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EXHIBIT 10.1
CREDIT AGREEMENT
This Credit Agreement ("Agreement") is made and entered into on August 4, 1999,
by and between MotorVac Technologies, Inc. a Delaware corporation ("Borrower")
and Imperial Bank, a California banking corporation, ("Bank").
Subject to the terms and conditions of this Agreement, any security agreement(s)
executed by Borrower in favor of Bank, any note(s) executed by Borrower in favor
of Bank, or any other agreements executed in conjunction therewith
(collectively, the "Loan Documents"), Bank shall make the loans and or advances
(individually a "Loan" and collectively "Loans") referred to below to Borrower.
In consideration of mutual covenants and conditions hereof, the parties hereto
agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.01 [INTENTIONALLY OMITTED]
1.02 [INTENTIONALLY OMITTED]
1.03 [INTENTIONALLY OMITTED]
1.04 [INTENTIONALLY OMITTED]
1.05 [INTENTIONALLY OMITTED]
1.06 DOMESTIC ASSET BASED LINE OF CREDIT COMMITMENT
(a) LINE OF CREDIT - ACCOUNTS RECEIVABLE BORROWING BASE CONSTRAINED.
Subject to all the terms and conditions of this Agreement, provided that no
event of default then has occurred and is continuing, Bank shall upon Borrower's
request, make advances ("ABL Loans") to Borrower, from time to time and in such
amounts as Borrower shall request up to an aggregate principal amount
outstanding not to exceed:
Eighty percent (80%) of Eligible Accounts ("Borrowing Base"), and in no
event more than One Million Dollars ($1,000,000.00) (the "ABL Line of Credit"),
as may be adjusted from time to time as provided for under Section 4.23 hereof.
If at any time or for any reason, the outstanding principal amount of
the ABL Loan Account (as defined below) is greater than the lessor of: (x) the
Borrowing Base or (y) the ABL Line of Credit, Borrower shall immediately pay to
Bank, in cash, the amount of such excess. Any commitment of Bank, pursuant to
the terms of this Agreement, to make ABL Loans shall expire on the ABL Maturity
Date (as hereinafter defined), subject to Bank's right to renew said commitment
in its sole and absolute discretion at Borrower's request. Any such renewal of
said commitment shall not be binding upon Bank unless it is in
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writing and signed by an officer of Bank. Provided that no Event of Default (as
hereinafter defined) has occurred and is continuing, all or any portion of the
ABL Loans advanced by Bank which are repaid by Borrower shall be available for
reborrowing in accordance with the terms hereof. Borrower promises to pay to
Bank the entire outstanding unpaid principal balance (and all accrued unpaid
interest thereon) of the ABL Loan Account on the earlier of acceleration in
accordance with the terms herein by Bank or August 2, 2000 ("ABL Maturity
Date").
(b) LIMITATION ON ADVANCE OF ANY ABL LOANS. Notwithstanding any of the
provisions contained in Section 1.06 (a) hereof, prior to the first advance of a
ABL Loan, a representative of Bank shall have conducted an audit of Borrower's
books and records relating to the Accounts and Inventory and any other
Collateral for the ABL Loans and made extracts therefrom, and arranged for
verification of the Accounts, directly with the account debtors or otherwise,
and of the Inventory all with results satisfactory to Bank, the cost of such
audit of which shall be at Borrower's sole expense. Based on Bank's review of
such audit, and prior to the advance of an ABL Loan in accordance with the terms
of this hereof, Bank may adjust the Borrowing Base percentage, in its sole and
reasonable discretion, as provided for under Section 4.23 hereof.
(c) LOAN LEDGER ACCOUNT; USE OF PROCEEDS. The amount of each ABL Loan made
by Bank to Borrower hereunder shall be debited to the loan ledger account of
Borrower maintained by Bank for the ABL Line of Credit (herein called the "ABL
Loan Account") and Bank shall credit the ABL Loan Account with all loan
repayments in respect thereof made by Borrower.
(d) ABL LOANS INTEREST. Borrower further promises to pay to Bank from the
date of the advance of the initial ABL Loan through the ABL Maturity Date, on or
before the first day of each month, interest on the unpaid balance of the ABL
Loan Account at a rate of interest equal to one and one-half percent (1.50%) per
annum in excess of the rate of interest which Bank has announced as its prime
lending rate (the "Prime Rate"), which shall vary concurrently with any change
in the Prime Rate. Interest shall be computed at the above rate on the basis of
the actual number of days during which the principal balance of the ABL Loans
are outstanding divided by 360, which shall for interest computation purposes be
considered one (1) year.
(e) APPLICATION OF RECEIPTS. All sums received by Bank including but not
limited to those sums Take out whether received from Borrower or from Borrower's
account debtors shall be applied to the outstanding ABL Loan balance immediately
upon receipt thereof by the Bank. The Borrower will be charged, on a monthly
basis, for the uncollected balance fees.
