<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 27, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23027
Compass Plastics & Technologies, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4611994
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
15730 South Figueroa Street
Gardena, CA 90248
---------------------------
(Address of principal executive offices)
(Zip Code)
(213) 770-8771
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
At October 10, 1997, the Registrant has 4,883,750 shares of common stock, par
value $.0001 per share, outstanding.
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
FORM 10-Q
INDEX
Page
----
PART I -- FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
July, 27,1997 and October 27,1996 .................. 3
Condensed Consolidated Statements of Income for
the Three Months and Nine Months ended
July 27,1997 and July 28,1996 ....................... 4
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
July 27,1997 and July 28,1996 ....................... 5
Notes to Condensed Interim Consolidated
Financial Statements ................................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ....... 9
PART II -- OTHER INFORMATION
Legal Proceedings .................................... 14
Changes in Securities ................................ 14
Defaults upon Senior Securities ...................... 14
Submissions of matters to a vote of securities holders 14
Other Information .................................... 14
Exhibits and Reports on Form 8-K ..................... 14
SIGNATURES .................................................... 15
Page 2 of 14
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
Compass Plastics & Technologies, Inc.
Condensed Consolidated Balance Sheets
July 27, 1997 October 27, 1996
ASSETS (Unaudited)
Cash $ 220,932 $ 729,729
Accounts Receivable 4,938,352 5,915,207
Inventory 3,094,138 1,893,668
Other Current Assets 1,592,149 1,284,747
----------- -----------
Total Current Assets 9,845,571 9,823,351
Property, Plant, & Equipment, net 9,584,711 8,622,927
Goodwill 1,324,688 1,376,523
Other Assets 1,034,953 371,400
----------- -----------
Total Other Assets 2,359,641 1,747,923
----------- -----------
Total Assets $21,789,923 $20,194,201
=========== ===========
LIABILITIES & STOCKHOLDERS EQUITY
Accounts Payable $ 3,205,689 $ 3,573,715
Accrued Compensation & Benefits 952,228 498,717
Other Accrued Payables 1,469,344 750,003
Current Portion of Debt 60,327 286,705
----------- -----------
Total Current Liabilities 5,687,588 5,109,140
Revolving Line of Credit 3,550,000 6,000,000
Capitalized Leases 675,298 387,034
Other Long Term Debt, net of current 5,402,232 4,000,000
Deferred Income Taxes 1,943,957 1,734,437
----------- -----------
Total Long Term Liabilities 11,571,487 12,121,471
Common Stock, 2,000,000 issued 200 200
and outstanding
Additional Paid-in Capital 2,799,800 2,799,800
Retained Earnings 1,730,848 163,590
----------- -----------
Total Stockholder's Equity 4,530,848 2,963,590
----------- -----------
Total Liabilities & Equity $21,789,923 $20,194,201
=========== ===========
The accompanying notes to condensed consolidated financial statements are an
integral part of these consolidated balance sheets.
Page 3 of 14
<PAGE>
Compass Plastics & Technologies, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Company | Predecessor Company | Predecessor
39 weeks ended | 39 weeks ended 13 weeks ended | 13 weeks ended
July 27,1997 | July 28,1996 July 27,1997 | July 28,1996
----------- | ----------- ---------- | ----------
| |
<S> <C> | <C> <C> | <C>
Sales $29,888,702 | $27,946,363 $9,644,337 | $8,536,387
Cost of Sales 24,292,431 | 24,774,196 7,899,182 | 7,436,361
----------- | ----------- ---------- | ----------
Gross Profit 5,596,271 | 3,172,167 1,745,155 | 1,100,026
| |
Selling Expenses 482,443 | 347,857 188,310 | 124,220
General Administrative 1,721,150 | 1,152,406 593,639 | 355,339
Amortization of Goodwill 51,835 | 0 17,280 | 0
----------- | ----------- ---------- | ----------
Total 2,255,428 | 1,500,263 799,229 | 479,559
| |
Operating Income 3,340,843 | 1,671,904 945,926 | 620,467
| |
Interest Expense 694,923 | 325,001 243,680 | 98,913
Other Expense / (Income) (5,339) | (2,269) (5,339) | (2,269)
----------- | ----------- ---------- | ----------
Income before Income Taxes 2,651,259 | 1,349,172 707,585 | 523,823
Income Taxes 1,084,000 | 20,645 320,230 | 8,200
----------- | ----------- ---------- | ----------
Net Income $1,567,259 | $1,328,527 $387,355 | $515,623
========== | ========== ======== | ========
| |
| |
Weighted Avg. Shares Outstanding 3,600,000 | N/A 3,600,000 | N/A
Earnings Per Share $0.44 | $0.11 |
| |
Proforma Income Tax Data | |
Income Before Income Taxes | $1,349,172 | $523,823
Proforma Income Taxes | 539,669 | 209,529
----------- | ----------- ---------- | ----------
Net Income $1,567,259 | $809,503 $387,355 | $314,294
========== | ======== ======== | ========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these consolidated statements.
Page 4 of 14
<PAGE>
Compass Plastics & Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Company | Predecessor
39 Weeks Ended | 39 Weeks ended
July 27, 1997 | July 28, 1996
---------------------- | ---------------------
|
<S> <C> | <C>
Cash Flows from Operating Activities |
Net Income $ 1,567,259 | $ 1,328,527
Adjustments to reconcile net income |
to net cash provided by operating |
activities : |
Depreciation & Amortization 945,360 | 683,074
Deferred Income Taxes 209,520 | (1,587)
Changes in Assets - (increase) / decrease: |
Accounts Receivable, net 976,854 | 3,002,843
Accounts Receivable, other (253,218) | 7,798
Inventory (1,200,470) | 855,139
Prepaid expenses (93,188) | (70,114)
Other Assets (670,056) | 256,650
Changes in Liabilities - increase / (decrease) : |
Accounts Payable & Accrued Expenses 247,566 | (3,407,568)
Accrued Compensation & Benefits 453,511 | (11,597)
Income Taxes Payable 103,752 | 22,232
Distributions Payable | (227,800)
----------- | -----------
Total Adjustments 719,631 | 1,109,070
----------- | -----------
Net Cash Provided by Operating Activities 2,286,890 | 2,437,597
|
Cash Flows from Investing Activities : |
Purchase of Equipment & Improvements (973,550) | (752,957)
Payments on Notes Receivable - Related Party | 242,595
Issuance of Promissory Note - Related Party (50,000) | 0
----------- | -----------
Net Cash Used in Investing Activities (1,023,550) | (510,362)
|
Cash Flows from Financing Activities : |
Proceeds from Long Term Debt 1,467,837 | 0
Net Payments to Revolving Line of Credit (2,450,000) | (1,300,000)
Payments to Term Loans (25,914) | (461,250)
Repayment of Capital Lease Obligations (764,060) | (241,327)
Payment of Promissory Notes - Related Party 0 | (140,000)
Distributions to Shareholders 0 | (253,002)
----------- | -----------
Net Cash used in Financing Activities (1,772,137) | (2,395,579)
|
Net Increase (Decrease) in Cash & Cash Equiv (508,797) | (468,344)
Cash & Cash Equivalents - Beginning 729,729 | 468,344
----------- | -----------
Cash & Cash Equivalents - Ending $ 220,932 | $ 0
=========== | ===========
|
|
Supplemental Disclosure of Cash Flow Information |
Cash paid during the period for |
Interest $ $686,480 | $ 331,640
Income Taxes 751,691 | 0
Non-cash Investing and Financing Activity : |
Incurred Capital Lease Obligations 796,243 | 0
|
</TABLE>
Page 5 of 14
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Compass Plastics & Technologies, Inc.
Notes to Condensed Financial Statements
1. Basis of Presentation
Compass Plastics & Technologies, Inc. (formerly AB Plastics Holding
Corporation), together with its wholly owned subsidiaries, AB Plastics
Corporation, based in Gardena, California, and AB Plastics de Mexico, S.A . de
C.V., based in Tijuana, Mexico, is referred to as "Compass" or the "Company".
