Exhibit 4.2
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT, made and entered into as of the 31st day
of December, 1996, between First Union National Bank of Tennessee,
a national banking association, with its principal place of
business at 000 Xxxxxx Xxxxxx Xxxxx, Xxxxxxxxx, Xxxxxxxxx, 00000,
hereinafter referred to as "Bank", Southeastern Technology, Inc.,
a Tennessee corporation, hereinafter referred to as the "Borrower",
and SETECH, Inc., a Delaware corporation, hereinafter referred to
as the "Guarantor"),
W I T N E S S E T H:
WHEREAS, Bank has agreed to loan to Borrower, on a revolving
line of credit basis, amounts not to exceed $600,000; and
WHEREAS, Bank, Borrower and Guarantor desire to enter into
this Agreement to set forth the terms and conditions for disbursing
funds under the $600,000 facility (the "Credit Facility"),
NOW, THEREFORE, in consideration of the foregoing premises,
and other good and valuable consideration, the receipt and legal
sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. DEFINITIONS. Capitalized terms not otherwise defined herein
shall have the following meanings:
1.1 "Accounts", "accounts" and "accounts receivable" shall
include all rights to payment for goods sold or leased or for
services rendered, all sums of money or other proceeds due or
becoming due thereon, all instruments pertaining thereto, all
guaranties and security therefor, and all goods giving rise thereto
and the rights pertaining to such goods, including the right of
stoppage in transit, and all related insurance.
1.2 "Borrowing Base" means the lesser of $600,000.00, or the
sum of 80% of the Qualified Accounts Receivable as the same may be
amended or supplemented from time to time.
1.3 "Business Day" means any day other than a Saturday,
Sunday or other day in which financial institutions located in
Nashville, Tennessee, are required or permitted to close.
1.4 "Default" means the occurrence or existence of any event
which, but for the giving of notice or expiration of time or both,
would constitute an Event of Default.
1.5 "Default Rate" means the Default Rate, as defined in the
Note.
1.6 "Eurodollar Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
1.7 "Eurodollar Rate Reserve Percentage" means the reserve
percentage applicable during any LIBOR Interest Period under
regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) for determining the
maximum reserve requirements, including, without limitation, any
emergencies, supplemental or other marginal reserve requirements,
for the Lenders with respect to liabilities or assets consisting of
or including Eurodollar Liabilities having a term equal to such
LIBOR Interest Period.
1.8 "Guaranty Agreement" means the Guaranty and Suretyship
Agreement of even date herewith executed by Guarantor in favor of
Bank.
1.9 "Hazardous Materials" means petroleum and petroleum
products and compounds containing them, including gasoline, diesel
fuel and oil; explosives; flammable materials; radioactive
materials; polychlorinated biphenyls ("PCBs") and compounds
containing them; lead and lead-based paint; asbestos or asbestos-
containing materials in any form that is or-could become friable;
underground storage tanks, whether empty or containing any
substance; any substance the presence of which is prohibited by any
federal, state or local authority; any substance that requires
special handling; and any other material or substance now or in the
future defined as a "hazardous substance," "hazardous material,"
"hazardous waste," "toxic substance," "toxic pollutant,"
"contaminant," or "pollutant" within the meaning of any Hazardous
Materials Law.
1.10 "Hazardous Materials Laws" means all federal, state
and local laws, ordinances and regulations and standards, rules,
policies and other governmental requirements, administrative
rulings and court judgments and decrees in effect now or in the
future and including all amendments, that relate to Hazardous
Materials and apply to the Borrower. Hazardous Materials Laws
include, but are not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601,
et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., the Toxic substance Control Act, 15 U.S.C.
Section 2601, et seq., the Clean Water Act, 33 U.S.C. Section 1251,
et seq., and the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, and their state analogs.
1.11 "Inventory" and "inventory" mean goods, merchandise,
replacement parts and other personal property, now owned or
hereafter acquired, which are held for sale or lease or are to be
furnished under a contract of service or are raw materials, work in
process, packaging, labels or materials to be used or consumed in
the Borrower's business and any returned goods or credits for
returned goods.
1.12 "LIBOR Interest Period" means the one month interest
period, applicable with respect to a LIBOR Loan.
1.13 "LIBOR Loan" means any advance under the Line of
Credit bearing interest at the LIBOR Rate.
1.14 "LIBOR Rate" means the floating interest rate per
annum (rounded upward, if necessary, to the next 1/100th of one
percent) at which dollar deposits approximately equal in the
principal amount of the applicable LIBOR Loan with a maturity
comparable to the applicable LIBOR Interest Period are offered to
money center banks in immediately available funds in the London
Interbank Market for eurodollars at approximately 12:00 noon,
Nashville time, on the date of commencement of the LIBOR Interest
Period, as determined by Bank.
1.15 "Loan Documents" means this Agreement, the Note, the
Guaranty Agreement, and any and all other documents and instruments
evidencing or securing the Credit Facility, or any portion thereof.
1.16 "Maturity Date" means October 31, 1997.
"Note" means the Line of Credit Note of even date
herewith, in the original amount of $600,000, executed by the
Borrower and payable to Bank, together with all renewals and
extensions thereof.
1.18 "Prime Rate" means the rate announced by Bank from
time to time as the Prime Rate, and is not necessarily the best or
lowest rate offered by Bank.
1.19 "Prime Rate Loan" means any disbursement under the
Line of Credit, which bears interest at the Prime Rate.