(f) CERTAIN DEFINITIONS. As used herein the following terms shall have the
following meanings:
"Accounts" means any right to payment for goods sold or leased, or
rented, or to be sold or to be leased, or to be rented, or for services rendered
or to be rendered no matter how evidenced, including accounts receivable,
contract rights, chattel paper, instruments, purchase orders, notes, drafts,
acceptances, general intangibles and other forms of obligations and receivables.
"Collateral" means any and all property of Borrower which is assigned or
hereafter is assigned to Bank as security or in which Bank now has or hereafter
acquires a security interest.
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"Eligible Accounts" Eligible Accounts shall only include such accounts
as Bank in its sole discretion shall determine are eligible from time to time.
"Eligible Accounts" shall also NOT include any of the following:
(1) All Accounts under which payment is not received within 90 days
from any invoice date;
(2) All Accounts against which the account debtor or any other person
obligated to make payment thereon asserts any defense, offset, counterclaim or
other right to avoid or reduce the liability represented by the Account;
(3) Any Accounts if the account debtor or any other person liable in
connection therewith is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors or whose
credit standing is unacceptable to Bank and Bank has so notified Borrower.
(4) [INTENTIONALLY OMITTED]
(5) Credit balances greater than 90 days from invoice date.
(6) Accounts due from a debtor if 25% or more of the aggregate amount
of accounts of such debtor have at that time remained unpaid for more than 90
days from invoice date.
(7) For accounts representing more than 20% of Borrower's total
accounts receivable, the balance in excess of the 20% is not eligible, with the
exception of those accounts owed from Snap-on Incorporated and its subsidiaries
and affiliates, which shall be allowed 60% on a combined basis.
(8) Accounts owed by any foreign account debtors other than Canadian
account debtors or unless with respect to international transactions such
accounts are insured by an insurance company acceptable to the Bank or covered
by letters of credit issued or confirmed by a bank acceptable to the Bank. Bank,
in its sole discretion, may deem as eligible amounts due from major, publicly
owned foreign companies.
(9) Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower.
(10) Accounts where the account debtor is a seller to Borrower,
whereby a potential offset (contra) exists.
(11) Consignment or guaranteed sales.
(12) Bill and hold accounts, except those accounts subject to an
agreement satisfactory to Bank.
(13) Collection accounts.
(14) C.O.D. accounts.
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(15) Salesmen's accounts for promotional purposes.
(16) Accounts owed by any United States federal government account
debtor or by any municipal account debtor, unless formally assigned to the Bank.
(17) Accounts representing billings for service or maintenance
contracts or for inventory or equipment on rent to the account debtor.
(18) Deferred revenues.
(19) Pre-billings.
(g) REQUESTS FOR ABL LOANS. Requests for ABL Loans hereunder shall be in
writing duly executed by Borrower in a form satisfactory to Bank and shall
contain a certification setting forth the matters referred to in Section 1,
which shall disclose that Borrower is entitled to the amount of loan being
requested.
(h) [INTENTIONALLY OMITTED]
(i) [INTENTIONALLY OMITTED]
(j) LATE CHARGE. If any installment payment, interest payment, principal
payment or principal balance due under the ABL Line of Credit is delinquent
twenty (20) or more days, Borrower agrees to pay Bank a late charge in the
amount of five percent (5%) of the payment so due and unpaid, in addition to the
payment; but nothing in this paragraph is to be construed as any obligation on
the part of the Bank to accept payment of any payment past due or less than the
total unpaid principal balance after maturity. All payments, at Bank's sole
discretion, shall be applied first to any late charges owing, then to interest
and the remainder, if any, to principal.
(k) DEFAULT RATE. If an Event of Default occurs hereunder, then during the
continuance thereof at the Bank's option, the interest rate shall be five
percent (5%) per year in excess of the rate otherwise applicable.
(l) INTEREST CALCULATIONS. The term "Prime Rate" shall mean the rate that
the Bank has announced as its prime lending rate, which shall vary concurrently
with any change in the Prime Rate. Interest based on the Prime Rate shall vary
concurrently with any change in the Prime Rate. All interest shall be computed
at the rate specified in any note on the basis of the actual number of days
during which the principal balance of the corresponding Loans are outstanding
divided by 360, which shall for interest computation purposes be considered one
(1) year.
1.07 [INTENTIONALLY OMITTED]
1.08 [INTENTIONALLY OMITTED]
1.09 LOAN FEES.
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(a) COMMITMENT FEE. In addition to any other amounts due, or to become
due, concurrent with the execution hereof, in connection with the ABL Line of
Credit Borrower shall pay to Bank a commitment fee of Five Thousand Dollars
($5,000), representing one-half percent (0.50%) of the ABL Line of Credit.
(b) NON-USAGE FEE. Borrower shall pay to Bank a fee on the unused portion
of the ABL Line of Credit equal to one percent (1.00%) per annum payable
quarterly in arrears.
1.10 DOCUMENTATION FEE, COSTS AND EXPENSES. In addition to any other
amounts due, or to become due, concurrently with the execution hereof, Borrower
agrees to pay to Bank a documentation fee in the amount of One Thousand Dollars
($1,000), and all other costs and expenses incurred by the Bank in the
preparation of this Agreement, the other Loan Documents and the perfection of
any security interest granted to Bank by Borrower.
