Exhibit 10.7
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of December 1, 2000, by and between
VIRCO MFG. CORPORATION, a Delaware 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, 2000 (as amended from time to time, the "Prior
Credit Agreement"), pursuant to which Bank executed to Borrower a line of credit
(the "Prior Line of Credit") with a subfeature for the issuance of letters of
credit (the "Prior Letters of Credit").
B. Bank and Borrower wish to amend and restate the Prior Credit
Agreement in its entirety with this Agreement to evidence the extension to
Borrower of the credit accommodations described below on 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 Fifty Million Dollars ($50,000,000.00) from December 1, 2000
through and including April 30, 2001, Sixty Million Dollars ($60,000,000.00)
from May 1, 2001 through and including August 31, 2001 and Fifty Million Dollars
($50,000,000.00) from September 1, 2001 through the maturity date referred to
above ("Line of Credit"), the proceeds of which shall be used to finance
Borrower's working capital requirements and to refinance a portion of the
amounts outstanding under the Prior Line of Credit (which shall be deemed
cancelled hereby). 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) Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue sight
commercial or standby letters of credit for the account of Borrower (each, a
"Letter of Credit" and collectively, "Letters of Credit"); provided however,
that the form and substance of each Letter of Credit shall be subject to
approval by Bank, in its sole discretion; and provided further, that the
aggregate undrawn amount of all outstanding Letters of Credit shall not at any
time exceed Fifteen Million Dollars ($15,000,000.00). Each commercial Letter of
Credit shall be issued for a term not to exceed one hundred eighty (180) 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 (3) years, as designated by Borrower; provided however, that no standby
Letter of Credit shall have
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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 Agreement and related documents, if any, required by Bank in connection
with the issuance thereof (each, a "Letter of Credit Agreement" and
collectively, "Letter of Credit Agreements"). Each draft paid by Bank 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 by Bank, then Borrower shall immediately pay to Bank the full amount of
such draft, together with interest thereon from the date such amount is paid by
Bank 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 demand deposit account
maintained by Borrower with Bank for the amount of any such draft. All Prior
Letters of Credit which are outstanding as of the date hereof shall be deemed
"Letters of Credit" hereunder.
(c) 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. TERM LOAN.
(a) Term Loan. Subject to the terms and conditions of this Agreement,
Bank hereby agrees to make a loan to Borrower in the principal amount of Thirty
Million Dollars ($30,000,000.00) ("Term Loan"), the proceeds of which shall be
used to refinance the portion of the balance outstanding under the Prior Line of
Credit which assisted with the expansion of Borrower's plant in Arkansas.
Borrower's obligation to repay the Term Loan shall be evidenced by a promissory
note substantially in the form of Exhibit B attached hereto ("Term Note'), all
terms of which are incorporated herein by this reference. Bank's commitment to
grant the Term Loan shall terminate on December 31, 2000.
(b) Repayment. The principal amount of the Term Loan shall be repaid in
accordance with the provisions of the Term Note.
(c) Prepayment. Borrower may prepay principal on the Term Loan solely in
accordance with the provisions of the Term Note.
SECTION 1.3. 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 on the
average daily unused amount of the Line of Credit. Initially, such fee shall be
...375%. Bank shall adjust such percentage on a fiscal quarterly basis, commencing
with Borrower's fiscal quarter ending January 31, 2001, if required, to reflect
a change in Borrower's ratio of Funded Debt to EBITDA (as defined in Section 4.9
(e) below) in accordance with the following grid:
Funded Debt to EBITDA Percentage Fee
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at least 2.0 to 1.0 but less
than or equal to 3.0 to 1.0 .375%
less than 2.0 to 1.0 .25%
Each such adjustment shall be effective on the first Business Day (as defined in
the Line of Credit Note) of Borrower's fiscal quarter following the quarter
during which Bank receives and reviews Borrower's most current fiscal
quarter-end financial statements in accordance with the provisions of Section
4.3 below. Such fee shall be due and payable by Borrower quarterly in arrears on
the fifteenth day of the month immediately following each fiscal quarter end.
(d) Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance of each commercial Letter of Credit, upon the payment or negotiation by
Bank of each draft under any commercial Letter of Credit and upon the occurrence
of any other activity with respect to any commercial Letter of Credit (including
without limitation, the transfer, amendment or cancellation of any commercial
Letter of Credit) determined in accordance with Bank's standard fees and charges
then in effect for such activity.