1.20 "Qualified Accounts Receivable" means
a. the account arises from a bona fide, outright sale of
goods by Borrower or for services performed by Borrower, and such
goods have been shipped or the sale has otherwise been consummated,
or the services have been performed;
b. the title of Borrower to the account, and, except as
to the account debtor, to any goods, is absolute and is not subject
to any prior assignment, claim, lien or security interest;
c. the amount shown on the books of Borrower and on any
invoice or statement delivered to Bank is owing to Borrower, and no
partial payment has been made thereon by anyone;
d. the account is not subject to any claim of reduction,
counterclaim, offset, recoupment, or any claim for credits,
allowances or adjustments by the account debtor because of
returned, inferior or damaged goods or unsatisfactory services, or
for any other reason, except for customary discounts allowed for
prompt payment;
e. the account is not an account that the Bank, in its
reasonable discretion, has determined to be ineligible in whole or
in part and has notified Borrower thereof;
retain any of the goods from the sale of which the account arose;
g. the account is due and payable not more than thirty
(30) days from the date of the invoice therefor;
h. the account is not more than ninety (90) days old,
dating from the original invoice date (not due date) as set forth
in the terms of the respective invoices; provided, however, in the
event that more than twenty-five percent (25%) by value of the
accounts of a particular account debtor are more than ninety (90)
days old, dating from the original invoice date, then all of the
accounts of such account debtor, including current receivables,
shall be excluded from Qualified Accounts Receivable;
i. the account does not arise out of a contract with, or
order from, an account debtor that, by its terms, forbids or makes
the assignment of that account to the Bank void or unenforceable;
j. Borrower has not received any note, trade acceptance,
draft or other instrument with respect to or in payment of the
account, or any chattel paper with respect to the goods giving rise
to the account, and if any such instrument or chattel paper is
received, Borrower will immediately notify Bank and, at the
latter's request, endorse or assign and deliver the same to Bank;
k. neither Borrower nor Bank has received any notice of
the dissolution, termination of existence, insolvency, business
failure, appointment of a receiver for any part of the property of,
assignment for the benefit of creditors by, or the filing of a
petition in bankruptcy or the commencement of any proceeding under
any bankruptcy or insolvency laws by or against the account debtor.
l. Titan Services, Inc. shall be excluded from Qualified Accounts
Receivable.
1.21 "Tangible Net Worth" means total assets less total
liabilities (including debt fully subordinated to the Credit
Facility), less intangible assets (including, without limitation,
goodwill, franchises, licenses, patents, trademarks, trade names,
copyrights, service marks and brand names).
2. CREDIT FACILITY
2.1 Subject to the terms and conditions of this Agreement,
provided no Default exists until the Maturity Date, the Borrower
may borrow, repay and reborrow up to the Borrowing Base. The
proceeds of the Credit Facility (the "Line of Credit") shall be
used to provide working capital for the Borrower and for no other
purpose.
2.2 The Credit Facility shall be evidenced by a Line of
Credit Note (the "Note") in form satisfactory to Bank. The Note
shall contain the following terms:
a. Interest Rate. Interest on so much of the principal
balance of the Line of Credit as may be outstanding from time to
time shall accrue at a floating rate per annum equal to either (at
Borrower's option), (i) the LIBOR Rate plus 250 basis points
(2.50%), or (ii) the Prime Rate. The interest rate payable on the
Line of Credit shall adjust automatically to reflect changes in the
Prime Rate and/or LIBOR Rate, as the case may be.
b. Repayment. Interest accrued on so much of the
outstanding principal balance as may be outstanding from time to
time under the Line of Credit shall be due and payable (i) monthly,
on the first day of each consecutive month, in the case of Prime
Rate Loans, and (ii) at the conclusion of each applicable LIBOR
Interest Period, in the case of LIBOR Loans. The first interest
payment shall be due and payable on the first applicable interest
payment date following the first advance under the Line of Credit.
The outstanding principal balance of the Line of Credit, together
with accrued but unpaid interest, shall mature and be due and
payable on October 31, 1997.
c. Maximum Rate. The interest rate payable on the Line
of Credit is to be computed on a 360-day year base and shall be
adjusted whenever there is a change in the applicable interest rate
chosen by the Borrower. In no event shall the interest rate
charged with respect to the Line of Credit exceed the Maximum Rate.
d. Default Rate. Upon the occurrence of an Event of
Default under the Loan Documents, at the option of Bank, the
outstanding balance of the Credit Facility, including accrued
interest, shall bear interest from the date of the Event of Default
until paid, at the lesser of (i) the Default Rate, or (ii) the
Maximum Rate.
The Credit Facility shall be secured by a first priority security
interest in the accounts, inventory, equipment, machinery, general
intangibles, trademarks, and other personal property assets of the
Borrower, and by the Guaranty Agreement.
2.3 In the case of a Prime Rate Loan, the Borrower shall give
Bank irrevocable notice (a "Borrowing Notice") not later than 1:00
p.m. Nashville time on the day of disbursement. In the case of a
LIBOR Loan, the Borrower shall provide the Borrowing Notice not
later than 1:00 p.m. Nashville time three (3) Business Days prior
to any requested disbursement. Each Borrowing Notice shall be
written and shall specify the date of such requested disbursement,
the aggregate amount of such disbursement, and whether the
disbursement shall be a Prime Rate Loan or a LIBOR Loan. Each
Borrowing Notice shall obligate the Borrower to accept the
disbursement requested thereby.
a. The Borrower shall have the right at any time, on
prior irrevocable written or telefaxed notice to Bank to convert
any Prime Rate Loan into a LIBOR Loan, to convert a LIBOR Loan into
a Prime Rate Loan, or to continue a LIBOR Loan for a subsequent
LIBOR Interest Period, subject in each case to the following:
(1) Each conversion notice shall be irrevocable;
(2) Each notice to convert to a LIBOR Loan or to
continue a LIBOR Loan shall be received by Bank not later than 1:00
p.m. Nashville time, three (3) days prior to the requested
conversion date;
(3) No LIBOR Loan shall be converted or prepaid at
any time other than at the end of the Interest Period applicable
thereto;
(4) Each conversion shall be effected by applying
the proceeds of the new LIBOR Loan or Prime Rate Loan, as the case
may be, to the disbursement (or portion thereof) being converted;
(5) In no event shall the number of LIBOR Loans
outstanding at any one time exceed three (3).