1.11 COLLATERAL. Borrower shall grant or cause to be granted to Bank a
first priority lien on any and all personal property assets of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now has
or hereafter acquires a security interest or pursuant to the terms of any
security agreement, or otherwise as security for all of Borrower's obligations
to Bank, all as may be subject to Section 5.03 herein.
1.12 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all
interest, fees, costs, and/or expenses due under this Agreement by charging
Borrower's demand deposit account number 08-215-510 with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit account
to pay all such sums when due, the full amount of such deficiency shall be
immediately due and payable by Borrower.
2. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
2.01 EXISTENCE AND RIGHTS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of Delaware, ;
Borrower is authorized and in good standing to do business in the state of its
incorporation; Borrower has the appropriate powers and adequate authority,
rights and franchises to own its property and to carry on its business as now
conducted, and is duly qualified and in good standing in each state in which the
character of the properties owned by it therein or the conduct of its business
makes such qualification necessary; and Borrower has the power and adequate
authority to make and carry out this Agreement. Borrower has no investment in
any other business entity unless specified in writing to Bank.
2.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement and the Loan Documents are duly authorized and do not require the
consent or approval of any governmental body or other regulatory authority; are
not in contravention of or in conflict with any law or regulation or any term or
provision of Borrower's articles of incorporation, by-laws, or similar document
as the case may be, and this Agreement is the valid, binding and legally
enforceable obligation
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of Borrower in accordance with its terms; subject only to bankruptcy, insolvency
or similar laws affecting creditors rights generally and general equitable
principles.
2.03 NO CONFLICT. The execution, delivery and performance of this Agreement
and the Loan Documents are not in contravention of or in conflict with any
agreement, indenture or undertaking to which Borrower is a party or by which it
or any of its property may be bound or affected, and do not cause any lien,
charge or other encumbrance to be created or imposed upon any such property by
reason thereof.
2.04 LITIGATION. Except as disclosed in writing to Bank by Borrower, there
is no litigation or other proceeding pending or threatened against or affecting
Borrower which if determined adversely to Borrower or its interest would have a
material adverse effect on the financial condition of Borrower, and Borrower is
not in default with respect to any order, writ, injunction, decree or demand of
any court or other governmental or regulatory authority.
2.05 FINANCIAL CONDITION. The balance sheet of Borrower as of June 30,
1999, and the related profit and loss statement for the six month period ended
as of that date, a copy of which has heretofore been delivered to Bank by
Borrower, and all other statements and data submitted in writing by Borrower to
Bank in connection with this request for credit are true and correct, and said
balance sheet truly presents the financial condition of Borrower as of the date
thereof, and has been prepared in accordance with generally accepted accounting
principles on a basis consistently maintained. Since such date there have been
no material adverse changes in the financial condition or business of Borrower.
Borrower has no knowledge of any liabilities, contingent or otherwise, at such
date not reflected in said balance sheet, and Borrower has not entered into any
special commitments or substantial contracts which are not reflected in said
balance sheet, other than in the ordinary and normal course of its business,
which may have a materially adverse effect upon its financial condition,
operations or business as now conducted.
2.06 TITLE TO ASSETS. Borrower has good title to its assets, and the same
are not subject to any liens or encumbrances other than those permitted by
Section 5.03 hereof.
2.07 TAX STATUS. Borrower has no liability for any delinquent state, local
or federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
2.08 TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
2.09 REGULATION U. None of the proceeds of any Loan shall be used to
purchase or carry margin stock (as defined within Regulation U of the Board of
Governors of the Federal Reserve system).
2.10 ERISA. All defined benefit pension plans as defined in the Employees
Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower meet,
as of the date hereof, the
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minimum funding standards of Section 302 of ERISA, and no Reportable Event or
Prohibited Transaction as defined in ERISA has occurred with respect to any such
plan.
2.11 YEAR 2000 COMPLIANCE. Borrower and its subsidiaries, as applicable,
have reviewed the areas within their operations and business which could be
adversely affected by, and have developed or are developing a program to address
on a timely basis, the Year 2000 Problem and have made related appropriate
inquiry of material suppliers and vendors, and based on such review and program,
the Year 2000 Problem will not have a material adverse effect upon its financial
condition, operations or business as now conducted. "Year 2000 Problem" means
the possibility that any computer applications or equipment used by Borrower may
be unable to recognize and properly perform date sensitive functions involving
certain dates prior to and any dates one or after December 31, 1999.
3. CONDITIONS PRECEDENT TO LOAN
Prior to Bank being obligated to make any Loan pursuant to this
Agreement, Bank must receive all of the following, each of which must be in form
and substance satisfactory to Bank:
3.01 [INTENTIONALLY OMITTED]
3.02 SECURITY AGREEMENT. Original, executed security agreement covering the
personal property collateral securing the Loans.
3.03 FINANCING STATEMENT. Financing statement(s) executed by Borrower and
any grantor of a security interest.
3.04 [INTENTIONALLY OMITTED]
3.05 INSURANCE. Borrower shall have delivered to Bank evidence of insurance
coverage required pursuant to that Agreement to Provide Insurance executed by
Borrower, 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.