(e) Letter of Credit Fees. Borrower shall pay to Bank (i) fees upon the
issuance of each standby Letter of Credit equal to one and three-quarters
percent (1.75%) per annum (computed on the basis of a 360-day year, actual days
elapsed) of the face amount thereof, (ii) fees upon the payment or negotiation
by Bank of each draft under any standby Letter of Credit and fees upon the
occurrence of any other activity with respect to any standby Letter of Credit
(including without limitation, the transfer, amendment or cancellation of any
standby Letter of Credit) determined in accordance with Bank's standard fees and
charges then in effect for such activity.
SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all interest and fees due under each credit subject hereto by charging
Borrower's demand deposit account number 4648-052785 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.
SECTION 1.5. 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, 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
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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.
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 Delaware, 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 July 31, 2000, 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.
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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.
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:
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(i) This Agreement and each promissory note or other instrument
required hereby.
(ii) Corporate Borrowing Resolution.
(iii) Certificate of Incumbency.
(iv) Articles of Incorporation.
(v) Continuing Security Agreement: Rights to Payment and Inventory.
(vi) Security Agreement: Equipment
(vii) Financing Statement (Form UCC-1).
(viii) 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.
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.
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, including without limitation the
amount by which the outstanding principal balance under the Line of Credit
exceeds the maximum principal amount available thereunder, as set forth in
Section 1.1 (a) above.
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.
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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,
an audited consolidated and unqualified financial statement of Borrower,
prepared by a certified public accountant acceptable to Bank, to include a
balance sheet, an income statement, a statement of cash flows and appropriate
footnotes and supporting consolidating information;
(b) not later than 120 days after and as of the end of each fiscal year,
Borrower's Annual Report Form 10-K as filed with the Securities and Exchange
Commission;
(c) not later than 45 days after and as of the end of each fiscal
quarter, a financial statement of Borrower, prepared by Borrower, to include a
balance sheet and an income statement;
(d) not later than 60 days after and as of the end of each fiscal
quarter, Borrower's quarterly Report Form 10-Q as filed with the Securities and
Exchange Commission; and
(e) 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 in which the aggregate
potential loss amount exceeds insurance coverage by $1,000,000.00.
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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), with compliance determined commencing with
Borrower's financial statements for the period ending January 31, 2001:
(a) Current Ratio not at any time less than 1.75 to 1.0 as of each
second fiscal quarter end (July 31) and as of each third fiscal quarter end
(October 31), and not at any time less than 2.0 to 1.0 as of each first fiscal
quarter end (April 30) and as of each fourth fiscal quarter end (January 31),
with "Current Ratio" defined as total current assets divided by total current
liabilities.
(b) Total Liabilities divided by Tangible Net Worth not greater than 1.3
to 1.0 as of each fiscal year end (January 31), and not greater than 1.5 to 1.0
as of each second fiscal quarter end (July 31), with "Total Liabilities" defined
as the aggregate of current liabilities and non-current liabilities less
subordinated debt, and with "Tangible Net Worth" defined as the aggregate of
total stockholders' equity plus subordinated debt less any intangible assets.
(c) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end, and pre-tax profit not less than $1.00 on
a year-to-date basis, determined as of the end of the second fiscal quarter of
each fiscal year.
(d) Fixed Charge Coverage Ratio not less than 1.10 to 1.0 as of each
fiscal quarter end, calculated on a rolling four-quarter basis, with "Fixed
Charge" defined as net profit after taxes paid in cash plus interest expense
(net of capitalized interest expense), depreciation expense and amortization
expense, less $7,500,000.00 maintenance capital expenditures, and with "Fixed
Charge Coverage Ratio" defined as Fixed Charge divided by the aggregate of total
interest expense plus the prior period current maturity of long-term debt and
the prior period current maturity of subordinated debt.
(e) Funded Debt to EBITDA Ratio not greater than 3.0 to 1.0 as of each
fiscal quarter end, calculated on a rolling four-quarter basis, with "Funded
Debt" defined as the principal balance outstanding under the credits hereunder,
and with "EBITDA" defined as net profit before tax plus interest expense (net of
capitalized interest expense), depreciation expense and amortization expense.