Each notice pursuant to this subparagraph shall be
irrevocable and shall refer to this Agreement and specify (i) the
identity and principal amount of the particular disbursement that
the Borrower requests to be converted or continued, and (ii) if
such notice requests conversion, the date of conversion (which
shall be a Business Day). In the event that the Borrower shall not
give notice to continue any LIBOR Loan for a subsequent LIBOR
Interest Period, such Loan (unless repaid) shall automatically be
converted into a Prime Rate Loan. If the Borrower shall fail to
specify in a Borrowing Notice the interest rate option selected,
the Borrower will be deemed to have requested a Prime Rate Loan.
Notwithstanding anything to the contrary contained above, if an
Event of Default shall have occurred and be continuing, no LIBOR
Loan may be continued, and no Prime Rate Loan may be converted into
a LIBOR Loan.
2.4 The Credit Facility may be prepaid at any time, in whole
or in part, without prepayment penalty or premium, subject to the
limitation that advances bearing interest at the LIBOR Rate may
only be prepaid at the conclusion of the applicable LIBOR Interest
Period.
2.5 In the event that reasonable means do not exist for
ascertaining the LIBOR Rate generally, Bank shall, as soon as
practicable thereafter, give written or telephonic notice of such
determination to the Borrower, in which case, borrowings at the
LIBOR Rate shall be suspended, and the interest rate applicable to
LIBOR Loans shall be calculated based upon an alternative rate
selected by Bank, which, in the Bank's judgment, reasonably
approximates the LIBOR Rate and which can be verified through
published reports or readily accessible sources. Each
determination by Bank hereunder shall be conclusive absent manifest
error.
2.6 a. Notwithstanding any other provision herein, if after
the date of this Agreement any change in applicable laws or
regulations or in the interpretation or administration thereof by
any governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law)
shall change the basis of taxation of payments to Bank under any
LIBOR Loan or any other fees or amounts payable hereunder (other
than taxes imposed on the overall net income of the Bank by the
country in which the Bank is located, or by the jurisdiction in
which Bank has its principal office, or by any political
subdivision or taxing authority therein), or shall impose, modify,
or deem applicable any reserve requirement, special deposit,
insurance charge (including FDIC insurance on eurodollar deposits)
or similar requirements against assets of, deposits with or for the
account of, or credit extended by, the Bank or shall impose on the
Bank or the London Interbank Market any other condition affecting
this Agreement or LIBOR Loans, and the result of any of the
foregoing shall be to increase the cost to Bank of making or
maintaining its LIBOR Loans or to reduce the amount of any sum
received or receivable by the Bank for any of its LIBOR Loans
hereunder (whether of principal, interest or otherwise) by an
amount reasonably deemed by the Bank to be material, then the
Borrower will pay to the Bank such additional amount or amounts as
will reasonably compensate the Bank for such additional costs.
b. If either:
(1) The introduction of, or any change in, or in the
interpretation of, any United States or foreign law, rule or
regulation; or
(2) Compliance with any directive, guidelines or
request from any central bank or other United States or foreign
governmental authority (whether or not having the force of law)
promulgated or made after the date hereof (but excluding, however,
any law, rule, regulation, interpretation, directive, guideline or
request contemplated by or resulting from the report dated July,
1988, entitled "International Convergence of Capital Measurement
and Capital Standards" issued by the Basic Committee on Banking
Regulations and Supervisory Practices), affects or would affect the
amount of capital required or expected to be maintained by the Bank
(or any lending office of the Bank) or any corporation directly or
indirectly owning or controlling the Bank (or any lending office of
the Bank) based upon the existence of this Agreement, and Bank
shall have determined that such introduction, change or compliance
has or would have the effect of reducing the rate of return on the
Bank's capital or on the capital of such owning or controlling
corporation as a consequence of its obligations hereunder
(including its commitment) to a level below that which the Bank or
such owning or controlling corporation could have achieved but for
such introduction, change or compliance (after taking into account
that Bank's policies or the policies of such owning or controlling
corporation, as the case may be, regarding capital adequacy) by an
amount deemed by Bank (in its sole discretion) to be material, then
the Borrower will pay to Bank such additional amount or amounts as
will compensate Bank for such reduction attributable to making,
funding and maintaining the Credit Facility.
2.7 All parties to the Loan Documents intend to comply with
applicable usury law. All existing and future agreements
evidencing or securing the Credit Facility are hereby limited and
controlled by the provisions of this Section 2.7. In no event
(including but not limited to prepayment, default, demand for
payment, or acceleration of maturity) shall the interest taken,
reserved, contracted for, charged or received in connection with
the Credit Facility under the Loan Documents or otherwise, exceed
the maximum nonusurious amount permitted by applicable law (the
"Maximum Amount"). If, from any possible construction of any
document, interest would otherwise be payable in excess of the
Maximum Amount, then ipso facto, such document shall be reformed
and the interest payable reduced to the Maximum Amount, without
necessity of execution of any amendment or new document. If Bank
ever receives interest in an amount which apart from this provision
would exceed the Maximum Amount, the excess shall, without penalty,
be applied to the unpaid principal balance of the Indebtedness in
inverse order of maturity of installments and not to the payment of
interest, or be refunded to the Borrower, at the election of the
Bank in its sole discretion or as required by applicable law. The
Bank do not intend to charge or receive unearned interest on
acceleration. All interest paid or agreed to be paid to the Bank
in connection with the Credit Facility, or any portion thereof,
shall be spread throughout the full term (including any renewal or
extension) of the Line of Credit so that the amount of interest
paid does not exceed the Maximum Amount.
2.8 The Borrower shall pay Bank a fee equal to one-half of
one percent (.50%) of the average daily unused portion of the Line
of Credit, such fee to be due and payable quarterly, in arrears, on
the first day of each April, July and October, 1997, beginning
April 1, 1997.
2.9 Advances under the Line of Credit shall be used to
finance working capital needs of Borrower, and shall be based upon
Borrowing Base Certificates submitted by Borrower, in form and
substance acceptable to Bank.