3.06 ORGANIZATIONAL DOCUMENTS. Copies of the articles of incorporation or
similar document as the case may be, of Borrower.
3.07 AUTHORIZATIONS. Certified copies of all action taken by Borrower to
authorize the execution, delivery and performance of the Loan Documents.
3.08 GOOD STANDING . Good standing certificates from the appropriate
secretary of state of the state in which Borrower is organized and in each state
in which it is required to be qualified to do business.
3.09 [INTENTIONALLY OMITTED]
3.10 ADDITIONAL DOCUMENTS. Such other documents as Bank may reasonably
deem necessary.
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4. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under borrowings, or
other indebtedness, or so long as Bank has any obligation to extend credit to
Borrower it will, unless Bank shall otherwise consent in writing:
4.01 RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
4.02 USE OF PROCEEDS. Use the proceeds of the Loans only for purposes
specified in Section1 of this Agreement.
4.03 INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment, and as required by that Agreement to Provide Insurance executed by
Borrower, with the Bank to be shown as Lenders Loss Payee on such policies.
4.04 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate proceedings
in such manner as not to cause any materially adverse effect upon its financial
condition or the loss of any right of redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it to be adequate
with respect thereto.
4.05 RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at all reasonable times and
upon reasonable notice during normal business hours; and furnish Bank:
(a) MONTHLY FINANCIAL STATEMENT. As soon as available, and in any event
within thirty (30) days after the close of each month, a balance sheet, profit
and loss statement and reconciliation of Borrower's capital balance accounts as
of the close of such period and covering operations for the portion of
Borrower's fiscal year ending on the last day of such period, all in reasonable
detail and reasonably acceptable to Bank, in accordance with generally accepted
accounting principles on a basis consistently maintained by Borrower and
certified by an appropriate officer of Borrower.
(b) ANNUAL FINANCIAL STATEMENT. As soon as available, and in any event
within ninety (90) days after and as of the close of each fiscal year of
Borrower, a report of audit of Company, all in
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reasonable detail, audited by an independent certified public accountant
selected by Borrower and reasonably acceptable to Bank, in accordance with
generally accepted accounting principles on a basis consistently maintained by
Borrower and certified by an appropriate officer of Borrower;
(c) OFFICER'S CERTIFICATE. Within forty-five (45) days after the end of
each quarter and fiscal year of Borrower, a certificate of the chief financial
officer of Borrower, stating that Borrower has performed and observed each and
every covenant contained in this Agreement to be performed by it and that no
event has occurred and no condition then exists which constitutes an event of
default hereunder or would constitute such an event of default upon the lapse of
time or upon the giving of notice and the lapse of time specified herein; or, if
any such event has occurred or any such condition exists, specifying the nature
thereof, with such certificate to be completed in the form of Exhibit 4.05 (c)
attached hereto.
(d) AUDIT REPORTS. Promptly after the receipt thereof by Borrower, copies
of any detailed audit reports submitted to Borrower by independent accountants
in connection with each annual or interim work on the accounts of Borrower made
by such accountants;
(e) ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AGINGS; Within ten (10) days
from each month-end, deliver to Bank a detailed accounts receivable aging
reconciled to the general ledger of Borrower, and a detailed accounts payable
aging reconciled to the Borrower's general ledger and setting forth the amount
of any book overdraft or the amount of checks issued but not sent. All the
foregoing will be in a form and with such detail as Bank may request from time
to time.
(f) [INTENTIONALLY OMITTED]
(g) TRANSACTION REPORTS. Deliver to Bank (i) daily transaction reports
beginning three (3) days prior to the first advance and daily thereafter,
together with payments in kind, including Collateral activity and appropriate
loan activity, certified by an authorized signer of Borrower. The daily reports
delivered to Bank include the following Bank forms: AC-1 Accounts Receivable And
Inventory Transaction Report, AC-2 Schedule of Accounts Receivable Assigned, and
AC-3 Schedule of Collections; and (ii) monthly transaction reports, including
Collateral activity and appropriate loan activity, certified by an authorized
signer of Borrower. The monthly reports delivered to Bank include the following
Bank forms: AC-1 Accounts Receivable and Inventory Transaction Report, AC-11
Computation of Ineligible Accounts Receivable, and AC-12 Monthly Accounts
Receivable Reconciliation.
(h) LIST OF CUSTOMERS. On a quarterly basis or more frequently if
requested by Bank, provide Bank with an alphabetized list of customers including
addresses.
(i) SEC REPORTS. Promptly after the same are available, copies of all such
proxy statements, financial statements and reports as Borrower or any subsidiary
shall send to its members or stockholders as appropriate, if any, and copies of
all reports which Borrower or any subsidiary may file with the Securities and
Exchange Commission, with Borrower's 10-Q and 10-K reports to be submitted
within forty-five and ninety days after the end of the respective financial
period as applicable.
(j) OTHER INFORMATION. Such other information relating to the affairs of
Borrower as the Bank reasonably may request from time to time.