Compass was formed on May 30,1996 for the purpose of acquiring the stock of AB
Plastics Corporation ("AB Plastics"). The acquisition was accounted for as a
purchase effective September 27,1996. Compass did not have any activity between
May 30,1996 and September 27,1996. All financial statements for periods
subsequent to September 27,1996, the date the acquisition was consummated, will
include the accounts of Compass and its wholly-owned subsidiaries. The
Predecessor refers to AB Plastics prior to the consummation of the acquisition.
The accompanying consolidated financial statements are unaudited, except for the
October 27,1996 balance sheet, and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally required in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate for a fair presentation.
These condensed consolidated financial statements reflect all adjustments which,
in the opinion of management, are necessary to fairly present the results of
operations for the interim periods. All of the adjustments which have been made
are of a normal and recurring nature. The results of interim reporting are not
necessarily an indication of the results to be expected for the full year.
For information concerning the Company's significant accounting policies,
reference is made to the Company's filing with the Securities and Exchange
Commission on Form S-1, which was declared effective on September 3,1997.
2. Inventories
July 27,1997 October 27,1996
Raw Materials $1,097,382 $912,708
Work in Process 157,799 16,331
Finished Goods 1,838,957 964,629
-----------------------------------------
Total $3,094,138 $1,893,668
=========================================
3. Income Taxes
The Company's provision for income taxes reflects the change in tax status
subsequent to the acquisition of AB Plastics. The Company's predecessor received
tax treatment under subchapter S of the Internal Revenue Code (the "Code"), as a
result of which federal income taxes were paid by the individual shareholders
and the predecessor's income tax expense
Page 6 of 14
<PAGE>
reflected only California income taxes. The Company currently receives tax
treatment under subchapter C of the Code which requires the Company to pay any
federal income taxes.
4. Net Income per Share
Net income per share is calculated using the weighted average number of common
shares and common stock equivalent shares outstanding. Common stock equivalent
shares consist of the dilutive effect of certain stock options.
5. Completion of Initial Public Offering
The Company completed an initial public offering of 1,650,000 shares of its
common stock in September 1997, of which 1.2 million shares were sold by the
Company and 450,000 shares were sold by existing shareholders. The sale provided
net proceeds to the Company of approximately $8.5 million. In October 1997, the
underwriters purchased 123,750 additional shares of common stock from the
Company pursuant to their over-allotment option. The net proceeds to the Company
were $871,200.
Page 7 of 14
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Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
The Company is a leading manufacturer and assembler of custom injection molded
plastic components for computer and consumer electronics OEM's located in
Southern California and Mexico. The Company manufactures complex components
based on customer specifications and orders. The Company's primary customers are
the television and computer display divisions of Sony, Matsushita's Panasonic
and Quasar television units, Casio's electronic keyboard unit, Hitachi and Sanyo
television units.
The Company supplies its customer requirements from its manufacturing facility
in Gardena, California and its facility in Tijuana, Mexico, scheduled to be
operational by November 1997. The Company took possession of the Tijuana
building in July and has commenced the installation of equipment.
The Company completed an initial public offering of 1,650,000 shares of its
common stock in September 1997, of which 1.2 million shares were sold by the
Company and 450,000 shares were sold by existing shareholders. The sale provided
net proceeds to the Company of approximately $8.5 million. In October 1997, the
underwriters purchased 123,750 additional shares of common stock from the
Company pursuant to their over-allotment option. The net proceeds to the Company
were $871,200.
Page 8 of 14
<PAGE>
Results of Operations
13 Weeks ended July 27,1997 compared to 13 weeks ended July 28,1996
The following table sets forth, for the periods indicated, certain information
relating to the Company's operations expressed as a percentage of the Company's
net sales.
Company Predecessor
Statement of Income 13 weeks ended 13 weeks ended
(Unaudited) July 27,1997 July 28,1996
-------------- --------------
Sales 100.0% 100.0%
Cost of Sales 81.9% 87.1%
Gross Profit 18.1% 12.9%
Selling Expenses 2.0% 1.5%
General Administrative 6.2% 4.2%
Amortization of Goodwill 0.2% 0.0%
Total 8.3% 5.6%
Operating Income 9.8% 7.3%
Interest Expense 2.5% 1.2%
Other Expense / (Income) (0.1%) 0.0%
Income before Income Taxes 7.3% 6.1%
Income Taxes 3.3% 0.1%
Net Income 4.0% 6.0%
The Company's sales for the 13 weeks ended July 27,1997 increased $1.1 million
or 13.0% over the comparable 1996 period. Computer monitor component sales were
$4.5 million, an increase of 23.1% over the comparable 1996 period, television
component sales were $3.6 million, a decrease of 9.3% over the comparable 1996
period, and electronic keyboard component sales were $1.0 million, an increase
of 69.3% over the comparable 1996 period. Sales to Sony in the 1997 period were
$6.7 million, an increase of 10.2% over the comparable 1996 period, and 69.8% of
total sales in the 1997 period. Sales increased despite a general decline in
resin costs, which were passed on to the customer in the form of lower selling
prices.
The Company's gross profit was $1.7 million, an increase of 58.6% over the
comparable 1996 period. The increase was attributable to improved quality and
other productivity improvements, which lowered manufacturing costs.
The Company's selling, general and administrative expenses increased 62.9% over
the comparable 1996 period. The increase is related to added personnel in sales,
finance and administration subsequent to the acquisition of AB Plastics and
management bonus accruals.
The Company's interest expense increased 146.4% over the comparable 1996 period.
This increase was due to the increase in long-term debt related to the
acquisition of AB Plastics.
Page 9 of 14
<PAGE>
The Company's provision for income taxes reflects the change in tax status
subsequent to the acquisition of AB Plastics. The Company's predecessor received
tax treatment under subchapter S of the Internal Revenue Code of 1986 ("the
Code"), as a result of which federal income taxes were paid by the individual
shareholders and the predecessor's income tax expense reflected only California
income taxes. The Company currently receives tax treatment under subchapter C of
the Code, which requires the Company to pay any federal income taxes.
39 Weeks ended July 27,1997 compared to 39 weeks ended July 28,1996
The following table sets forth, for the periods indicated, certain information
relating to the Company's operations expressed as a percentage of the Company's
net sales.
Company Predecessor
Statement of Operations 39 weeks ended 39 weeks ended
(Unaudited) July 27,1997 July 28,1996
-------------- --------------
Sales 100.0% 100.0%
Cost of Sales 81.3% 88.6%
Gross Profit 18.7% 11.4%
Selling Expenses 1.6% 1.2%
General Administrative 5.8% 4.1%
Amortization of Goodwill 0.2% 0.0%
Total 7.5% 5.4%
Operating Income 11.2% 6.0%
Interest Expense 2.3% 1.2%
Other Expense / (Income) 0.0% 0.0%
Income before Income Taxes 8.9% 4.8%
Income Taxes (1) 3.6% 0.1%
Net Income 5.2% 4.8%
The Company's sales for the 39 weeks ended July 27,1997 increased $1.9 million
or 6.9% over the comparable 1996 period. Computer monitor component sales were
$14.4 million, an increase of 33.1% over the comparable 1996 period, television
component sales were $11.5 million, a decrease of 15.4% over the comparable 1996
period, and electronic keyboard sales were $2.9 million, an increase of 23.6%
over the comparable 1996 period. Sales to Sony in the 1997 period were $21.5
million or 71.9% of total sales, an increase of 23.9% over the comparable 1996
period. Sales increased despite a general decline in resin costs, which were
passed on to the customer in the form of lower selling prices.
The Company's gross profit was $5.6 million, an increase of 76.4% over the
comparable 1996 period. The increase was attributable to improved quality and
other productivity improvements, which lowered manufacturing costs.