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; (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 in
excess of an aggregate of $1,000,000.00.
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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. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets in excess of an aggregate of $18,000,000.00 for the fiscal year
ending January 31, 2001, in excess of an aggregate of $14,000,000.00 for the
fiscal year ending January 31, 2002, or in excess of an aggregate of
$16,000,000.00 for the fiscal year ending January 31, 2003.
SECTION 5.3. LEASE EXPENDITURES. Incur operating lease expense in excess
of an aggregate of $2,000,000.00 in any fiscal year.
SECTION 5.4. 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,
(b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof and (c) additional borrowings not to exceed an
aggregate of $2,500,000.00 during any fiscal year.
SECTION 5.5. 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 5.6. 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 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity, except (a) any of the foregoing existing
as of, and disclosed to Bank prior to, the date hereof, and (b) asset
acquisitions of companies engaged in businesses similar to that of Borrower for
purchase prices not to exceed $1,000,000.00 in the aggregate during any fiscal
year for all such purchases combined.
SECTION 5.8. 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, except
(a) Borrower may pay cash or stock dividends to its shareholders not to exceed
$300,000.00 in the aggregate during any given fiscal quarter, and (b) Borrower
may spend up to $4,500,000.00 in the aggregate during the fiscal
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year ending January 31, 2001 to repurchase its shares and up to $3,000,000.00 in
the aggregate during each fiscal year thereafter to repurchase its shares.
SECTION 5.9. 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; provided,
however, that Borrower may have mechanics' liens against its property securing
claims not to exceed $250,000.00 in the aggregate so long as such mechanics'
liens are released prior to any foreclosure thereunder.
(f) 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 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 Borrower
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shall file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or Borrower shall be adjudicated a
bankrupt, or an order for relief shall be entered against 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.
(i) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower 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 accommodation from Bank 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:
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BORROWER: VIRCO MFG. CORPORATION
2027 Harpers Way
Torrance, CA 90501
Attn: Robert E. Dose
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
San Gabriel Valley Regional Commercial Banking Office
1000 Lakes Drive, Suite 250
West Covina, CA 91790
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, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) 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 (c) 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.
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 extended by Bank to Borrower, 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 any extension of credit by Bank 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
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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. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration in accordance with the terms of this Agreement.
A "Dispute" shall mean any action, dispute, claim or controversy of any kind,
whether in contract or tort, statutory or common law, legal or equitable, now
existing or hereafter arising under or in connection with, or in any way
pertaining to, any of the Loan Documents, or any past, present or future
extensions of credit and other activities, transactions or obligations of any
kind related directly or indirectly to any of the Loan Documents, including
without limitation, any of the foregoing arising in connection with the exercise
of any self-help, ancillary or other remedies pursuant to any of the Loan
Documents. Any party may by summary proceedings bring an action in court to
compel arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that 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; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
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garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
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. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 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.
(e) 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.
(f) 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
AAA. 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, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. 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.
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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,
VIRCO MFG. CORPORATION NATIONAL ASSOCIATION
By: ______________________ By: _______________________
Randy Repp
Title: _____________________ Vice President
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THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of March 1, 2002, by and between VIRCO MFG. CORPORATION, a Delaware
corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of December 1, 2000, as amended from time to time ("Credit Agreement");
WHEREAS, Bank and Borrower wish to amend the Credit Agreement as set
forth herein;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1(a) is hereby amended and restated in its entirety to read
as follows:
(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 Fifty Million Dollars
($50,000,000.00) from March 1, 2002 through and including April 30,
2002, Seventy Million Dollars ($70,000,000.00) from May 1, 2002
through and including July 31, 2002, Sixty-five Million Dollars
($65,000,000.00) from August 1, 2002 through and including August
31, 2002, Sixty Million Dollars ($60,000,000.00) from September 1,
2002 through and including September 30, 2002, and Forty Million
Dollars ($40,000,000.00) from October 1, 2002 through the maturity
date referred to above ("Line of Credit"), the proceeds of which
shall be used to finance Borrower's working capital requirements and
to refinance a portion of the amounts outstanding under the Prior
Line of Credit (which shall be deemed cancelled hereby). 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.