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4.06 [INTENTIONALLY OMITTED]
4.07 WORKING CAPITAL. Maintain at all times Working Capital, meaning total
current assets minus total current liabilities (including all amounts due to
stockholders, officers and affiliates) of not less than Two Million Dollars
($2,000,000).
4.08 QUICK RATIO. Maintain at all times a Quick Ratio of cash and accounts
receivable to current liabilities of at least 1.50 to 1.00.
4.09 [INTENTIONALLY OMITTED]
4.10 DEBT TO TANGIBLE NET WORTH. Maintain at all times a ratio of total
liabilities to Tangible Net Worth (defined as stockholder's equity less any
value for goodwill, trademarks, patents, copyrights, leaseholds, organization
expense and other similar intangible items, and any amounts due from or
investments in stockholders, officers and affiliates), of not greater than 0.75
to 1.00.
4.11 ACCOUNTS RECEIVABLE TURNOVER. Maintain on a monthly basis A/R Turnover
of not greater than 75 days, wherein A/R Turnover shall be calculated as net
accounts receivable divided by the product of net sales for the last three
months, through and including the given period, divided by ninety.
For example, if Borrower's net accounts receivable was $1,000,000, and net sales
for the last three months including the given period were $2,500,000, then A/R
Turnover would be calculated as $1,000,000/($2,500,000/90), the product of which
would be equal to 36.00.
4.12 QUARTERLY LOSSES. Maintain quarterly losses of less than minus two
hundred thousand dollars (-$200,000), and not incur two consecutive quarterly
losses.
4.13 ANNUAL PROFITABILITY. Maintain an annual net profit after taxes of at
least $1.
4.14 [INTENTIONALLY OMITTED]
4.15 [INTENTIONALLY OMITTED]
4.16 [INTENTIONALLY OMITTED]
4.17 ERISA. Cause all defined benefit pension plans, as defined in ERISA,
of Borrower to, at all times, meet the minimum funding standards of Section 302
of ERISA, and ensure that no Reportable Event or Prohibited Transaction, as
defined in ERISA, will occur with respect to any such plan.
4.18 LAWS. At all times comply with, or cause to be complied with, all
laws, statues, rules, regulations, orders and directions of any governmental
authority having jurisdiction over Borrower or Borrower's business.
4.19 GAAP. Compliance with all financial covenants shall be calculated
based on generally accepted accounting principles applied on a consistent basis
as maintained by Borrower.
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4.20 YEAR 2000 COMPLIANT. Borrower shall perform all acts reasonably
necessary to ensure that (a) Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and vendors whose
compliance is likely to be material to Borrower's business, become Year 2000
Compliant in a timely manner. Such acts shall include, without limitation,
performing a comprehensive review and assessment of all Borrower's systems and
adopting a detailed plan, with itemized budget, for the remediation, monitoring
and testing of such systems. As used in this paragraph, "Year 2000 Compliant"
shall mean, in regard to any entity, that all software, hardware, firmware,
equipment, goods or systems utilized by or material to the business operations
or financial condition of such entity, will properly perform date sensitive
functions before, during and after the year 2000. Borrower shall, immediately
upon request, provide to Agent such certifications or other evidence of
Borrower's compliance with the terms of this paragraph as Bank may from time to
time require.
4.21 OPERATING ACCOUNTS. Maintain all primary accounts and banking
relationship with the Bank. Maintain, or cause to be maintained, on deposit with
Bank, non-interest bearing demand deposit balances sufficient to compensate Bank
for all services provided by Bank. Balances shall be calculated after reduction
for the reserve requirement of the Federal Reserve Board and uncollected funds.
Any deficiencies shall be charged directly to the Borrower on a monthly basis.
4.22 NOTICES. Promptly notify Bank in writing of (i) the occurrence of any
Event of Default hereunder or any event which upon notice and lapse of time
would be an Event of Default; (ii) all litigation affecting Borrower where the
amount is one hundred thousand dollars ($100,000) or more; any substantial
dispute which may exist between Borrower and any governmental regulatory body or
law enforcement authority; any change in Borrower's name or principal place of
business; or any other matter which has resulted or is likely to result in a
material adverse change in Borrower's financial condition or operations.
4.23 AUDITS. Permit representatives of Bank to conduct audits of Borrower's
books and records relating to the Accounts, Inventory and other Collateral and
make extracts therefrom, with results satisfactory to Bank, provided that Bank
shall use its best efforts to not interfere with the conduct of Borrower's
business, and to the extent possible to arrange for verification of the Accounts
directly with the account debtors obligated thereon or otherwise, all under
reasonable procedures acceptable to Bank and at Borrower's sole expense;
provided further that prior to an Event of Default, Borrower shall not be
responsible for the expense of more than two (2) audits in any fiscal year.
Notwithstanding any of the provisions contained in Section 1.06 A hereof,
Borrower hereby acknowledges and agrees that upon completion of any such audit
Bank shall have the right to adjust the Borrowing Base percentage, in its sole
and reasonable discretion, based on its review of the results of such collateral
audit.