Page 10 of 14
<PAGE>
The Company's selling, general and administrative expenses increased 46.9% over
the comparable 1996 period. The increase is related to added personnel in sales,
finance and administration subsequent to the acquisition of AB Plastics, and
management bonus accruals.
The Company's interest expense increased 113.5% over the comparable 1996 period.
This increase was due to the increase in long-term debt related to the
acquisition of AB Plastics.
The Company's provision for income taxes reflects the change in tax status
subsequent to the acquisition of AB Plastics. The Company's predecessor received
tax treatment under subchapter S of the Code, as a result of which federal
income taxes were paid by the individual shareholders and the predecessor's
income tax expense reflected only California income taxes. The Company currently
receives tax treatment under subchapter C of the Code, which requires the
Company to pay any federal income taxes.
Liquidity and Capital Resources
The Company has historically generated sufficient cash flows from operations to
fund its general working capital needs. As of July 27,1997, the Company had
working capital of $4.2 million compared to $4.7 million at October 27,1996. The
reduction was attributable to improved collection of Accounts Receivable, with
days sales outstanding reducing from 54 to 45 days, and an increase in accrued
compensation, offset by an increase in inventory.
Net cash provided by operations for the 39 weeks ended July 27,1997 was $2.3
million compared to $2.4 million for the comparable 1996 period. The difference
between the Company's net income of $1.6 million and operating cash flow of $2.3
million was approximately $945,000 in depreciation and amortization, a net
reduction in receivables of $724,000, and an increase in accrued payables and
compensation of $805,000, offset by increases in inventories of $1.2 million and
building and equipment deposits of $670,000.
Net cash used for investing activities for the 39 weeks ended July 27,1997 was
$1.0 million compared to $510,000 for the comparable 1996 period. The 1997
amount reflects the Company's expenditures related to the routine replacement of
manufacturing and support equipment and leasehold improvements related to the
expansion of administrative offices.
Net cash used for financing activities for the 39 weeks ended July 27,1997 was
$1.8 million compared to $2.4 million for the comparable 1996 period. The 1997
amount reflects repayment of $2.5 million to the Company's revolving line of
credit, and repayment of capital lease obligations of $794,000, offset by
proceeds from new long-term loans of $1.5 million of which $535,000 was used to
refinance equipment under existing lease obligations and the balance to purchase
new equipment.
In May 1997, the Company borrowed $1.0 million from Transamerica Business Credit
Corporation. Approximately $535,000 was used to pay in full the remaining
outstanding balances of certain capitalized leases with the remaining $465,000
to be used to pay for new equipment for the Tijuana facility. The loan from
Transamerica bears interest at the rate of 10.03% per annum and is repayable in
60 equal monthly installments. The loan is secured by a lien on the equipment
acquired under the refinanced capital leases and by a guaranty of the Company.
In July 1997 the Company entered into an additional $310,000 in capital lease
obligations and received $468,000 in proceeds under its equipment line of
credit.
Page 11 of 14
<PAGE>
On August 1, 1997, AB Plastics entered into a construction loan agreement with
The Sumitomo Bank of California in the amount of $3.5 million to provide
financing to purchase the Gardena facility and construct a new 75,000 square
foot warehouse and distribution facility adjoining the existing facility.
Repayment of the note began September 1,1997 at which time accrued interest
began to be due and payable monthly in arrears at 0.50% above the Bank's prime
rate, which is currently 8.5%; and beginning February 1, 1998, monthly principal
amortization payments in the amount of $14,583.33 will begin to be due and
payable. The loan matures on August 31,2004, at which time it is expected to
have an outstanding principal balance of $2.5 million. The loan may be repaid,
in whole or in part, at any time without penalty. The loan is secured by a
construction deed of trust and by a guaranty of the Company.
On September 9,1997, the Company received approximately $8.5 million in proceeds
from the issuance of 1,200,000 shares of its common stock. The Company
immediately repaid approximately $4.0 million of outstanding principal and
accrued interest to Sirrom Investments, Inc. and approximately $4.2 million to
Sumitomo Bank of California, representing the entire outstanding principal
balance on the Company's revolving line of credit. On October 10, 1997, the
Company received $871,200 in net proceeds from the sale to the underwriters of
123,750 shares of common stock pursuant to the over-allotment option.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. These forward-looking statements are
based largely on the Company's expectations and are subject to a number of risks
and uncertainties, certain of which are beyond the Company's control. Actual
results could differ materially from these forward-looking statements as a
result of, among other factors, risks related to the Company's dependence on the
computer and consumer electronics industries, its concentration of customers,
fluctuations in operating results, potential significant indebtedness and
leverage, competition, variability of customer requirements and nature of
customer commitments on orders, the integration of the Company's new Mexican
manufacturing facility and other risks described in the Company's Registration
Statement on Form S-1. In light of these risks and uncertainties, there can be
no assurance that the forward-looking information contained in this report will
in fact occur.
Page 12 of 14
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
The Company is not a party to any legal proceedings other than routine
litigation incidental to its business, none of which is material.
Item 2. Change in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a vote of Securities Holders
In June 1997, prior to the completion of the Company's initial public
offering and the exercise of certain then outstanding stock options and
warrants, the seven stockholders of the Company unanimously consented
to (a) amend the Company's Certificate of Incorporation to (i) change
the name of the Company to "Compass Plastics & Technologies, Inc. "
from "AB Plastics Holding Corporation" and (ii) increase the number of
shares of capital stock which the Company has the authority to issue to
20,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock, (b) effect a stock split of the issued and outstanding shares of
Common Stock of the Company in connection with the Company's initial
public offering, (c) approve and adopt the Company's 1997 Stock Option
Plan, and (d) fix the number of directors constituting the entire Board
of Directors at four, including the election of Jay M. Swanson as the
Company's fourth director.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits :
10.14 Second Amendment to the Commercial Loan Agreement, dated
August 1, 1997, between AB Plastics Corporation and
Sumitomo Bank of California.
10.15 Construction Loan Agreement, dated as of August 1, 1997,
between Sumitomo Bank of California and AB Plastics
Corporation.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
Page 13 of 14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPASS PLASTICS & TECHNOLOGIES, INC.
Date: October 15, 1997 By: /s/ Michael A. Gibbs
----------------------
Michael A. Gibbs, President
and Chief Executive Officer
(Principal Executive Officer)
Date: October 15, 1997 By: /s/ Paul J. Iacono
--------------------
Paul J. Iacono, Vice President - Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 14 of 14
<PAGE>
SECOND AMENDMENT TO THE
COMMERCIAL LOAN AGREEMENT
This Second Amendment to the Commercial Loan Agreement ("Second
Amendment") is entered into this 1st day of August, 1997, by and between AB
Plastics Corporation, a California corporation ("Borrower") and SUMITOMO BANK OF
CALIFORNIA ("Bank"), with reference to the following:
RECITALS
A. Borrower and Bank have entered into a Commercial Loan Agreement,
dated September 27, 1996, as amended June 5, 1997 (the "Agreement"), pursuant to
which Bank agreed, subject to the terms and conditions of the Agreement, to (i)
on a revolving basis, make advances to Borrower, which may not at any time
exceed, in the aggregate outstanding, a principal amount equal to the lesser of
Ten Million Dollars ($10,000,000) or the Borrowing Base (the "Revolving Line of
Credit"); and (ii) make equipment loans under an Equipment Line in the aggregate
principal amount not to exceed Two Million Dollars ($2,000,000). Capitalized
terms used herein without definition shall have the meanings given them in the
Agreement.
B. The Revolving Line of Credit is evidenced by that certain Revolving
Line Note dated September 27, 1996 in the maximum principal amount of Ten
Million and No/100 Dollars ($10,000,000). The Equipment Line is evidenced by
that certain Equipment Line Note dated September 27, 1996 in the maximum
principal amount of Two Million Dollars ($2,000,000).