3. SECURITY INTEREST
3.1 As security for the payment of all advances under the
Credit Facility now or in the future made hereunder and all other
indebtedness and obligations of the Borrower to Bank, created under
this Agreement or otherwise, now existing or hereafter incurred,
matured or unmatured, direct or contingent, including all
modifications, extensions and renewals thereof, hereinafter
sometimes collectively referred to as the "Indebtedness", the
Borrower hereby collaterally assigns to Bank and grants to Bank a
security interest in the following:
a. All of the Borrower's accounts, whether now existing
or hereafter arising;
b. All of the Borrower's chattel paper and instruments,
whether now existing or hereafter acquired, evidencing any
obligation to the Borrower for payment for goods sold or leased or
services rendered;
c. All of the Borrower's existing inventory and all
inventory acquired by the Borrower during the term of this
Agreement;
d. All of the Borrower's existing equipment and machinery
(excluding leased equipment) and all equipment and machinery
acquired by the Borrower during the term of this Agreement;
e. All of Borrower's trademarks and general intangibles,
whether now existing or hereafter arising or acquired, and all of
Borrower's files, records (including without limitation computer
programs, tapes and related electronic data processing software)
and writings of the Borrower or in which Borrower has an interest
in any way relating to Borrower's general intangibles, accounts,
inventory and equipment;
f. All proceeds of policies of insurance on any of the
foregoing;
g. All of the proceeds therefrom.
All of which hereinafter sometimes is referred to collectively as
the "Collateral".
4. CONDUCT OF BUSINESS AND LOCKBOX OF RECEIVABLES
4.1 So long as no Event of Default occurs hereunder, the
Borrower shall have the right, in the regular course of business,
to process and sell Borrower's inventory. Bank's security interest
hereunder shall attach to all proceeds of all sales or other
dispositions of Borrower's inventory.
4.2 Following an Event of Default, upon request by the Bank,
Borrower shall cause all payments on accounts to be deposited
directly with Bank, together with all payments of inventory sold or
in payment of or on account of Borrower's accounts, such funds to
be deposited with Bank in a special account maintained by Bank on
behalf of Borrower. To the extent an account debtor pays Borrower
directly for inventory sold, Borrower shall immediately deposit
such funds with Bank. Pending such deposit, Borrower agrees that
it will not commingle any such checks, drafts, cash and other
remittances with any of Borrower's funds or property, but will hold
them separate and apart therefrom, and upon an express trust for
Bank until deposit thereof is made in the special account. The
funds in the special account shall be security for all loans and
obligations of Borrower to Bank and all other Indebtedness secured
by the terms of this Agreement. Bank may apply the whole or any
part, as Bank deems appropriate, of the collected funds on deposit
in the special account against the principal and/or interest due
under the Indebtedness secured by this Agreement, the order and
method of such application to be in the discretion of Bank. Any
portion of the funds on deposit in the special account that are not
applied by Bank to the Indebtedness shall be paid to Borrower.
4.3 Following an Event of Default, Bank shall have the
absolute and unconditional right to notify and direct the account
debtors obligated on any or all of Borrower's accounts to make
payments thereof directly to Bank and to take control of all
proceeds of any such accounts which rights Bank may exercise at any
time, whether or not Borrower is then in default hereunder or
theretofore were making collections thereon. The costs of such
collection and enforcement, including attorneys' fees and expenses,
shall be borne solely by Borrower, whether incurred by Bank or
Borrower.
4.4 Whether or not an Event of Default shall have occurred,
through independent auditors designated by the Borrower, Bank shall
have the right from time to time to contact the account debtors
obligated on any or all of Borrower's accounts for the purposes of
confirming the validity and amount of the accounts, such contact to
be made by such independent auditors, as approved by Bank. Copies
of all responses from account debtors shall be provided to Bank.
4.5 The Bank shall not, under any circumstances, be liable
for any error or omission or delay of any kind occurring in the
settlement, collection or payment of any accounts or any instrument
received in payment thereof or for any damage resulting therefrom,
except for fraud or gross negligence on the part of the Bank.
5. COVENANTS AND WARRANTIES OF THE Borrower
5.1 Borrower hereby covenants and warrants to Bank:
a. The principal place of business and chief executive
office of Borrower is set forth in Exhibit 5.1(a). The Borrower
will notify Bank promptly in writing of any change in the location
of the principal place of business or any other place of business
or the establishment of any new place of business.
b. All equipment and machinery that is a part of the
Collateral under this Agreement is used primarily for business use
and is located at the locations set forth in Exhibit 5.1(b). The
Borrower will not sell or offer to sell or otherwise transfer or
dispose of any portion of the said equipment or machinery, or any
interest therein, without the prior written consent of Bank. All
inventory of the Borrower will be stored at the locations set forth
in Exhibit 5.1(b). Borrower will not store inventory in any other
location without the prior written consent of Bank.
c. The Borrower is the owner of the Collateral free from
any adverse lien, security interest, or encumbrance, except as
reflected in Exhibit 5.1(c) attached hereto. The Borrower will
defend the Collateral against all claims and demands of all persons
at any time claiming the same or any interest therein.
d. The Borrower at all times will keep accurate and com-
plete records of the Borrower's accounts. Bank, or any of its
agents, shall have the right to call at Borrower's place or places
of business, at intervals to be determined by Bank and, without
hindrance or delay, to inspect at Borrower's cost all of Borrower's
inventory and to inspect, audit, check, and make extracts from the
books, records, journals, orders, receipts, correspondence, and
other data relating to Borrower's accounts or to any other
transactions between the parties hereto. Without limiting the
foregoing, Borrower acknowledges and agrees that Bank or its agents
shall inspect Borrower's books, records and inventory by field
audits (to be conducted not less often than annually), with the
costs of said field audits to be paid by Borrower.
e. If any of Borrower's accounts should be evidenced by
promissory notes, trade acceptances, or other instruments for the
payment of money, Borrower immediately will deliver same to Bank,
appropriately endorsed to Bank's order. Regardless of the form of
such endorsement, Borrower hereby waives presentment, demand,
notice of dishonor, protest and notice of protest, and all other
notices with respect thereto.