4.24 COVENANTS RELATING TO COLLATERAL. In addition to any covenants in any
Loan Document relating to any Collateral the Borrower agrees:
(a) To execute and deliver to Bank such assignments, including Bank's
standard forms of Specific or General Assignment covering individual Accounts,
notices, financing statements, and other documents and papers as Bank may
require in order to affirm, effectuate or further assure the assignment to Bank
of the Collateral or to give any third party, including the account debtors
obligated on the Accounts, notice of Bank's interest in the Collateral.
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(b) Until Bank exercises its rights to collect the Accounts and Inventory
proceeds pursuant to Section 4.24 (e), Borrower will collect with diligence all
Borrower's Accounts and Inventory proceeds. Any collection of Accounts or
Inventory proceeds by Borrower, whether in the form of cash, checks, notes, or
other instruments for the payment of money (properly endorsed or assigned where
required to enable Bank to collect same), shall be in trust for Bank, and
Borrower shall keep all such collections separate and apart from all other funds
and property so as to be capable of identification as the property of Bank and
deliver said collections, together with the proceeds of all cash sales, daily to
Bank in the identical form received. The proceeds of such collections when
received by Bank may be applied by Bank directly to the payment of Borrower's
Loan Account or any other obligation secured hereby. Any credit given by Bank
upon receipt of said proceeds shall be conditional credit subject to collection.
Returned items at Bank's option may be charged to Borrower's general account.
All collections of the Accounts and Inventory proceeds shall be set forth on an
itemized schedule, showing the name of the account debtor, the amount of each
payment and such other information as Bank may request.
(c) That until Bank exercises its rights to collect the Accounts or
Inventory proceeds pursuant to Section 4.24 (e), Borrower may continue its
present policies with respect to returned merchandise and adjustments. However,
Borrower shall, within fifteen (15) days of the end of each month notify Bank of
all cases involving returns, repossessions, and loss or damage of or to
merchandise represented by the Accounts or constituting Inventory and of any
credits, adjustments or disputes arising in connection with the goods or
services represented by the Accounts or constituting Inventory and, in any of
such events, Borrower will immediately pay to Bank from its own funds (and not
from the proceeds of Accounts or Inventory) for application to Borrower's Loan
Account or any other obligation secured hereby the amount of any credit for such
returned or repossessed merchandise and adjustments made to any of the Accounts.
Until payment is made as provided herein or until release by Bank from its
security interest, all merchandise returned to or repossessed by Borrower shall
be set aside and identified as the property of Bank and Bank shall be entitled
to enter upon any premises where such merchandise is located and take immediate
possession thereof and remove same.
(d) To promptly notify Bank of any attachment or other legal process levied
against any of the Collateral and any information received by Borrower relative
to the Collateral, including the Accounts, the account debtors or other persons
obligated in connection therewith, which may in any way affect the value of the
Collateral or the rights and remedies of Bank in respect thereto
(e) That Bank may at any time, without prior notice to Borrower, collect the
Accounts and Inventory proceeds and may give notice of assignment to any and all
account debtors, and Borrower does hereby make, constitute and appoint Bank its
irrevocable, true and lawful attorney with power to receive, open and dispose of
all mail addressed to Borrower from account debtors, to endorse the name of
Borrower upon any checks or other evidences of payment that may come into the
possession of Bank upon the Accounts or as proceeds of Inventory; to endorse the
name of the undersigned upon any document or instrument relating to the
Collateral; in its name or otherwise, to demand, sue for, collect and give
acquittances for any and all moneys due or to become due upon the Accounts; to
compromise, prosecute or defend any action, claim or proceeding with respect
thereto; and to do any and all things necessary and proper to carry out the
purpose herein contemplated.
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(f) To do all acts necessary to maintain, preserve, and protect the
Inventory, keep all Inventory in good condition and repair and not to cause any
waste or unusual or unreasonable depreciation thereof.
(g) In the event any unpaid balance of Borrower's Loan Account shall exceed
the maximum amount of outstanding Loans to which the Borrower is entitled under
Section 1 hereof, Borrower shall immediately pay to Bank for credit to
Borrower's Loan Account the amount of such excess.
4.25 [INTENTIONALLY OMITTED]
5. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, or so long as Bank has
any obligation to extend credit to Borrower, it will not, without Bank's written
consent:
5.01 TYPE OF BUSINESS; CHANGE IN CONTROL. Make any substantial change in
the character of its business; or permit Erin Mills International Investment
Corporation to maintain less than fifty-one percent (51%) ownership of Borrower.
5.02 OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than (i) Loans from the Bank, (ii)
Permitted Indebtedness, (iii) obligations now existing as shown in the
Borrower's financial statement dated June 30, 1999, (iv) future outside
indebtedness not to exceed One Hundred Thousand Dollars ($100,000) in the
aggregate during the term of this Agreement, excluding those obligations being
refinanced by Bank, or sell or transfer, either with or without recourse, any
accounts or notes receivable or any moneys due or to become due. The term
"Permitted Indebtedness" means indebtedness to trade creditors in the ordinary
course of business and endorsements for collection or deposit in the ordinary
course of business.
