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Exhibit 10.19
EXECUTION COPY
SECOND AMENDMENT TO REVOLVING LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING LOAN AND SECURITY AGREEMENT (this
"Second Amendment"), dated as of November 30, 1998, is entered into by and
between EMCORE CORPORATION, a New Jersey corporation (the "Borrower") and FIRST
UNION NATIONAL BANK (the "Bank").
RECITALS:
A. The Borrower and the Bank are parties to a certain Revolving Loan
and Security Agreement, dated as of March 31, 1997, as amended by a certain
Consent and Amendment Agreement, dated as of December 5, 1997 (the "First
Amendment") and as further modified pursuant to a certain Extension Letter dated
September 29, 1998 issued by the Bank and accepted by the Borrower (the
"Extension Letter", said loan agreement, as amended by the First Amendment and
the Extension Letter is hereinafter referred to as the "Loan Agreement").
B. The Revolving Loan Commitment is due to expire on November 30, 1998
and, therefore, the Borrower has requested a renewal and extension thereof to
October 1, 1999.
C. The Bank is willing to amend the Loan Agreement to reflect the
parties understanding with respect to the renewal and extension of the Revolving
Loan Commitment to October 1, 1999 subject to, and in accordance with, the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements set forth herein, and for value received by each party, the parties
hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 EXISTING DEFINITIONS. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings set forth in the Loan Agreement. Upon
the effectiveness of this Second Amendment, the following defined terms shall be
amended as set forth herein and such amended definitions shall apply wherever
such defined terms are used in the Loan Documents.
(a) The defined term "Commitment Expiration Date" is hereby
amended and restated to read as follows:
"Commitment Expiration Date" means October 1, 1999, unless
extended in accordance with Section 2.5 hereof."
(b) The first sentence of the defined term "Lending Rate" is
hereby amended and restated to read as follows:
"Lending Rate" means, with respect to each Revolving Loan, the
Prime Rate PLUS 50 basis points.
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(c) The defined term "Loan Documents" is hereby amended and
restated to read as follows:
"Loan Documents" means, collectively, this Agreement, the
Revolving Note, the Guaranty, the Security Agreement, the Note Stock
Pledge Agreements, the NM Facility Mortgage, the NM Facility Bond
Pledge, the New Guaranty, the New Pledge Agreement, and all other
documents, instruments and agreements delivered in connection herewith
and therewith, as the same from time to time may be amended, renewed,
restated, supplemented or otherwise modified."
1.2 ADDITIONAL DEFINITIONS. For purposes of the Loan Agreement and the
other Loan Documents, the following terms are hereby incorporated into Section 1
of the Loan Agreement in their respective appropriate alphabetical order:
"Consent Letter" means that certain Consent Letter issued by
the Bank to the Borrower on November 24, 1998, pursuant to which the
Bank provided its consent to the Specified Circumstances (as defined
therein) as such circumstances relate to the issuance by the Borrower
of its New Preferred Stock."
"New Guaranty" means that certain Unconditional Guaranty, in
substantially the form of EXHIBIT "A" attached hereto, given by Thomas
J. Russell, Jr., and TJR Holding Trust in favor of the Bank."
"New Preferred Stock" means the 1,550,000 shares of Series I
Redeemable Convertible Preferred Stock, $.0001 par value per share
issued by the Borrower on November 30, 1998."
"New Pledge Agreement" means that certain Pledge and
Assignment Agreement, in substantially the form of EXHIBIT "B" attached
hereto, given by Thomas J. Russell, Jr. and TJR Holding Trust in favor
of the Bank."
"NM Facility" means that certain real property and
improvements located in the City of Albuquerque, County of Bernalillo,
State of New Mexico, as more fully described in the NM Facility
Mortgage, which is occupied by the Borrower pursuant to a certain long
term lease dated June 1, 1998, by and between the Borrower and the City
of Albuquerque, New Mexico."
"NM Facility Bond Pledge" means that certain Bond Pledge
Agreement, in substantially the form of EXHIBIT "C" attached hereto,
given by EMCORE IRB Company, Inc. in favor of the Bank with respect to
the pledge of certain New Mexico taxable industrial revenue bonds
issued by the City of Albuquerque, New Mexico in connection with the
development of the NM Facility.
"NM Facility Mortgage" means that certain Mortgage and
Security Agreement, in substantially the form of EXHIBIT "D" attached
hereto, given by the Borrower in favor of the Bank with respect to the
Bank's first priority mortgage lien upon the NM Facility."
