principal
sum stated above, may be made by the holder at the oral or written request of
(i) Kristine Wright, Larry Huff or Richard Kay, any one acting alone, who are
authorized to request advances and direct the disposition of any advances until
written notice of the revocation of such authority is received by the holder at
the office designated above, or (ii) any person, with respect to advances
deposited to the credit of any deposit account of Borrower with the holder,
which advances, when so deposited, shall be conclusively presumed to have been
made to or for the benefit of Borrower regardless of the fact that persons other
than those authorized to request advances may have authority to draw against
such account. The holder shall have no obligation to determine whether any
person requesting an advance is or has been authorized by Borrower.
(c) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof All payments credited to principal shall be applied
first, the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.
PREPAYMENT:
(a) Prime Rate. Borrower may prepay principal on any portion of this
Note which bears interest determined in relation to the Prime Rate at any time,
in any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of Two Hundred Fifty Thousand Dollars ($250,000.00); provided
however, that if the outstanding principal balance of such portion of this Note
is less than said amount, the minimum prepayment amount shall be the entire
outstanding principal balance thereof In consideration of Bank providing this
prepayment option to Borrower, or if any such portion of this Note shall become
due and payable at any time prior to the last day of the Fixed Rate Term
applicable thereto by acceleration or otherwise, Borrower shall pay to Bank
immediately upon demand a fee which is the sum of the discounted monthly
differences for each month from the month of prepayment through the month in
which such Fixed Rate Term matures, calculated as follows for each such month:
(i) Determine the amount of interest which would have accrued each month
on the amount prepaid at the interest rate applicable to such amount (based on
the Applicable LIBOR Margin in effect on the date of prepayment) had it remained
outstanding until the last day of the Fixed Rate Term applicable thereto.
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(ii) Subtract from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the amount prepaid for
the remaining term of such Fixed Rate Term at LIBOR in effect on the date of
prepayment for new loans made for such term and in a principal amount equal to
the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.
Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Borrower, therefore, agrees to pay the above-described prepayment
fee and agrees that said amount represents a reasonable estimate of the
prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay
any prepayment fee when due, the amount of such prepayment fee shall thereafter
bear interest until paid at a rate per annum two percent (2%) above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). Each change in the rate of interest on any such past due
prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions
of the Credit Agreement. Any default in the payment or performance of any
obligation under this Note, or any defined event of default under the Credit
Agreement, shall constitute an "Event of Default" under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Borrower shall pay to the holder immediately
upon demand the full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys' fees (to include outside counsel fees
and all allocated costs of the holder's in-house counsel), expended or incurred
by the holder in connection with the enforcement of the holder's rights and/or
the collection of any amounts which become due to the holder under this Note,
and the prosecution or defense of any action in any way related to this Note,
including without limitation, any action for declaratory relief, whether
incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to
Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.
(d) Prior Note. This Note replaces and supersedes the Prior Note. All
amounts outstanding under the Prior Note are now evidenced by and outstanding
under this Note.
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the date first written above.
PACER TECHNOLOGY
By: /s/ Richard S. Kay
-----------------------------
Richard Kay
President
By: /s/ Laurence R. Huff
-----------------------------
Laurence R. Huff
Chief Financial Officer
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