5.03 LIENS AND ENCUMBRANCES. Create, incur, permit to exist, or assume any
mortgage, pledge, encumbrance, lien or charge of any kind upon any asset now
owned or hereafter acquired by it, other than Permitted Liens. The term
"Permitted Liens" means: (a) liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings; (b) liens imposed by law, such as
matierialmen's, mechanics, carriers', landlords', workmen's and repairmen's
liens and other similar liens arising in the ordinary course of business; (c)
liens (other than those imposed under ERISA), pledges or deposits in connection
with workmen's compensation, unemployment insurance or social security
obligations, provided in each case that the obligation secured is not overdue;
(d) liens to secure the performance of bids, trade contracts, leases, surety or
appeal bonds and other obligations of like nature incurred in the ordinary
course of business; (e) liens on equipment or software leased by Borrower
pursuant to an operating or capital lease in the ordinary course of business (
including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such equipment or software; (f) easements,
reservations, rights-of-way, restrictions, minor defects or irregularities in
title and other similar charges or encumbrances affecting real property; (g)
liens in favor of customs duties in connection with the importation of goods;
(h) liens constituting rights of set-off of a customary nature or banker's liens
with respect to amounts on deposit, whether arising by operation of law or by
contract, in connection with arrangements entered into with banks in the
ordinary course of business; (i) liens arising from judgments, decrees or
attachments in
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circumstances not constituting an Event of Default hereunder; and (j) liens in
favor of Bank created pursuant to the Agreement.
5.04 LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
to any person or other entity other than Permitted Investments. The term "
Permitted Investments" means: (a) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State or subdivision thereof maturing within two (2) years from the date of
acquisition thereof; (b) corporate commercial paper, corporate notes and bonds,
master notes, medium term notes, bankers acceptances, certificates of deposit
and repurchase agreements which, if short term, have a minimum credit rating of
A-1 or P-1 or, if long term, by Standard & Poor's Ratings Group, a division of
The McGraw Hill company, or Moody's Investors Service, Inc.; and (c) investments
consisting of (i) compensation of employees, consultants, officers and directors
of Borrower, (ii) travel advances, employee relocation loans and other employee
loans and advances in the ordinary course of business, and (iii) loans to
employees, officers or directors relating to the purchase of equity securities
of Borrower.
5.05 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity in excess
of $100,000 in any one year; or liquidate, dissolve, merge or consolidate, or
commence any proceedings therefor; or sell any assets except in the ordinary and
normal course of its business as now conducted; or sell, lease, assign, or
transfer any substantial part of its business or fixed assets, or any property
or other assets necessary for the continuance of its business as now conducted,
including without limitation the selling of any property or other asset
accompanied by the leasing back of the same.
5.06 CAPITAL EXPENDITURES. Make or incur obligations for fixed , intangible
or capital assets, which includes purchase money indebtedness or capital lease
obligations in excess of Six Hundred Thousand Dollars ($600,000) in any given
fiscal year of Borrower.
5.07 [INTENTIONALLY OMITTED]
5.08 DIVIDENDS AND DISTRIBUTIONS. Declare or pay any dividend or make any
other distribution on any of its capital stock now outstanding or hereafter
issued or purchase, redeem or retire any of such stock other than in dividends
or distributions payable in Borrower's capital stock, except for the repurchase
of Borrower's capital stock from officers, directors, employees or consultants
of Borrower upon termination of their employment with or rendering of service to
Borrower.
5.09 SUBORDINATED LIABILITIES. Make any payments on any Borrower's
obligation subordinated to the obligations to Bank, other than in accordance
with the provisions of any subordination agreement executed by the Bank and the
subordinated debt holder.
6. EVENTS OF DEFAULT
The occurrence of any of the following events of default ("Events of Default")
shall, at Bank's option, terminate Bank's commitment to lend and make all sums
of principal and interest then remaining unpaid on all Borrower's indebtedness
to Bank immediately due and payable, all without demand, presentment or notice,
all of which are hereby expressly waived:
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6.01 FAILURE TO PAY. Failure to pay any installment of principal or of
interest on any indebtedness of Borrower to Bank within, five (5) days of its
due date.
6.02 BREACH OF COVENANTS. Failure of Borrower to perform any other terms or
conditions of this Agreement or any Loan Document binding upon Borrower,
provided that any breach of Section 4.04 shall continue for a period of 30
days..
6.03 BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be materially false or
misleading in any respect.
6.04 INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admit its inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
6.05 JUDGMENTS, ATTACHMENTS. Any money judgment in excess of $50,000, writ
or warrant of attachment, or similar process shall be entered or filed against
Borrower or any of its assets and shall remain unvacated, unbonded or unstayed
for a period of thirty (30) days or in any event later than five (5) days prior
to the date of any proposed sale thereunder.
6.06 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall not be dismissed within thirty (30) days
thereafter.
6.07 REVOCATION OF GUARANTEE OR SUBORDINATION AGREEMENT. Any guarantee or
subordination agreement required hereunder is breached or becomes ineffective;
or any Guarantor or subordination creditor disavows or attempts to revoke or
terminate such guarantee or subordination agreement.