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"Supplemental Revolver" means that certain $8,000,000.00
revolving credit facility made available by the Bank to the Borrower
pursuant to a certain $8,000,000.00 Promissory Note dated June 22, 1998
made by the Borrower and payable to the Bank."
1.3 DELETION OF CERTAIN DEFINITIONS. As of the effectiveness of this
Second Amendment, the term "Tangible Capital Funds" shall be deleted from the
Loan Agreement and the Loan Documents wherever it may appear and, for the
avoidance of doubt, it is hereby acknowledged that the term "Effective Tangible
Net Worth" as defined in Section 10.14(b) of the Loan Agreement (as such section
shall be amended hereby) shall be inserted in its place.
SECTION 2. EXISTING OBLIGATIONS
2.1 ACKNOWLEDGMENT OF EVENTS OF DEFAULT, AMOUNTS OUTSTANDING.
(a) The Borrower acknowledges that it has failed to comply
with certain of the terms and conditions of the Loan Agreement, specifically the
Fixed Charge Ratio set forth in Section 10.14(a) of the Loan Agreement (all as
more particularly described on SCHEDULE I annexed hereto (the "Specified
Default") and that, as a result of the Borrower's failure to perform and satisfy
its obligations under the Loan Agreement, an Event of Default existed
thereunder. The Bank acknowledges that the Specified Default has been waived
pursuant to, and in accordance with, a certain Waiver Letter dated August 14,
1998 extended by the Bank to the Borrower. The Bank further acknowledges its
consent to certain Specified Circumstances (as defined in the Consent Letter)
pursuant to the terms and conditions of the Consent Letter. The Borrower
represents and warrants to the Bank that no Events of Default or Unmatured
Events of Default (other than the Specified Default) have occurred and are
continuing.
(b) The Borrower further acknowledges and agrees that, as of
the date hereof, the aggregate principal amount outstanding under the Revolving
Loans is $9,950,000 (without giving effect to the reduction required pursuant to
Section 4.1(a) of this Second Amendment) plus accrued and unpaid interest and
late charges, if any. The Borrower acknowledges and agrees that such amounts
outstanding under the Revolving Loans are the valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with the terms of
the Loan Documents, and that, as of the date hereof, there are no claims,
set-offs or defenses to the payment thereof.
2.2 WAIVER OF CLAIMS AND DEFENSES; RELEASE.
(a) The Borrower agrees that, as of the date hereof, it has no
claim, counterclaim, cause of action or defense of any kind by way of offset or
otherwise to the payment and satisfaction in full of the Revolving Loans. The
foregoing notwithstanding, to the extent that any such a claim or defense may or
does exist, as of the date hereof, the Borrower waives and releases any and all
such claims, counterclaims, causes of action and defenses.
(b) The Borrower further waives and releases and affirmatively
agrees not to allege or otherwise pursue, in any manner, any and all defenses,
affirmative defenses, counterclaims, claims, causes of action, set-offs or other
rights that it may have as of the date
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hereof to contest: (i) the Specified Default; (ii) any provisions of the Loan
Agreement and other Loan Documents; (iii) the rights of the Bank to all rents,
issues, profits, products and proceeds of the Collateral for the Revolving
Loans; (iv) the liens for the benefit of the Bank in any property (whether real
or personal, tangible or intangible), right or other interest, now or hereafter
arising in connection with the Collateral for the Revolving Loans; and (v) any
and all acts or omissions of the Bank in administering the amounts outstanding
under the Loan Agreement or otherwise; and the Borrower fully and forever
releases and discharges the Bank from any and all claims or liability of any
kind or nature with respect to the foregoing.
2.3 REAFFIRMATION OF SECURITY INTEREST AND LIENS. The Borrower
acknowledges and agrees that the security interests and other liens granted to
the Bank in the Collateral described in Section 7 of the Loan Agreement are and
remain valid and first priority liens on the assets subject thereto. The
Borrower further represents and warrants that (i) such collateral includes, but
is not limited to, all such Collateral located , or arising as a result of
operations, at the NM Facility and (ii) there are no claims, set-offs or
defenses to the Bank's exercise of any rights or remedies available to it as a
creditor in realizing upon such collateral under the terms and conditions of the
Loan Documents. The Borrower further acknowledges that the obligations secured
by and under the Loan Agreement include, but are not limited to, all such
obligations of the Borrower related to the Revolving Loans as modified hereby.