f. No financing statement covering any of the Collateral
or any proceeds therefrom is on file in any public office, except
for filings in favor of the Bank and the matters described in
Exhibit 5.1(c). At the request of Bank, Borrower will join with
Bank in executing one or more financing statements pursuant to the
Uniform Commercial Code, in form satisfactory to Bank, and will pay
the cost of filing or recording the same or this Agreement in all
public offices wherever filing or recording is deemed by Bank to be
necessary or desirable. A copy of this Security Agreement or
copies of any financing statements executed herewith may be filed
in lieu of originals in any public office.
g. Borrower is and shall remain a corporation duly
organized, existing and in good standing under the laws of the
State of Tennessee, authorized to transact in Tennessee all
business that such entity is now transacting therein and is and
shall remain duly qualified to do business in each state which
qualification is necessary. Neither the execution, the delivery
nor the performance of this Agreement and all related documents by
Borrower will constitute a default under or conflict with its
respective charter or bylaws or any agreement, contract, document,
or instrument to which Borrower now is a party. The execution of
all necessary resolutions and other prerequisites of corporate
actions have been duly performed so that the individuals executing
this Agreement and related documents on behalf of Borrower is duly
authorized to bind such entity by his signature.
h. There is no litigation or proceeding pending against
the Borrower or, to the knowledge of Borrower, threatened that, if
decided adversely to Borrower, would have a material effect upon
its financial condition. Borrower is not subject to any
outstanding court or administrative order. Borrower covenants to
give Bank prompt written notice of any litigation, arbitration,
administrative proceeding or investigation that may hereafter be
instituted or threatened against Borrower, whether or not liability
under such proceeding would be covered by insurance.
i. The statements of condition of Borrower dated June 30,
1996, fairly and accurately reflects the financial condition and
capital structure of each entity as of said date. Since said date,
no material adverse change in either has occurred or, to the
knowledge of Borrower, is threatened. All financial statements
delivered to Bank have been prepared in accordance with generally
accepted accounting principles, consistently applied, and are true,
accurate and complete in every respect. Without limiting the
foregoing, Borrower warrants that such financial statements
disclose all known contingent liabilities as well as direct
liabilities. Borrower acknowledges that Bank has advanced (or
committed to advance) the Indebtedness in reliance upon such
financial statements, and Borrower warrants that no material
adverse change has occurred in the financial condition of any
person or entity as set forth in such financial statements.
Borrower warrants that each has good and absolute title to the
assets disclosed on Borrower's balance sheet disclosed to Bank,
subject only to liens, security interests and other encumbrances
noted thereon.
j. Borrower is not presently delinquent in the payment
of any taxes imposed by any governmental authority or in the filing
of any tax return and Borrower is not involved in a dispute with
any taxing authority over tax amounts due. Borrower covenants that
all future taxes assessed against Borrower shall be timely paid and
that all tax returns required of Borrower shall be timely filed.
k. Borrower will keep the Collateral free from any lien,
security interest, or encumbrance other than that granted to Bank
herein and in good order and repair and will not waste or destroy
the Collateral or any part thereof. Borrower will not use the
Collateral in violation of any statute or ordinance. Borrower's
business activities are conducted in accordance with all applicable
laws and regulations, and Borrower covenant that such activities
shall continue to be so conducted. Bank may examine and inspect
the Collateral at any time, wherever located.
l. Borrower will maintain insurance, in form, amounts,
and with companies in all respects satisfactory to Bank, insuring
Borrower's inventory, fixtures, equipment, and machinery against
loss from fire, theft, and other risks determined by Bank. Bank
shall be designated as an additional insured under the terms of the
policies evidencing such insurance. Upon request by Bank, Borrower
will execute such additional instruments as Bank deems necessary to
perfect in Bank a lien on Borrower's rights under such policies.
m. Borrower shall provide Bank with the following (all
of which shall be in form and substance acceptable to Bank):
(i) within one hundred twenty (120) days of fiscal
year end, complete audited financial statements
prepared in accordance with generally accepted
accounting principles, consistently applied,
including balance sheet, profit and loss
statement and statement of cash flows, with
supporting schedules, prepared by a certified
public accountant reasonably acceptable to Bank
with such accountant giving an unqualified
opinion as to all statements, including a copy
of the management letter delivered by the
certified public accountant completing the
audit;
(ii) within forty-five (45) days after the end of
each quarter, quarterly interim financial and
operating statements for the preceding quarter,
including balance sheet, profit and loss
statement of cash flows, with supporting
schedules, in form satisfactory to Bank, which
shall be certified by a responsible officer and
shall reflect accurately the financial condition
of the Borrower;
(iii) within five (5) days after the
end of each month, a monthly
summary aging report of all
accounts receivable;
(iv) with each draw request, and with the quarterly
financial statements, a completed borrowing base
certificate, which shall be in form and
substance acceptable to Bank;
(v) a compliance certificate in form and substance
acceptable to Bank, which shall include a
calculation of the financial covenants set forth
in this Agreement, which certificate shall be
delivered to Bank simultaneously with the
delivery of the quarterly interim financial
statements required in (ii) above;
(vi) Borrower shall cause Guarantor to provide to
Bank within one hundred twenty (120) days of
Guarantor's fiscal year end, complete audited
consolidating financial statements prepared in
accordance with generally accepted accounting
principles, consistently applied, including bal-
ance sheet, profit and loss statement and
statement of cash flows, with supporting
schedules, prepared by a certified public
accountant reasonably acceptable to Bank with
such accountant giving an unqualified opinion as
to all statements, including a copy of the
management letter delivered by the certified
public accountant completing the audit.