6.08 [INTENTIONALLY OMITTED]
6.09 CESSATION OF BUSINESS. Borrower shall voluntarily suspend its
business.
6.10 ADVERSE CHANGE. Any change which, in the reasonable opinion of the
Bank, is likely to be materially adverse to the financial condition of Borrower
or any Guarantor; or should the Bank reasonably believe that it is likely that
the prospect of Borrower's payment or performance hereunder or under any other
agreement or instrument with Bank be materially impaired.
6.11 [INTENTIONALLY OMITTED]
6.12 OTHER DEFAULTS. Borrower, or any Guarantor of Borrower's obligations
to Bank, shall commit or do or fail to commit or do any act or thing which would
constitute an event of default under any of the terms of any other agreement,
document or instrument executed or to be executed by it concerning the
obligation to pay money.
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6.13 ADVANCES. Notwithstanding anything to the contrary contained herein,
Bank shall have no duty to make advances while any event of default exists
notwithstanding any cure period provided for herein.
7. MISCELLANEOUS PROVISIONS
7.01 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Bank or any holder of notes issued hereunder, in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this Agreement or any note (s) issued in
connection with a Loan that Bank may make hereunder, are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
7.02 COUNTERPARTS; ENTIRE AGREEMENT. This Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement, and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersedes any prior agreements, written or oral, with respect thereto.
7.03 ATTORNEY'S FEES. Borrower will pay promptly to Bank without demand
after notice, with interest thereon from the date of expenditure at the rate
applicable to the Loan, reasonable attorneys' fees and all costs and expenses
paid or incurred by Bank in collecting or compromising the Loan after the
occurrence of an Event of Default, whether or not suit is filed. If suit is
brought to enforce any provision of this Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys' fees and court costs in
addition to any other remedy or recovery awarded by the court.
7.04 ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.05 INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assigns of
Borrower.
7.06 APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the state of California, to the jurisdiction
of whose courts the parties hereby agree to submit.
7.07 OFFSET. In addition to and not in limitation of all rights of offset
that Bank or other holder of the Loan may have under applicable law, Bank or
other holder of any note issued hereunder shall, upon the occurrence of any
Event of Default or any event which with the passage of time or notice would
constitute such an Event of Default, have the right to appropriate and apply to
the payment of the Loan any and all balances, credits, deposits, accounts or
monies of Borrower then or thereafter with Bank or other holder, within ten (10)
days after the Event of Default, and notice of the occurrence of any Event of
Default by Bank to Borrower.
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7.08 SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
7.09 TIME OF THE ESSENCE. Time is hereby declared to be of the essence of
this Agreement and of every part hereof.
7.10 ACCOUNTING. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
7.11 REFERENCE PROVISION.
(a) Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this Credit
Agreement, any security agreement executed by Borrower in favor of Bank or any
note executed by Borrower in favor of Bank or any other agreement or instrument
issued in favor of Bank by Borrower (collectively in this Section, the
"Agreement") which controversy, dispute or claim is not settled in writing
within thirty (30) days after the "Claim Date" (defined as the date on which a
party subject to this Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such controversy,
dispute or claim is subject to the reference proceeding and except as set forth
above, the parties waive their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court in the
County where the Real Property, if any, is located or Los Angeles County if none
(the "Court"). The referee shall be a retired Judge of the Court selected by
mutual agreement of the parties, and if they cannot so agree within forty-five
(45) days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP Section170.6. The referee shall (a) be requested to set the
matter for hearing within sixty (60) days after the date of selection of the
referee and (b) try any and all issues of law or fact and report a statement of
decision upon them, if possible, within ninety (90) days of the Claim Date. Any
decision rendered by the referee will be final, binding and conclusive and
judgment shall be entered pursuant to CCP Section644 in any court in the state
of California having jurisdiction. Any party may apply for a reference
proceeding at any time after thirty (30) days following notice to any other
party of the nature of the controversy, dispute or claim, by filing a petition
for a hearing and/or trial. All discovery permitted by this Agreement shall be
completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in the event of a
party's refusal to provide requested discovery for any reason whatsoever,
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including, without limitation, legal objections raised to such discovery or
unavailability of a witness due to absence or illness. No party shall be
entitled to "priority" in conducting discovery. Depositions may be taken by
either party upon seven (7) days written notice, and request for production or
inspection of documents shall be responded to within ten (10) days after
service. All disputes relating to discovery which cannot be resolved by the
parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided herein,
the Superior Court is empowered to issue temporary and/or provisional remedies,
as appropriate.
(b) Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the state of California. The rules
of evidence applicable to proceedings at law in the state of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
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7.12 This Agreement may be modified only by a writing signed by
all parties hereto.
This Agreement is executed on behalf of the parties by duly authorized officers
as of the date first above written.
IMPERIAL BANK MOTORVAC TECHNOLOGIES, INC.
("BANK") ("BORROWER")
By: s/ Clinton Anderson By: s/ Lee W. Melody
---------------------------- --------------------------------
Its: Vice President Its: President & CEO
--------------------------- -------------------------------
By: s/ David P. Nelson
--------------------------------
Its: C.F.O.
-------------------------------
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