SECTION 3. LOANS
3.1 RENEWAL OF REVOLVING LOAN COMMITMENT. Upon satisfaction of the
conditions to effectiveness set forth in Section 4 of this Second Amendment, the
Revolving Loan Commitment made available by the Bank to the Borrower pursuant to
the Loan Agreement shall be extended and renewed through and including October
1, 1999. In consideration of the renewal and extension of the Revolving Loan
Commitment, the Borrower shall pay to the Bank a non-refundable renewal fee in
an amount to one-half of one percent (.50%) of the Revolving Loan Commitment,
which shall be due and payable upon execution and delivery of this Second
Amendment.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS TO THIS SECOND AMENDMENT. This Second Amendment shall
become effective as of the date first written above upon fulfilment of the
following conditions precedent, all as determined by the Bank, in its sole and
absolute discretion:
(a) The Borrower shall have consummated its private placement
of certain of its New Preferred Stock yielding gross proceeds of not less than
$21,700,000 on terms on conditions contemplated in the Consent Letter, and shall
have caused that portion of said proceeds not designated for a specific use to
be applied to the payment of the outstanding principal balance of the Revolving
Loans;
(b) The Borrower shall have caused to be executed and
delivered to the Bank the New Guaranty and the New Pledge Agreement;
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(c) The Borrower shall have provided the Bank with a first
mortgage lien all of the Borrower's right, title and interest in and to the NM
Facility pursuant to the NM Facility Mortgage and such other mortgage
documentation acceptable to the Bank, its general outside counsel and its local
counsel; and in connection with the NM Facility Mortgage, the Borrower shall
have caused the following materials to be delivered to the Bank, in each case,
in form and substance satisfactory to the Bank, its general outside counsel and
its local counsel:
(i) a mortgagee's title insurance policy or marked-up
unconditional binder for such insurance in the form
of an ALTA Loan Policy from a title company
acceptable to the Bank in its sole and absolute
discretion, said policy shall be (x) in an amount not
less than $5,000,000, (y) insure the NM Facility
Mortgage as a valid first lien on the NM Facility,
and (z) contain such endorsements and other forms of
affirmative insurance as the Bank may request in its
reasonable discretion;
(ii) a land survey of the perimeter or boundaries of the
site of the NM Facility certified to the Bank and
acceptable to the title company issuing the title
policy described in clause (i) above, said survey to
show in addition to metes and bounds of the
perimeter, all set-back and dimension restrictions
imposed by local zoning authorities, dimensions and
locations of all improvements, easements, rights of
way, encroachments and the lines, distances to, and
the names of the nearest intersecting streets
providing ingress and egress to the NM Facility, and
other details as the Bank may request;
(iii) certified copies of the bond transcript pertaining to
the issuance and sale of the taxable industrial
revenue bonds issued by the City of Albuquerque
related to the acquisition and development of the NM
Facility and the pledge of said bonds to pursuant to
the NM Facility Bond Pledge;
(d) The Borrower shall have paid and/or reimbursed the Bank
for all costs and expenses incurred in connection with the Consent Letter and
the extension herein contemplated, including, without limitation, all appraisal
fees related to Bank ordered appraisals of the NM Facility and certain other
assets of the Borrower, recording and filing charges, legal fees and
disbursements (including fees and disbursements of general outside counsel and
local counsel in New Mexico), search charges and other incidental out-of-pocket
expenses;
(e) The Borrower shall have caused to be delivered by the
Guarantor of a Guarantor Agreement, in substantially the form of EXHIBIT "E"
attached hereto, duly executed and delivered by the Guarantor to the Bank;
(f) The Borrower shall have provided to the Bank resolutions
of the boards of directors of the Borrower and the Guarantor, certified by the
secretary of each of them as of the date hereof to be duly adopted and in full
force and effect on such date, authorizing the consummation of each of the
transactions contemplated by this Second Amendment (including, but not limited
to, the execution and delivery of the NM Facility Mortgage);
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(g) The Borrower shall have provided to the Bank certificates
of the appropriate governmental authorities, dated the most recent practicable
date prior to the date hereof, showing that Borrower and the Guarantor are in
good standing in the States of New Jersey and New Mexico, and in such other
jurisdictions as the Bank shall reasonably request;
(h) The Borrower shall have caused to be delivered to the Bank
opinions of counsel to the Borrower and the Guarantor, in form and substance
satisfactory to the Bank and its counsel, regarding such matters as the Bank may
reasonable request in connection with the transactions contemplated in this
Second Amendment (including, but not limited to, the recordability, validity,
and enforceability of the NM Facility Mortgage);
(i) The Borrower shall have caused to be delivered to the Bank
UCC financing statements and other filings or recordings deemed necessary by the
Bank in order to perfect its security interests in the Collateral, including,
without limitation, such financing statements and other filings and written
assurances, as the Bank deems necessary or appropriate with respect to the any
such Collateral located, or arising from operations, at the NM Facility;
(j) The Borrower shall have caused to be delivered to the Bank
evidence that the insurance policies provided for in Section 10.7 of the Loan
Agreement are in full force and effect, with appropriate loss payee and
additional insured clauses in favor of the Bank, certified by the insurer;
(k) The Borrower shall have caused to be delivered to the Bank
payment of the renewal fee referenced in Section 3.1 hereof;
(l) The Borrower shall have satisfied all other conditions to
the extension contemplated herein set forth in that certain extension commitment
letter dated November 23, 1998 provided by the Bank to the Borrower; and
(m) Such additional information and documents as the Bank may
request.