Guarantor shall also supply Bank with copies of
the quarterly Form 10-Q filed with the
Securities and Exchange Commission ("SEC"), as
well as the annual Form 10-K (or 10-KSB) filed
with the SEC;
All financial statements, certificates and other information
required to be submitted to Bank shall be in form satisfactory to
Bank and shall be executed by an officer of the entity submitting
such information, satisfactory to Bank.
n. Borrower will give Bank prompt written notice within
five (5) days of (i) the creation or discovery of any material
additional contingent liability or the occurrence of any other
material adverse change in the financial condition of Borrower or
Guarantor or other person or entity presently or hereafter liable
for payment of all or part of the Indebtedness, and (ii) the
occurrence of any event, or presence of any condition, which
constitutes a default hereunder or which within the giving of
notice, the passage of time, or both, would constitute a default.
o. Borrower will comply with all statutes and government
regulations applicable to Borrower's operations and pay promptly
all taxes, assessments, claims for labor, supplies, rent, and other
obligations that, if unpaid, might become a lien against Borrower's
property. In the event any such liability or obligation is
contested by Borrower in good faith, Borrower, at the request of
Bank, shall establish reserves in amounts satisfactory to Bank to
meet such obligation.
p. Upon demand, Borrower will advance to Bank, or, at
Bank's option, reimburse Bank, for the following expenses:
(1) All taxes that Bank may be required to pay
because of the Indebtedness or because of Bank's interest in any
Collateral securing the payment of the Indebtedness;
(2) All expenses that Bank may incur in connection
with the preparation, execution, audit and administration, or
enforcement of this Agreement or of any other document pertaining
to the Indebtedness;
(3) All costs of preserving, insuring, preparing for
sale (whether by improvement, repair or otherwise) or selling any
Collateral securing the Indebtedness;
(4) All court costs and other costs of collecting
any debt, overdraft or other obligation included in the
Indebtedness, including compensation for time spent by employees of
Bank;
(5) All reasonable costs arising from any litigation
proceeding (whether or not Bank is a party thereto) that Bank may
incur as a result of the Indebtedness or as a result of Bank's
association with Borrower, including, but not limited to, expenses
incurred by Bank in connection with a case or proceeding involving
Borrower under any chapter of the Bankruptcy Code or any successor
statute thereto;
(6) Reasonable attorney's fees incurred in con-
nection with any of the foregoing.
If Bank pays any of the foregoing expenses, they shall become a
part of the Indebtedness and shall bear interest at the highest
lawful rate.
q. Following an Event of Default, Bank shall have the
right to obtain and use the services of a collateral control firm
at its option. All expenses for such services shall be borne by
Borrower.
r. Except as set forth in Exhibit 5.1(r), Borrower
presently has no subsidiaries or interests in any partnership or
other business entity, and Borrower covenant that the Borrower will
not hereafter acquire stock of any other corporation or acquire an
equity interest in any other business entity without the prior
written approval of Bank.
s. Borrower will maintain current corporate minute books
and stock ledgers and agrees to allow Bank to inspect the same at
any time.
t. The Borrower does not maintain any plan qualified
under the Employee Retirement Income Security Act of 1974 and
covenant that they will not establish such a plan without Bank's
prior written consent. Bank acknowledges that Guarantor currently
maintains a plan which may benefit employees of the Borrower.
u. Borrower has not been known under or done business
under any name other than the name used by Borrower in executing
this Agreement. Borrower agrees to give Bank at least fifteen (15)
days prior written notice before Borrower begins using any name
other than that used in executing this Agreement.
v. In order to further secure the payment of the
Indebtedness, Borrower hereby grants a security interest and right
to setoff against all presently owned or hereafter acquired monies,
items, credits, deposits and instruments (including certificates of
deposit) presently or hereafter in the possession of Bank. By
maintaining any such accounts or other property with Bank, Borrower
voluntarily subjects the property to Bank's rights hereunder. Bank
may exercise its rights under this Paragraph without prior notice
following an Event of Default. Borrower agrees that Bank shall not
be liable for the dishonor of any instrument resulting from the
exercise of rights under this Paragraph.
w. Borrower will execute such other assignments, security
agreements, financing statements, and other documents that Bank may
deem necessary to further evidence the obligations provided for
herein or to perfect, extend, or clarify Bank's rights in any
property securing or intended to secure the Indebtedness. Any Vice
President of Bank is hereby appointed as Borrower's attorney-in-
fact with full power of substitution for the signing of financing
statements and other similar filings with government offices for
perfecting security interests granted hereby to the extent the
Borrower fail to execute or deliver such documents following a
written request by Bank. Borrower acknowledges that this power of
attorney is coupled with an interest and is irrevocable.
x. Borrower is not a party to any contract or agreement
and is not subject to any contingent liability that does or may
impair Borrower's ability to perform under the terms of this Agree-
ment. The execution and performance of this Agreement will not
cause a default under any other contract or agreement to which
Borrower or any property of Borrower is subject, and will not
result in the imposition of any charge, penalty, lien or other
encumbrance against any of Borrower's property except in favor of
Bank.
does not require the consent of or the giving of notice to any
third party including, but not limited to, any account debtor,
other lender, governmental body or regulatory authority.
z. Borrower is in compliance with, and will continue to
comply with, all Hazardous Materials Laws in connection with
Borrower's business operations, and will indemnify and hold Bank
harmless from any loss or damage incurred by Bank in connection
with violations of applicable Hazardous Materials Laws by Borrower
or Borrower's business operations.
5.2 So long as any Indebtedness secured hereby is out-
standing, Borrower covenants and warrants that, without the prior
written consent of Bank, the Borrower will not:
a. Change its name, enter into any merger, consolidation,
reorganization, or recapitalization, or reclassify its capital
stock.
b. Sell, lease, convey, or otherwise dispose of any of
its property or assets, except in the ordinary course of business.
c. Become liable, directly or indirectly, for any
obligation of any other person, by guaranty, endorsement, or other-
wise, except by endorsement of negotiable instruments payable at
sight for deposit or collection.
d. Become liable, directly or indirectly, with respect
to any obligation for money borrowed, or the equivalent, except the
Indebtedness, except for purchase money obligations incurred in the
ordinary course of business in an aggregate amount not exceeding
$100,000.
e. Suffer or permit, in whole or in part, dissolution,
liquidation, or the retirement or redemption of any shares of its
own stock or the stock of any subsidiary.
f. Declare, set aside, or pay any dividend or make any
other distribution, whether in cash, in kind, or otherwise, on
account of or with respect to its stock, or take any action
whatsoever that would reduce Borrower's capital surplus or earned
surplus.