C. In connection with the Agreement, AB Plastics Holding Corporation
guaranteed Borrower's obligations under the Loan Documents and executed certain
documents, including the Guaranty and the Stock Pledge Agreement. AB Plastics
Holding Corporation has changed its name to Compass Plastics & Technologies,
Inc.
D. Borrower and Bank now desire to amend the Agreement as described
below:
AMENDMENT
NOW THEREFORE in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower and Bank hereby agree as follows:
1. CHANGE IN NAME OF AB PLASTICS HOLDING CORPORATION TO COMPASS PLASTICS &
TECHNOLOGIES, INC. All references in the Loan Documents to AB Plastics
Holding Corporation are henceforth understood by all parties to apply and
refer to Compass Plastics & Technologies, Inc.
1
<PAGE>
2. AMENDMENTS TO THE AGREEMENT. The Agreement is hereby amended, effective as of
the date hereof, as follows:
a. The First Paragraph of Section 1.1 (a) is hereby restated in entirety as
follows:
"(a) Accounts Receivable/Inventory Revolving Line of Credit.
During the Availability Period, Bank will provide a line of
credit (the "Revolving Line of Credit") to Borrower. The
maximum amount of the Revolving Line of Credit including the
subline facility for letters of credit (the "Total
Commitment") is the lesser of TEN MILLION AND NO/100 DOLLARS
($10,000,000) or the Borrowing Base. Borrower's obligation to
repay the Revolving Line of Credit is evidenced by a
promissory note, substantially in the form of Exhibit A
attached hereto (the "Revolving Line Note")."
b. Section 1.1 (e) is hereby restated in its entirety as follows:
"(e) Maximum Loan Balance. Borrower agrees not to permit the
outstanding principal balance of the Revolving Line of Credit
plus the outstanding amounts of any letters of credit under
the subline facility, including amounts drawn on letters of
credit and not yet reimbursed to Bank (such sum being referred
to herein as the "Loan Balance"), to exceed the lesser of
Total Commitment or the Borrowing Base."
c. Section 1.1 (f) is hereby added to the Agreement as follows:
"(f) Subline Facility for Letters of Credit. The Revolving
Line of Credit includes a subline facility for letters of
credit. The subline facility for letters of credit is not to
exceed Two Million Dollars ($2,000,000)."
d. Section 1.4 (b) is hereby restated in its entirety as follows:
"(b) Except as otherwise provided in Section 1.6(d) hereof
with respect to letters of credit having terms extending
beyond the Maturity Date, Borrower will repay in full all
principal, interest and other charges outstanding under the
Revolving Line of Credit no later than the Maturity Date."
e. Section 1.6 is hereby added to the Agreement as follows:
"1.6 Letter of Credit Subline Facility. In addition to other
permitted uses hereunder, the Revolving Line of Credit may be
used for financing: (i) commercial letters of credit (which
will require drafts payable at sight), or (ii) standby letters
of credit, in either case with maturities not to extend more
than 365 days beyond the Maturity Date.
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(a) The amount of outstanding letters of credit, including
amounts drawn on letters of credit and not yet reimbursed
to Bank, may not exceed at any one time Two Million
Dollars ($2,000,000) in the aggregate.
(b) Standby letters of credit issued in favor of governmental
agencies in lieu of worker's compensation insurance
premiums shall not exceed Two Hundred Thousand Dollars
($200,000) in the aggregate outstanding at any one time.
(c) Any sum drawn under a letter of credit shall be added to
the principal amount outstanding under the Revolving Line
of Credit. Any such amount will bear interest and be due
and payable by Borrower in the same manner as other
advances under the Revolving Line of Credit, except as
provided in Section 1.6(d) below. Except to the extent of
amounts actually drawn and not reimbursed to Bank, the
amounts of letters of credit hereunder shall not be deemed
outstanding for purposes of interest calculations.
(d) In the event any subline facility letters of credit are
outstanding on the Maturity Date, or if an Event of
Default occurs, Borrower shall immediately deposit with
Bank, as cash collateral for the reimbursement obligations
of Borrower with respect to such letters of credit, an
amount equal to the entire face amount of all outstanding
letters of credit, to be applied to repay draws under
letters of credit as and when made. Upon expiration of any
such letter of credit, the amount deposited as collateral
for the undrawn portion (if any) of such letter of credit
shall immediately be returned to Borrower. Interest earned
on such cash collateral shall be paid to Borrower monthly.
(e) The issuance of any letter of credit or any amendment to a
letter of credit is subject to Bank's approval and must be
in form and content reasonably satisfactory to Bank and in
favor of a beneficiary reasonably acceptable to Bank.
(f) In connection with the issuance of any letters of credit
hereunder, Borrower will sign Bank's form Application and
Security Agreement for Commercial Letter of Credit or
Application and Agreement for Standby Letter of Credit, as
applicable.
(g) Borrower will pay Bank a non-refundable fee equal to 1.25%
per annum of the face amount of each standby letter of
credit issued hereunder, payable quarterly in advance with
the first payment due at the time of issuance. Borrower
will pay to Bank its standard fees in effect from time to
time for commercial letters of credit issued under this
Agreement."
f. Section 7.1 is hereby restated in its entirety as follows:
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"7.1 Use of Proceeds. To use the proceeds of the Revolving
Line of Credit only for working capital purposes or as
otherwise permitted under Section 1.6 above, except that
Borrower may, for the purpose of purchasing the real property
and constructing improvements at 15730 S. Figueroa Street and
West 57th Street, Gardena, California, borrow and utilize a
principal amount under the Revolving Line of Credit of up to
One Million Six Hundred Thousand Dollars ($1,600,000)."
g. The first paragraph of Section 7.3 is hereby restated in its entirety as
follows:
"7.3 Quick Ratio. To maintain on a consolidated basis for
Borrower and Compass Plastics & Technologies, Inc. a ratio of
Quick Assets to Current Liabilities (as such terms are herein
defined) of, as of June 30, 1997, at least 0.40:1, and of at
least 0.45:1 thereafter."
h. Sections 7.8(c) and 7.8(d) are restated in their entirety as follows:
"7.8 Other Debts.
7.8(c) Debts in existence as disclosed to Bank in Borrower's
audited financial statements dated October 27, 1996.
7.8(d) Additional debts and capital lease obligations
(including, but not limited to, all real estate debt, whether
financed by Bank or another lender) up to a maximum aggregate
of $9,500,000 principal amount outstanding at any time."
i. Section 7.9 (c) and 7.9(d) are restated in their entirety as follows:
"7.9 Other Liens.
7.9(c) Liens outstanding as disclosed to the Bank in (i)
Schedule 6.8 attached hereto and/or (ii) in Borrower's audited
financial statements dated October 27, 1996.
7.9 (d) Additional purchase money security interests in fixed
assets (including real estate) up to a maximum aggregate
principal amount of liens outstanding at any time of
$9,500,000."
j. Section 7.24(d) is restated in its entirety as follows:
"7.24 Additional Negative Covenants.
7.24(d) sell, lease or dispose of Borrower's fixed assets in
excess of $200,000 in aggregate in any fiscal year of
Borrower."
k. A new Section 7.28 is inserted as follows:
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"7.28 Capital Expenditures. Not to, without the prior written
consent of Bank, expend more than the following amounts for
the periods specified, for the purchase of fixed assets,
including capital leases and real estate purchase:
fiscal 1997 $11,750,000
each fiscal year thereafter $ 1,250,000."
Notwithstanding the above, any amount of the permitted capital
expenditure limitation for 1997, not expended during fiscal
1997, may be rolled over into 1998."
l. A new Section 7.29 is inserted as follows:
"7.29 Change in Organization or Operations. Borrower shall not and
Borrower shall see to it that Guarantor shall not, make any
material change, revision, amendment or modification in its
organization, operations, or the type of business which it
conducts."
3. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Borrower reaffirms all of
the representations and warranties contained in the Agreement.
4. REAFFIRMATION OF GUARANTY. Guarantor reaffirms its obligations under the
Guaranty originally executed by AB Plastics Holding Corporation.
5. ONGOING EFFECT. Except as set forth herein, all of the terms and conditions
of the Loan Documents remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have, or have caused their duly
authorized representatives to have, executed this Amendment, as of the day and
year first above written.
BORROWER: AB PLASTICS CORPORATION,
a California corporation
By: /s/ Paul J. Iacono
---------------------------
Paul J. Iacono, Vice President - Finance
and Chief Financial Officer
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GUARANTOR: COMPASS PLASTICS & TECHNOLGIES,
INC., a Delaware corporation, formerly known as AB
Plastics Holding Corporation
By: /s/ Paul J. Iacono
-----------------------------
Paul J. Iacono, Vice President - Finance
and Chief Financial Officer
BANK: SUMITOMO BANK OF CALIFORNIA
By: /s/ Sajeda Simjee
-----------------------------
Sajeda Simjee, Vice President
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Loan No.: ______________
CONSTRUCTION LOAN AGREEMENT
THIS CONSTRUCTION LOAN AGREEMENT ("Agreement") is entered into
as of August 1, 1997 between THE SUMITOMO BANK OF CALIFORNIA, a California
banking corporation ("Lender"), and AB PLASTICS CORPORATION, a California
corporation ("Borrower").
RECITALS
Borrower has applied to Lender for a loan in the principal
amount of Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00)
("Loan") for the purpose of financing Borrower's purchase of its principal place
of business, located in Gardena, California, and to finance the construction of
an approximately 75,000 square foot warehouse facility at such location.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, Borrower and Lender agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Definitions. As used in this Agreement, the following terms have
the meanings set forth below (all defined terms may not apply in this Agreement
and terms defined in the singular shall have the same meaning when used in the
plural and vice versa):
"Agreement" means this Construction Loan Agreement, as
amended, supplemented or modified from time to time, together with all
exhibits and schedules attached to this Construction Loan Agreement
from time to time.
"Approved Budget" means the line item budget for the Loan
attached hereto as Exhibit B, as modified from time to time in
accordance with this Agreement.
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"Architect" means John G. Cataldo, A.I.A., C.S.I., or any
other architect for the Project approved by Lender from time to time.
"Bankruptcy Code" shall have the meaning provided in Section
8.1(c).
"Borrower" means AB Plastics Corporation, a California
corporation.
"Business Day" means a day on which Lender is open for its
normal business, excluding Saturdays.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Change Orders" means changes in the Plans pursuant to this
Agreement.
"Closing" or "Closing Date" means the first date on which
funds are actually disbursed under the Loan (whether by book entry
transfer within the Bank, directly to the Borrower, or otherwise).
"Collateral" means the Property and all other property of
whatever type in which Lender is granted a security interest by
Borrower pursuant to the Deed of Trust, the Security Agreement or any
other Loan Document.
"Contractor" means Pan Pacific Construction of California,
Inc., or any other general contractor for the Project approved by
Lender from time to time.
"Credit Agreement" means that certain Commercial Loan
Agreement dated as of September 27, 1996 by and between Lender and
Borrower, as amended by that certain First Amendment to Commercial Loan
Agreement dated as of June 5, 1997, by and between Lender and Borrower,
and as may be further amended from time to time.
"Deed of Trust" means the first lien construction deed of
trust, assignment of rents, security agreement and fixture filing
covering the Property and the Personal Property, in form and substance
satisfactory to Lender, executed by Borrower, as trustor, in favor of
Lender, as beneficiary.
"Default" means any of the events specified in Section 8.1,
whether or not any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
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"Designated Representative" means a Person authorized by
Borrower, with the approval of Lender (such approval not to be
unreasonably withheld or delayed), to deliver certificates,
Disbursement Requests and other documents on behalf of Borrower to
Lender pursuant to the Loan Documents.
"Disbursement" means each disbursement of Loan funds in
accordance with this Agreement.
"Disbursement Request" has the meaning assigned to such term
in Section 3.1.
"Engineer" means John G. Cataldo, A.I.A., C.S.I., or any other
engineer for the Project approved by Lender from time to time.
"Environmental Indemnity Agreement" means an environmental
indemnity agreement, in form and substance satisfactory to Lender,
executed by Borrower in favor of Lender with respect to the Property.
"Environmental Laws" has the meaning assigned to such term in
the Environmental Indemnity Agreement.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Plan" means any employee pension benefit plan
maintained or contributed to by Borrower and insured by the Pension
Benefit Guaranty Corporation under Title IV of ERISA.
"Event of Default" means any of the events specified in
Section 8.1, provided that any requirement for the giving of notice,
the lapse of time, or both, or any other condition, has been satisfied.
"Financing Statement" means a UCC-1 Financing Statement, in
form and substance satisfactory to Lender, executed by Borrower as
debtor, in favor of Lender, as secured party, filed with the California
Secretary of State, which covers the personal property of Borrower
which is located on, related to or used in connection with the
Property.
"GAAP" means generally accepted accounting principles in the
United States.
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"Governmental Agency" means any governmental or
quasi-governmental agency, board, bureau, commission, department,
court, administrative tribunal or other instrumentality or authority,
and any public utility.
"Guarantor" means Compass Plastics & Technologies, Inc., a
Delaware corporation.
"Guaranty" means a payment guaranty, in form and substance
satisfactory to Lender, executed by Guarantor.
"Hazardous Substance" has the meaning assigned to such term in
the Environmental Indemnity Agreement.
"Improvements" means and refers to the improvements to be
constructed pursuant to the Plans and all other buildings, structures,
facilities now or hereafter existing on the Property.
"Laws" means all statutes, laws, ordinances, regulations,
orders, writs, judgments, injunctions, decrees or awards of the United
States or any state, county, municipality or other Governmental Agency.
"Lender" means The Sumitomo Bank of California, a California
banking corporation, its successors and assigns.
"Lender Engineer" means any other third-party engineering firm
hired by Lender to advise and assist Lender in connection with the
Project.
"Lender Expense" means and includes any and all actual
reasonable costs and expenses incurred by Lender related to the Loan,
this Agreement or the Loan Documents, including, without limitation,
the cost of any appraisal reports, environmental studies, Lender
Engineer services, appraisals, consultants, tax reporting service,
title insurance premiums and all other reasonable costs and expenses
required to be paid by Borrower under this Agreement or any Loan
Document which are paid or incurred by Lender; reasonable costs and
expenses incurred by Lender to correct any Default or enforce any
provision of this Agreement or any Loan Document and actual reasonable
attorneys' fees and expenses incurred by Lender in drafting, reviewing,
amending, terminating, enforcing, or defending this Agreement and the
Loan Documents, or any portion thereof, irrespective of whether suit is
brought.
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<PAGE>
"Loan" shall have the meaning provided in the Recitals of this
Agreement.
"Loan Documents" means, collectively, this Agreement, the
Note, the Deed of Trust, the other Security Documents, the
Environmental Indemnity Agreement, the Guaranty and any other document,
instrument, or agreement delivered by Borrower or Guarantor to Lender
in connection with this Agreement.
"Material Adverse Effect" means any event or condition which
is likely to have a material adverse effect on the business,
properties, prospects, financial condition or operations of Borrower.
"Maturity Date" means August 31, 2004.
"Note" shall have the meaning provided in Section 2.2.
"Overrun Account" means the account described in Section 3.3.
"Offsite Materials" has the meaning set forth in Section 3.6.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"Permitted Liens" means, collectively, all liens on the
Personal Property consented to or approved by Lender in writing.
"Person" means any entity, whether an individual, trustee,
corporation, partnership, limited liability company, limited liability
partnership, trust, unincorporated organization, Governmental Agency or
otherwise.