SECTION 5. RATIFICATION AND AMENDMENT OF REPRESENTATIONS, WARRANTIES
AND COVENANTS
5.1 RATIFICATION. Borrower hereby ratifies, confirms and restates, as
if set forth herein in their entirety, all representations, warranties,
covenants, acknowledgments and agreements set forth in Section 8 of the Loan
Agreement, as amended prior the date hereof, at and as of the date hereof (other
than representations, warranties and covenants which expressly speak only as of
a different date), and affirmatively states that all of the same are true and
accurate and shall be and remain in full force and effect, subject only to
changes effected by this Second Amendment and/or changes previously disclosed to
the Bank in writing. In addition, Borrower represents and warrants to the Bank
that:
(a) the Borrower has the power and authority to enter into
this Second Amendment;
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(b) the Borrower's unaudited consolidated financial statements
as of June 30, 1998, which were furnished previously to the Bank, were prepared
in accordance with GAAP consistently applied throughout the period involved, and
present fairly the financial position of the Borrower as at the date thereof and
the results of operations and cash flows of the Borrower for the period then
ended;
(c) no changes having a material adverse effect have occurred
since the date of such financial statements referred to in Section 5.1(b) above;
(d) the execution, delivery and performance of this Second
Amendment and the instruments and agreements executed and delivered in
connection herewith by the Borrower have been duly authorized by all requisite
corporate action and this Second Amendment and the instruments and agreements
executed and delivered in connection herewith constitute the legal, valid and
binding obligations of the Borrower, enforceable against it in accordance with
their terms;
(e) the Borrower is not in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court or other
governmental authority which would have a material adverse effect;
(f) there have been no changes to the certificate of
incorporation or by-laws of any of the Borrower or the Guarantor since the date
of the First Amendment, other than the amendments thereto effected in connection
with the issuance of the New Preferred Stock; and
(g) no Event of Default or Unmatured Event of Default has
occurred and is continuing or will result from the execution, delivery and
performance of this Second Amendment and the instruments and agreements executed
and delivered in connection herewith.
5.2 AMENDMENT OF CERTAIN PROVISIONS OF LOAN AGREEMENT.
(a) Section 4.1 of the Loan Agreement is hereby amended and
restated in its entirety to read as follows:
"4.1 INTEREST RATE. With respect to each Revolving Loan, the
Borrower promises to pay interest on the unpaid principal amount
thereof for the period commencing on the date of such Revolving Loan
until such Revolving Loan is paid in full at a rate per annum equal to
the Lending Rate. Notwithstanding anything contained in this Agreement
or the Revolving Note to the contrary, with respect to each Revolving
Loan, after the maturity thereof on upon the occurrence and during the
continuance of an Event of Default, the Borrower shall pay interest to
the Bank at a rate per annum equal to the Default Rate.
(b) Section 10.14 of the Loan Agreement is amended and
restated in its entirety to read as follows:
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"10.14 Financial Covenants.
(a) FIXED CHARGE RATIO. Borrower shall not permit the Fixed
Charge Coverage Ratio to be less than 1.2 to 1 at the end of any fiscal
quarter commencing with the fiscal quarter ending March 31, 1999.