g. Make any loans other than employee loans not exceeding
an aggregate amount of Ten Thousand Dollars ($10,000.00) and
deposits required by government agencies or public utilities.
h. Make any investments except for investments in direct
obligations of the United States Government maturing within one (1)
year and certificates of deposit issued by Bank.
i. Suffer or permit the Collateral to become subject to
any security interest, lien, or other encumbrance, except for the
following:
(1) Any lien created by virtue of this Agreement, or
any other lien in favor of Bank;
(2) A pledge or deposit in connection with or to
secure xxxxxxx'x compensation, unemployment insurance, pensions, or
other employee benefits accruing under the provisions of law or
under agreements now in force and disclosed to Bank;
(3) Tax liens which result from obligations being
contested by Borrower in good faith and for which Borrower has
established adequate reserves in the event of an adverse ruling;
(4) The matters described in Exhibit 5.1(c) attached
hereto.
j. Take any action, or suffer or permit any action to be
taken, that would violate any of the warranties and covenants con-
tained in Section 4.1 hereof or cause any of said warranties and
covenants to be or become untrue.
k. Submit to Bank any certificate or other document that
contains any untrue statement of material fact or omits to state a
material fact necessary to make it not misleading.
l. Make capital expenditures (including capitalized
leases and leasehold improvements) in any fiscal year in excess of
$250,000 in the aggregate.
m. Fail to comply with the following financial covenants:
(i) Fixed Charge Coverage Ratio. The ratio of the
sum of net income after tax plus depreciation
and amortization plus interest expense plus rent
expense divided by the sum of interest expense
plus rent expense plus current maturities of
long-term debt and capitalized leases shall not
be less than 1.50 to 1, measured quarterly on a
rolling four (4) quarter basis.
(ii) Tangible Net Worth. Borrower's Tangible Net
Worth shall not be less than $1,900,000 at all
times.
n. Suffer or permit the amount outstanding under the Line
of Credit to exceed the Borrowing Base.
6. CONDITIONS PRECEDENT
6.1 As conditions precedent to Bank's making or continuing
any loans hereunder, Borrower and Guarantor shall furnish to Bank,
in form satisfactory to Bank:
a. Appropriate corporate resolutions authorizing Borrower
and Guarantor to enter into this Amendment, together with
authorizations for officers of Borrower and Guarantor to execute
any and all documents necessary to effectuate the transactions
contemplated by this Agreement. In addition, Borrower and
Guarantor shall provide to Bank copies of all corporate
organizational documents, together with current Certificates of
Good Standing/Existence.
b. Delivery to Bank of current updated certificates of
insurance evidencing comprehensive liability, hazard loss, and such
other insurance insuring Borrower's inventory and facilities, which
shall be in an amount, and issued by companies acceptable to Bank.
Bank shall be named as an additional insured on all liability
insurance, and as a mortgagee/loss payee on all hazard insurance.
c. A Guaranty and Suretyship Agreement executed by
Guarantor guaranteeing repayment of the Credit Facility, in form
and substance acceptable to Bank.
7. PROTECTIVE ACTION
7.1 At its option, Bank may discharge taxes, liens, security
interests, or other encumbrances at any time levied or placed on
the Collateral and may pay for insurance on the Collateral.
Borrower agree to reimburse Bank on demand for any payment made, or
any expense incurred, by Bank pursuant to the foregoing
authorization, together with interest thereon from date of payment
at the highest rate permitted by applicable law. Until the
occurrence of an Event of Default, Borrower may have possession of
the Collateral and use it in any lawful manner not inconsistent
with any policy of insurance thereon and not inconsistent with this
Agreement.
8. DEFAULT
8.1 Regardless of the terms of any promissory note or notes
issued in connection herewith, the occurrence of any of the events
specified hereinbelow (sometimes hereinafter referred to as an
"Event of Default") shall immediately terminate any obligations on
the part of Bank to make or continue to fund, advance or readvance
any sums to Borrower and, at the option of Bank, shall make all
sums of interest and principal remaining on the Indebtedness
immediately due and payable, without notice of default, presentment
or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind or character, except as
hereinafter specified:
a. Default in the punctual payment when due of any of the
Indebtedness or default in performance of any of the covenants,
warranties, terms, or provisions contained or referred to in this
Agreement or in any note evidencing any of the Indebtedness;
b. Any covenant, warranty, representation, or statement
made or furnished to Bank by or on behalf of Borrower or in
connection with this Agreement proving to have been false in any
material respect when made or furnished;
c. Loss, theft, substantial damage, destruction, sale,
or encumbrance to or of the Collateral, except for the sale of
inventory specifically provided for in this Agreement, or the mak-
ing of any levy, seizure, or attachment thereof or thereon;
d. Dissolution, liquidation, cessation of business,
termination of existence, insolvency, failure to pay debts as they
mature, business failure, or appointment of a receiver of any part
of the property of, assignment for the benefit of creditors by, or
the commencement of any proceeding under any bankruptcy or
insolvency law by or against Borrower or Guarantor;
e. The filing of any tax lien whatsoever with respect to
any of the Collateral pledged hereby, except for a tax lien that is
being contested in good faith and for which Borrower provides addi-
tional security satisfactory in all respects to Bank;
f. The issuance of an attachment against property of
Borrower unless removed, by bond or otherwise, within thirty (30)
days;
g. The entry of a final judgment against Borrower that
remains unsatisfied for five (5) days after execution may first
issue;
h. The occurrence of an event of default under any other
agreement between Borrower and Bank or under any agreement between
Borrower and any lessor of real or personal property or any bank,
savings and loan, insurance company, commercial credit company or
other lender, including without limitation any lenders who are sub-
ordinated to the Indebtedness secured hereunder;
i. The occurrence of an Event of Default (and expiration
of applicable notice and cure periods) under the Loan and Security
Agreement by and between First Union Commercial Corporation and
Titan Services, Inc., executed in December, 1996, or any other
document or instrument executed in connection therewith.