"Personal Property" means all of Borrower's right, title and
interest, whether now existing or hereafter acquired, in and to (a) all
furniture, furnishings, fixtures, machinery, equipment, inventory and
other personal property of every kind, tangible and intangible, now or
hereafter (i) located on or about the Property, (ii) used or to be used
in connection with the Property, or (iii) relating or arising with
respect to the Property, and (b) all other personal property described
in the Security Agreement or Deed of Trust.
"Plans" means the plans and specifications for the Project
approved by Lender pursuant to this Agreement.
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<PAGE>
"Project" means the construction of Improvements in accordance
with the Plans and applicable Laws.
"Project Agreements" means, collectively, all agreements
entered into by Borrower with Persons other than Lender in connection
with the Project.
"Project Costs" means all costs of any nature incurred in
connection with the Project.
"Property" means that certain real property described in
Exhibit A attached hereto and, where the context may require, all
Improvements thereon.
"Security Agreement" means a security agreement, in form and
substance satisfactory to Lender, executed by Borrower as grantor in
favor of Lender as secured party.
"Security Documents" means, collectively, the security
documents required pursuant to Section 4.1 and any other mortgage, deed
of trust, security agreement or assignment now, heretofore or hereafter
executed to secure the obligations of Borrower or Guarantor to Lender
under any Loan Document.
"Sirrom Subordination" means a subordination agreement of even
date herewith, in form and substance satisfactory to Lender, executed
by Sirrom Investments, Inc., a Tennessee corporation, in favor of
Lender.
"Subordinate Loan Documents" has the meaning assigned to such
term in the Sirrom Subordination.
"Title Insurance Policy" shall have the meaning provided in
Section 4.1(f).
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP, and all financial data
submitted pursuant to this Agreement shall be prepared in accordance with GAAP.
1.3 Singular and Plural Terms. Any defined term used in the plural in
any Loan Document shall refer to all members of the relevant class and any
defined term used in the singular shall refer to any number of the members of
the relevant class.
1.4 References. Any reference to any Loan Document or other document
shall include such document both as originally executed and as it may from time
to time be amended or modified. References herein to Articles, Sections and
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Exhibits shall be construed as references to this Agreement unless a different
document is named. References to subparagraphs shall be construed as references
to the same Section in which the reference appears. The terms "including" and
"include" mean "including (include) without limitation". This Section 1.4 shall
apply to all of the Loan Documents.
1.5 Exhibits. All exhibits attached to this Agreement are incorporated
herein by this reference.
ARTICLE II
BASIC TERMS OF THE LOAN
2.1 The Loan. Subject to the terms and conditions set forth in this
Agreement, Lender agrees to make and Borrower agrees to borrow the Loan.
2.2 The Note. The obligation of Borrower to repay the Loan shall be
evidenced by a promissory note in form and substance satisfactory to Lender (the
"Note"), executed by Borrower, dated as of the date of this Agreement and
providing for the payment of interest and principal on the terms stated in the
Note, including all renewals, extensions, modifications, refinancings,
consolidations and substitutions of the Note, if any.
2.3 Loan Fee. Borrower agrees to pay to Lender a loan fee (the "Loan
Fee") of Fifty-Two Thousand Five Hundred and No/100 Dollars ($52,500.00), of
which $35,000 shall be payable on or before the Closing Date and the balance of
which ($17,500) shall be payable on or before the date which is six (6) months
after the Closing Date.
2.4 Payment. Borrower shall repay the Loan in accordance with the
provisions of the Note and this Agreement. Except as otherwise provided, all
payments shall be applied first to any fees and expenses due to Lender under the
Loan Documents; second to any default rate interest or late charges; third to
accrued and unpaid interest; and fourth to principal. Subject to the conditions
set forth in the Note, the Loan may be prepaid in whole or in part, at any time.
2.5 Security. The indebtedness evidenced by the Note, and all other
indebtedness and obligations of Borrower under the Loan Documents (excluding the
indebtedness and obligations of Borrower under the Environmental Indemnity
Agreement), shall be secured by the Security Documents.
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ARTICLE III
DISBURSEMENT PROCEDURES
3.1 Disbursement Requests. The Loan proceeds shall be disbursed on a
line item basis in accordance with the Approved Budget (which contemplates,
among other things, an initial Loan funding of $2,100,000 to be applied to pay a
portion of the purchase price for the Property) and subject to the conditions in
Articles III and IV. Disbursements shall be made only upon Borrower's written
request in the form attached hereto as Exhibit C (a "Disbursement Request")
showing all costs which Borrower intends to fund with such Disbursement,
itemized in such detail as Lender may reasonably require, accompanied in each
case by (a) an Application and Certificate for Payment (AIA Documents G702 and
G703), or other document acceptable to Lender, containing certifications by
Contractor and Architect that construction to the date of the Disbursement
Request is in accordance with the Plans and all recommendations contained in the
approved soils report, (b) invoices and lien releases satisfactory to Lender,
including in any event partial lien releases executed by each contractor and
subcontractor who has received any payment for work performed, and (c) all other
documents and information reasonably required by Lender. Disbursement Requests
shall be submitted in duplicate no less than 5 Business Days prior to the date
of the requested Disbursement, and shall not be submitted more often than twice
monthly. The disbursed Loan funds shall be used by Borrower only for line item
costs for which such funds have been disbursed. Notwithstanding the foregoing,
Lender may, in its absolute discretion, make Disbursements from time to time, in
the absence of a Disbursement Request, to pay itself fees and interest on the
Loan from funds allocated for that purpose in the Approved Budget (if any), to
make payments reasonably deemed advisable by Lender to protect the Property or
Lender's interests under any Loan Document, and to fulfill any reimbursement
obligation of Borrower under Section 6.22 that Borrower has not timely
fulfilled. All Loan proceeds shall be disbursed into Account No. 058-15130070 at
Lender; which shall be a segregated loan disbursement account into which the
Borrower shall not commingle or deposit any funds other than the Loan proceeds
disbursed by Lender hereunder.
3.2 Manner of Disbursement. Subject to satisfaction of all applicable
disbursement conditions in Article IV below (unless Lender in its discretion
otherwise approves), any funds in the Overrun Account (defined below), and all
Loan funds, shall be disbursed through a Lender-approved builder's control
service.
3.3 Cost Overruns. In the event that, at any time and for any reason,
the actual cost (the "Actual Line Item Cost") reasonably estimated by Lender or
Borrower to be required to complete all matters included in any line item in the
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Approved Budget exceeds the amount allocated to that line item in the Approved
Budget (the "Approved Line Item Cost"), Borrower shall, within 14 days after it
learns of the overrun, do one or more of the following:
(a) provide satisfactory evidence to Lender that Borrower has
paid the amount of the Actual Line Item Cost in excess of the Approved
Line Item Cost (the "Excess Cost") with funds from a source other than
the Loan;
(b) reallocate sufficient funds to such line item from funds
allocated to "Contingency" in the Approved Budget; provided, however,
that Lender's reasonable consent to any such reallocation shall be
required unless the reallocated funds were originally transferred to
"Contingency" from cost savings pursuant to this Agreement; or
(c) deposit an amount equal to the Excess Cost in a
noninterest-bearing account (the "Overrun Account") with Lender from
which withdrawals may be made only with the consent of Lender (which
consent will not be unreasonably withheld or delayed).
Lender shall have no obligation to make further Disbursements until Borrower has
paid or otherwise provided for the overrun as required above. Amounts deposited
by Borrower in the Overrun Account for any line item shall be disbursed by
Lender prior to the disbursement of any remaining Loan proceeds for such line
item. Borrower acknowledges that, as of the date hereof, the anticipated
construction costs are approximately $200,000 in excess of the amount of the
construction loan funds allocated for construction under this Agreement.