2. The promissory note attached to this Amendment, as Exhibit A shall be
deemed the Line of Credit Note referred to in the Credit Agreement.
3. Section 1.1(c) is hereby amended and restated in its entirety to read
as follows:
(c) 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
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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. Notwithstanding the foregoing, for a period of at
least thirty (30) consecutive days during each fourth fiscal quarter
of Borrower, borrowings outstanding under the Line of Credit shall
not exceed Twenty-five Million Dollars ($25,000,000.00).
4. Section 4.9 is hereby amended and restated in its entirety to read as
follows:
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), with
compliance determined commencing with Borrower's financial
statements for the period ending January 31, 2002:
(a) Current Ratio not less than 1.1 to 1.0 as of the fiscal
quarters ending April 30, 2002 and July 31, 2002, and not less than
1.20 to 1.00 as of the fiscal quarter ending October 31, 2002 and
each fiscal quarter end thereafter, with "Current Ratio" defined as
total current assets divided by total current liabilities (including
without limitation the balance outstanding under the Line of
Credit).
(b) Total Liabilities divided by Tangible Net Worth not greater
than 1.5 to 1.0 as of each first fiscal quarter end (April 30), and
as of each second fiscal quarter end (July 31), and not greater than
1.25 to 1.00 as of each third fiscal quarter end (October 31) and
each fiscal year end (January 31), with "Total Liabilities" defined
as the aggregate of current liabilities and non-current liabilities
(including without limitation the undrawn amount of any issued and
outstanding Letters of Credit, guaranties and any other contingent
liabilities) less subordinated debt, and with "Tangible Net Worth"
defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets.
(c) Fixed Charge Coverage Ratio not less than 1.50 to 1.0 as of
each fiscal quarter end through and including October 31, 2002, and
not less than 1.60 to 1.00 at any fiscal quarter end thereafter,
calculated on a rolling four-quarter basis, with "Fixed Charge"
defined as net profit after taxes paid in cash less dividends and
distributions, less stock repurchases, less any gain on the sale of
assets, plus interest expense (net of capitalized interest expense),
depreciation expense and amortization expense, and with "Fixed
Charge Coverage Ratio" defined as Fixed Charge divided by the
aggregate of total interest expense
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plus the prior period current maturity of long-term debt (excluding
the current portion of the Term Loan) and the prior period current
maturity of subordinated debt.
(d) Funded Debt to EBITDA Coverage Ratio not greater than 2.0 to
1.0 as of January 31, 2002, not greater than 3.0 to 1.0 as of April
30, 2002, not greater than 3.25 to 1.0 as of July 31, 2002, not
greater than 1.5 to 1.0 as of October 31, 2002 and as of January 31,
2003, not greater than 2.75 to 1.0 as of each April 30 and July 31
thereafter, and not greater than 1.5 to 1.0 as of each October 31
and January 31 thereafter, with "Funded Debt" defined as the
principal balance outstanding under all interest bearing liabilities
of Borrower, and with "EBITDA" defined as net profit before tax plus
interest expense (net of capitalized interest expense), depreciation
expense and amortization expense, less any gain on the sale of
assets.
5. Section 5.2 is hereby amended and restated in its entirety to read as
follows:
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional
investment in fixed assets in excess of an aggregate of
$10,000,000.00 for the fiscal year ending January 31, 2002, in
excess of an aggregate of $8,000,000.00 for the fiscal year ending
January 31, 2003, or in excess of an aggregate of $8,000,000.00 for
the fiscal year ending January 31, 2004.
6. Section 5.8 is hereby amended and restated in its entirety to read as
follows:
SECTION 5.8. DIVIDENDS, DISTRIBUTIONS. Declare or pay any
dividend or distribution in cash on Borrower's stock now or
hereafter outstanding in excess of $300,000.00 in the aggregate
during any given fiscal quarter.
7. In consideration of the changes set forth herein and as a condition
to the effectiveness hereof, immediately upon executing this Amendment Borrower
shall pay to Bank a non-refundable fee of $10,000.00.
8. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
9. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
WELLS FARGO BANK,
VIRCO MFG. CORPORATION NATIONAL ASSOCIATION
By: ______________________ By: ______________________
Randall J. Repp
Title: _____________________ Vice President
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