9. REMEDIES
9.1 Upon the occurrence of an Event of Default and at any
time thereafter, Bank shall have all the rights and remedies of a
secured party under the Uniform Commercial Code and any other right
Bank may have at law or equity. Bank may require Borrower to
assemble the Collateral and make it available to Bank at a place or
places, to be designated by Bank, reasonably convenient to both
parties. Unless the Collateral is perishable, threatens to decline
speedily in value, or is of a type customarily sold on a recognized
market, Bank will give Borrower reasonable notice of the time and
place of any public sale thereof or of the time after which any
private sale or any other intended disposition thereof is to be
made. The requirements of reasonable notice shall be met if such
notice is mailed, postage prepaid, to the address of Borrower shown
at the end of this Agreement at least ten (10) days before the time
of the sale or disposition. Borrower agree to pay all expenses of
retaking, holding, preparing for sale, and selling the Collateral,
together with any court costs and Bank's reasonable attorney's
fees; all such expenses, costs and fees shall be deemed part of the
Indebtedness. Bank may exercise its lien upon and right of setoff
against any monies, credits, deposits or instruments that Bank may
have in its possession and which belong to Borrower or to any other
person or entity liable for the payment of any or all of the
Indebtedness. The remedies provided Bank in this Agreement are not
exclusive of any other remedies that may be available to Bank under
any other document or at law or equity.
9.2 No delay or omission on the part of Bank in exercising
any right hereunder or in demanding strict compliance with the
terms of this Agreement shall operate as a waiver of such right or
of any other right under this Agreement or of demanding strict
compliance with the terms of this Agreement. No waiver by Bank of
any default shall operate as a waiver of any other default or of
the same default on a future occasion.
10. MISCELLANEOUS AND DEFINITIONS
10.1 Unless otherwise set forth herein, all financial
ratios and reports shall be calculated and prepared in accordance
with generally acceptable accounting principles consistently
applied.
10.2 The captions contained in this Agreement are inserted
only as a matter of convenience and shall not be construed as
defining, limiting, extending, or describing the scope of this
Agreement, any section hereof, or the intent of any provision
hereof.
10.3 All rights of Bank hereunder shall inure to the
benefit of its successors and assigns, and all obligations of
Borrower shall bind Borrower's successors and assigns.
10.4 Time is of the essence with regard to each and every
provision of this Agreement.
10.5 Nothing in this Agreement shall be deemed a waiver or
prohibition of Bank's right of banker's lien or setoff.
10.6 This Agreement, and the documents executed and
delivered pursuant hereto, constitute the entire agreement between
the parties, and may be amended only by a writing signed by all
parties.
10.7 If any provision of this Agreement shall be held
invalid under any applicable law, such invalidity shall not affect
any other provision of this Agreement that can be given effect
without the invalid provision, and, to this end, the provisions
hereof are severable.
10.8 Upon demand of any party hereto, whether made before
or after institution of any judicial proceeding, any dispute, claim
or controversy arising out of, connected with or relating to this
Loan Agreement and other Loan Documents ("Disputes") between or
among parties to this Loan Agreement shall be resolved by binding
arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to
demand arbitration hereunder. Disputes may include, without
limitation, tort claims, counterclaims, disputes as to whether a
matter is subject to arbitration, claims brought as class actions,
claims arising from Loan Documents executed in the future, or
claims arising out of or connected with the transaction reflected
by this Loan Agreement.
Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration
Rules") of the American Arbitration Association (the "AAA") and
Title 9 of the U.S. Code. All arbitration hearings shall be
conducted in the city in which the office of Bank first stated
above is located. The expedited procedures set forth in Rule 51 et
seq. of the Arbitration Rules shall be applicable to claims of less
than $1,000,000. All applicable statutes of limitation shall apply
to any Dispute. A judgment upon the award may be entered in any
court having jurisdiction. The panel from which all arbitrators
are selected shall be a retired judge from the highest court of
general jurisdiction, state or federal, of the state where the
hearing will be conducted, or if such person is not available to
serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not
apply to disputes under or related to swap agreements.
10.9 Nothing contained herein or in any related document
shall be deemed to render Bank a partner of Borrower for any
purpose. This Agreement has been executed for the sole benefit of
Bank, and no third party is authorized to rely upon Bank's rights
hereunder or to rely upon an assumption that Bank has or will
exercise its rights under this Agreement or under any document
referred to herein.
10.10 Bank may proceed against collateral securing the
Indebtedness and against parties liable therefor in such order as
it may elect, and neither Borrower nor any surety or guarantor for
Borrower shall be entitled to require Bank to xxxxxxxx assets. The
benefit of any rule of law or equity to the contrary is hereby
expressly waived.
10.11 Bank may, in its sole discretion, release any collat-
eral securing the Indebtedness or release any party liable
therefor. The defenses of impairment of recourse and any
requirement of diligence on Bank's part in collecting the
Indebtedness are hereby waived
10.12 If any payment date under the Indebtedness falls on
a day that is not a business day of Bank, or if the last day of any
notice period falls on such a day, the payment shall be due and the
notice period shall end on Bank's next following business day.
10.13 The validity, construction and enforcement of this
Agreement and all other documents executed with respect to the
Indebtedness shall be determined to the maximum extent permissible
according to the laws of Tennessee, in which state this Agreement
has been executed and delivered.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on their behalf by their
duly authorized officers, on the date first set out above.
FIRST UNION NATIONAL BANK SOUTHEASTERN TECHNOLOGY, INC.
OF TENNESSEE
BY:____________________________ BY:________________________
TITLE:_________________________ TITLE:_____________________
000 Xxxxxx Xxxxxx Xxxxx Chief Executive Office:
Xxxxxxxxx, XX 00000 000 Xxxxxxxxxx Xxxx.
Xxxxxxxxxxxx, XX
"BANK" "BORROWER"
Exhibit 5.1(b)
Addresses
Exhibit 5.1(c)
Permitted Encumbrances
Exhibit 5.1(r)
Subsidiaries of Borrower
NONE