Borrower agrees that, prior to using any loan funds under this Agreement for
construction costs (not including amounts disbursed hereunder to finance the
purchase of the Property), Borrower will use $200,000 from the Credit Agreement
(subject to the terms and conditions thereof) or its own funds to be applied
toward the construction costs of the Improvements until the loan hereunder is
once again "in balance".
3.4 Cost Savings. Upon completion of and disbursement for all matters
covered by any line item in the Approved Budget, any remaining undisbursed
amounts allocated to that line item, or any amounts allocated to that line item
that exceed the amount of the subcontract, shall be reallocated to "Contingency"
and thereafter be available for disbursement for other Project Costs, but only
after the Project is at least 50% complete.
3.5 Retainage. As to each item in the Approved Budget designated
thereon as being subject to retainage, Lender shall make Disbursements in the
amount of 90% of the costs properly incurred for such item and substantiated by
Borrower during the
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course of the Project, with a retainage of 10% of the total cost of work then
completed. All amounts so retained shall be disbursed upon satisfaction of all
conditions to the final Disbursement; provided, however, that Borrower may
require Lender to release a portion of such retainage to any subcontractor that
has fully performed under its contract if all lien rights and other claims of
such subcontractor have expired or been (or are concurrently being) released.
3.6 Offsite Materials. In the event that any Disbursement Request
includes the cost of materials stored at a location other than the Property
("Offsite Materials"), such Disbursement Request shall include each of the
following:
(a) evidence that the Offsite Materials have been segregated
from other materials in the facility and have been appropriately marked
to indicate Borrower's ownership thereof and Lender's security interest
therein; and
(b) evidence that the Offsite Materials are insured as
required hereunder.
3.7 Waiver of Disbursement Conditions. Unless Lender otherwise agrees
in writing, the making by Lender of any Disbursement with the knowledge that any
condition to such Disbursement is not fulfilled shall constitute a waiver of
such condition only with respect to the particular Disbursement made, and such
condition shall be a condition to all further Disbursements until fulfilled.
3.8 Appointment of Designated Representatives. Borrower hereby appoints
the individuals listed in Exhibit E attached hereto as the initial Designated
Representatives. Borrower represents and warrants to Lender that the signature
of each Designated Representatives appears opposite such Designated
Representative's name. Each Designated Representative shall have authority to
execute Requests for Disbursement, and to perform such other tasks described in
this Agreement for a Designated Representative. Each of the foregoing
appointments shall remain effective until Lender receives written notice from
Borrower of a successor Designated Representative (which notice shall contain
the specimen signature of such successor).
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Disbursement. Lender's obligation
to make the initial Disbursement is subject to satisfaction, or waiver by Lender
in its sole and absolute discretion, of the following conditions precedent:
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(a) Lender shall have received each of the documents listed on
Exhibit D attached hereto, each in form and substance satisfactory to
Lender.
(b) Borrower shall have paid to Lender the portion of the Loan
Fee due on or before the Closing Date (as set forth in Section 2.3) and
Borrower also shall have paid to Lender all Lender Expenses.
(c) Lender shall have received and approved in writing, or
shall have waived in writing the requirement of, (i) a soils report for
the Property by a licensed soils engineer, (ii) a full set of the
Plans, certified as complete by the Architect and containing evidence
of all necessary and/or appropriate approvals of Governmental Agencies,
(iii) copies of all material Project Agreements, and (iv) copies of all
building permits and similar permits, licenses, approvals and other
authorizations of Governmental Agencies required in connection with the
Project.
(d) The Deed of Trust shall have been recorded in the Official
Records of the County in which the Property is located.
(e) The Financing Statement shall have been filed with the
California Secretary of State, and Lender shall have received a
certificate of the Secretary of State showing the Financing Statement
to be subject to no prior filings (other than those in favor of Lender
or otherwise consented to or approved by Lender in writing).
(f) Borrower, at its sole expense, shall have delivered to
Lender an "LP-10" form ALTA loan policy -- 1970 amended 10/17/70,
without further revision or amendment (with a commitment to rewrite to
full ALTA coverage in the same form, including ALTA endorsement Form 1
coverage, upon completion of construction), or evidence of a commitment
therefor satisfactory to Lender, in form and substance and issued by an
insurer satisfactory to Lender, together with all endorsements
reasonably required by Lender, naming Lender as the insured, in a
policy amount of not less than the principal amount of the Loan,
showing Borrower as the owner of the Property and insuring the Deed of
Trust to be a valid first priority lien on the Property, subject only
to such exceptions as are approved in writing by Lender ("Title
Insurance Policy").
(g) Copies of any and all organizational documents (including,
without limitation, partnership agreements, articles of incorporation,
bylaws, and trust agreements, as applicable) of Borrower and Guarantor.
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(h) Lender shall have received the most recent financial
statements of Borrower, prepared in accordance with GAAP (subject to
non-material audit adjustments and absence of footnote disclosures).
(i) Lender shall have received a fully executed realty tax
service contract, in form and issued by a company satisfactory to
Lender.
(j) Lender shall have received an "as-built" survey of the
Property disclosing no conditions unacceptable to Lender and showing
lot and street lines, and location of improvements and easements
rights-of-way and utilities which exist as of the date of the survey,
including all easements listed as exceptions on the Title Commitment
(defined below) and containing a certification to Lender in form
satisfactory to Lender. In lieu of an "as-built" survey, Borrower may
provide Lender with a site plan of the Property in form and content
satisfactory to Lender.
(k) Lender shall have received a Phase 1 hazardous substance
audit report, prepared by a registered environmental engineer
acceptable to Lender, certifying that there are no hazardous or toxic
materials within the soil or on the surface of the Property and that
the Property is in compliance with all federal, state and local
hazardous substance laws and regulations; provided, however, in the
event that recommendations are made by the environmental engineer, all
such recommendations must be implemented and completed prior to the
funding of the Loan, and any additional reports recommended by such
engineer have been performed by engineers or other persons acceptable
to Lender and have been delivered and are acceptable to Lender.
(l) There has been no material defect or physical or
structural damage discovered on, in under or related to the Property or
Improvements, as determined in Lender's sole discretion.
(m) There has been no material adverse change in the financial
condition, properties or prospects of Borrower or Guarantor, as
determined in Lender's sole discretion, since the date of the May 25,
1997 financial statements delivered to Lender.
(n) Lender shall have received an appraisal report prepared by
an appraiser approved by Lender and showing the Property to have a
value (after completion of the Project) of at least $5,000,000.
(o) Lender shall have received Certificates of Insurance for
all policies required pursuant to this Agreement;
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4.2 Conditions Precedent to Any Advance. Lender's obligation to make
any Advance (including the first Advance and the final Advance) is subject to
satisfaction, or waiver by Lender in its sole and absolute discretion, of the
following conditions precedent:
(a) The representations and warranties contained in Article V
shall be correct in all material respects as of the date of the Advance
as though made as of that date, and the Lender shall have received a
certificate to that effect signed by a Designated Representative.
(b) No Default or Event of Default shall have occurred and be
continuing, and Lender shall have received a certificate to that effect
signed by a Designated Representative.
(c) Lender shall be satisfied, in its good faith judgment
based on its own inspections or other reliable information, that the
development of the Project is progressing satisfactorily and in
conformance with all applicable Laws and other requirements.
(d) Lender shall have received, at Borrower's sole expense, in
form and substance satisfactory to Lender, from the title insurer who
issued the Title Insurance Policy, all endorsements, binders and
modifications thereto then reasonably required by Lender, including a
CLTA No. 122 endorsement and, upon completion of the foundations, a
CLTA No. 102.5 endorsement.