(b) EFFECTIVE TANGIBLE NET WORTH. The Borrower shall maintain
an Effective Tangible Net Worth (i) as at September 30, 1998 of not
less than $10,000,000.00 , (ii) as at December 31, 1998 of not less
than $29,000,000.00, (iii) as at March 31, 1999 of not less than
$29,000,000.00 and (iv) as at May 15, 1999 and all times thereafter of
not less than $54,000,000.00. "Effective Tangible Net Worth" means
total assets MINUS total liabilities as determined in accordance with
GAAP, applied on a consistent basis. For purposes of this computation,
the aggregate amount of any assets classified as Intangibles shall be
subtracted from total assets and total liabilities shall not include
the Borrower's obligations with respect to the New Preferred Stock to
the extent that such obligations are otherwise classified as
liabilities of the Borrower in accordance with GAAP."
(c) Section 10.21 of the Loan Agreement is amended and
restated to read as follows:
"10.21 DIVIDENDS. The Borrower shall not declare any dividends
(other than dividends payable solely in stock of Borrower) on, or make
any payment on account of , any shares of any class of stock of the
Borrower, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether
in cash or property or in obligations of the Borrower, or make any
payment on account of, or purchase or otherwise acquire, any securities
of the Borrowers from any Person; provided, however that the foregoing
shall not prohibit the Borrower from paying or declaring dividends in
respect of the New Preferred Stock of (i) not greater than 2% per share
(and $434,000.00 in the aggregate per annum) whether paid in cash or
in-kind, in the form of scheduled dividends on such preferred stock,
and (i) not greater than 0.5% per share (and $108,750 in the aggregate
per annum) in cash in the form of a special dividend payment incidental
to the Borrower's failure to timely file and maintain in effect the
"Shelf Registration" in accordance with the terms of such preferred
stock, in each case, if, AND ONLY IF, afer giving effect to the payment
of any such dividends, no Event of Default or Unmatured Event of
Default would then exist."
(d) Immediately following Section 10.27 of the Loan Agreement
there shall be inserted a new Section 10.28, which shall read as follows:
"10.28 YEAR 2000 COMPATIBILITY. The Borrower shall take all
action necessary to assure that its computer based systems have the
ability to operate and effectively process data including dates on or
after January 1, 2000. The Borrower shall make further inquiry as to
its significant suppliers and customers regarding their respective
efforts to assure such Year 2000 compatibility. At the request of the
Bank, the Borrower
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shall provide the Bank with such assurances as it may reasonably
request to demonstrate the Borrower's compliance with the foregoing
covenant."
SECTION 6. MISCELLANEOUS.
6.1 CONTINUED EFFECTIVENESS. Except as specifically amended by and/or
inconsistent with this Second Amendment, all of the terms and conditions of the
Loan Agreement shall remain unchanged and in full force and effect and are
hereby ratified, adopted and confirmed in all respects. All references to the
Loan Agreement in any Loan Document shall hereafter be deemed to refer to the
Loan Agreement as amended prior to the date hereof and by this Second Amendment.
This Second Amendment is a Loan Document.
6.2 PAYMENT OF EXPENSES. Borrower shall pay the reasonable fees and
expenses (including, but not limited to, reasonable attorneys' fees and
expenses) incurred by the Bank in connection with the preparation, negotiation,
execution and delivery and enforcement of this Second Amendment and the
documents executed and delivered in connection herewith and any and all
renewals, modifications, amendments and waivers hereof and hereunder.
6.3 ENTIRE AGREEMENT. This Second Amendment, together with the other
Loan Documents, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect to such subject matter.
6.4 COUNTERPARTS. This Second Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same agreement, and any party may execute
this Second Amendment by signing any such counterpart.
6.5 GOVERNING LAW. This Second Amendment shall be interpreted, and the
rights and liabilities of the parties hereto, whether arising in contract or
tort and howsoever pertaining to the parties' relationship, shall be determined
in accordance with the laws of the State of New Jersey.
6.6 HEADINGS. The section titles contained in this Second Amendment
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties.
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IN WITNESS WHEREOF, the parties have executed this Second Amendment the
day and year first above-written.
EMCORE CORPORATION,
a New Jersey corporation
By: /s/ THOMAS G. WERTHAN
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Name: Thomas G. Werthan
Title: CFO and Vice President
FIRST UNION NATIONAL BANK
By: /s/ Robert Murphy
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Name: Robert Murphy
Title: Vice President
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SCHEDULE I
SPECIFIED DEFAULT
1. Failure to comply with the Fixed Charge Ratio covenant set
forth in Section 10.14(a) of the Loan Agreement for the fiscal period ending
June 30, 1998