4.3 Final Disbursement. Lender's obligation to disburse that portion of
Loan Proceeds retained pursuant to Section 3.5 is subject to satisfaction, or
waiver by Lender, of the following additional conditions precedent:
(a) Lender shall have received, at Borrower's sole expense,
from the title insurer who issued the Title Insurance Policy, an ALTA
loan policy -- 1970, with ALTA endorsement Form 1 coverage, amended
10/17/70, without further modification, or evidence of a commitment
therefor satisfactory to Lender, together with all endorsements
reasonably required by Lender, naming Lender as the insured, in a
policy amount not less than the total principal amount of the Loan,
insuring the Deed of Trust to be a valid first priority lien on the
Property, subject only to the Permitted Encumbrances.
(b) Any portion of the Project requiring inspection or
certification by any Governmental Agency shall have been inspected and
certified as complete, a final certificate of occupancy shall have been
issued, and all other necessary
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approvals, licenses, exemptions and other authorizations of
Governmental Agencies shall have been duly obtained.
(c) Borrower shall have delivered to Lender a certificate
executed by Architect, certifying to Lender that the Project has been
completed in substantial compliance with the Plans, that the Project as
completed complies with all applicable zoning, environmental, building
and land use laws, that no Governmental Agency has issued any notice of
violation or non-conformity in connection with the Project, that direct
connection has been made to all abutting water, gas, sewer, telephone
and electrical facilities necessary for the operation and use of the
Improvements and that the Improvements are ready for occupancy and
covering such other subjects relating to the Property and the Project
as Lender reasonably requires.
(d) Lender has received final and unconditional lien releases
from all Persons supplying labor or materials to the Project, and
Lender is satisfied (whether as a result of the passage of the
requisite periods of time after actual completion or recording of a
notice of completion, issuance of an endorsement to Lender's ALTA title
insurance policy required pursuant to Section 4.3(a), or otherwise)
that no mechanic's or materialman's lien will impair Lender's interest
in the Property.
4.4 Strict Compliance. Strict compliance with each and every
Disbursement condition is required. Substantial compliance or waiver will not be
accepted unless specifically authorized by Lender in writing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as of the date of this Agreement and
during the term hereof (until written notice to the contrary is given) that:
5.1 Organization. Borrower is and at all times shall be a corporation
duly incorporated, validly existing under the laws of the State of California;
and is and shall be qualified to do business and in good standing in each
jurisdiction where the character of its business or assets requires such
qualification and the failure to be so qualified would have a Material Adverse
Effect. Borrower has full power, right and authority to (a) own its property,
including, without limitation, the Property, (b) carry on its business as now
conducted, (c) execute and deliver this Agreement and the other
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Loan Documents and perform its obligations thereunder, and (d) consummate the
transactions contemplated hereby.
5.2 Authority. The execution, delivery and performance of this
Agreement and any instrument or agreement required of Borrower hereunder are
within the power of Borrower, have been duly authorized and do not and will not
(a) conflict with the terms of any charter, bylaws, articles of incorporation or
other organizational papers of Borrower; (b) violate any provision of any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award in effect having applicability to Borrower; or (c) result in a breach of
or constitute a default under any indenture or loan or credit agreement or any
other agreement, lease, or instrument to which Borrower is a party or by which
Borrower or the Property may be bound or affected.
5.3 Legally Enforceable Agreement. This Agreement is, and each of the
other Loan Documents when delivered under this Agreement will be, legal, valid,
and binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency or other similar laws affecting
creditors' rights generally, and by general principles of equity.
5.4 Litigation. Except as disclosed to Lender in writing, there are no
actions, suits or proceedings pending, or to the knowledge of Borrower,
threatened against or affecting the Borrower or the Property, or involving the
validity or enforceability of any of the Loan Documents or the priority of the
liens created thereby, at law or in equity, or before or by any governmental
authority or local authority. Borrower is not in default with respect to any
order, writ, injunction, decree or demand of any court or any governmental
authority.
5.5 Financial Statements. The financial statements and tax returns of
Borrower which have been delivered to Lender are true and correct in all
material respects, and accurately and fairly present in all material respects
the financial condition and results of operations of Borrower as of their
respective dates. Since such dates, there has been no materially adverse change
in the financial condition of Borrower, or in the results of its operations.
Borrower has no contingent obligations, liabilities for taxes or other
outstanding financial obligations which are material individually or in the
aggregate, except as disclosed in such statements and returns.
5.6 Borrower's Power to Assign. Borrower has the full power and
authority to grant to Lender a first priority security interest in the
Collateral.
5.7 Title. The title to the Property is not subject to any liens,
encumbrances or defects of any nature whatsoever, whether or not of record,
except for real estate
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taxes not yet due and such other items as are designated as exceptions in First
American Title Company of Los Angeles' preliminary title report for order no.
9705000-21, dated as of July 15, 1997. Upon the initial funding of the Loan and
application of the proceeds thereof, title to the Property will be in Borrower's
legal name, and Borrower has not used or filed a financing statement under any
other name during the last five (5) years.
5.8 Hazardous Substances.
(a) Environmental Compliance. Borrower has implemented and
complied in all material respects with all Environmental Laws
applicable to the Property with respect to Hazardous Substances,
industrial hygiene and to all other environmental conditions, except as
previously disclosed in writing to Lender.
(b) No Hazardous Substance Generation. Borrower has not owned,
used, generated, manufactured, stored, handled, treated, released,
discharged or disposed of any Hazardous Substances in connection with
the Property except in compliance with all applicable Environmental
Laws.
(c) No Environmental Litigation. There are no suits,
proceedings, claims or disputes pending or, to the knowledge of
Borrower, threatened against or affecting Borrower or the Property
claiming violations of any Environmental Law.
(d) Asbestos Prohibition. To Borrower's knowledge, there is no
friable asbestos or other asbestos substance on the Property.
5.9 Taxes and Utilities. Borrower has filed all tax returns (federal,
state, and local) required to be filed and has paid all taxes, utility charges,
assessments, and governmental charges and levies on Borrower and the Property,
including interest and penalties.
5.10 CC&R's/Zoning. Borrower has examined, is familiar with, and any
Improvements upon the Property will in all material respects conform to and
comply with all covenants, conditions, restrictions, reservations, and zoning
ordinances affecting the Property and Borrower will timely pay all fees and
assessments thereunder.
5.11 Governmental Requirements. Except where non-compliance would not
have a Material Adverse Effect, Borrower is in compliance with all Laws relating
to the Property and all licenses, exemptions, approvals and other authorizations
of
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Governmental Agencies required in connection with the Property and the
development of the Project, including each of the following as applicable:
(a) zoning, land use and planning requirements, including
requirements arising from, or relating to the adoption or amendment of,
any applicable general plan;
(b) subdivision and parcel map requirements;
(c) environmental requirements, including requirements of the
California Environmental Quality Act and the National Environmental
Policy Act and the preparation and approval of all required
environmental impact statements and reports;
(d) requirements in connection with use, occupancy and
building permits; and
(e) requirements of public utilities.
5.12 Approved Budget. The estimated total cost of construction of the
Improvements is One Million Five Hundred Thirty-Six Thousand Two Hundred
Fifty-Eight Dollars ($1,536,258), as more specifically described in the Approved
Budget. Such amount will be sufficient to complete construction of the
Improvements in accordance with the Plans and any applicable Laws by which
Borrower or the Property are bound or otherwise affected.
5.13 Project Agreements. Borrower has delivered to Lender true and
complete copies of all Project Agreements, together with all modifications
thereto. Except as otherwise disclosed to Lender in writing, all such agreements
are in full force and effect and, to Borrower's knowledge, no party is in
default under any such agreement.
5.14 Delivery of Documents. Borrower has delivered to Lender true and
complete copies of every lease, contract and other document that grants rights
to, or imposes obligations on, Borrower in connection with the Property, and has
fully disclosed to Lender in writing the material terms of all oral agreements
granting or imposing any such rights or obligations.
5.15 ERISA Plans.
(a) Borrower has fulfilled its obligations, if any, under the
minimum funding standards of ERISA and the Code with respect to each
ERISA Plan and is in compliance in all material respects with the
presently applicable provisions
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of ERISA and the Code, and has not incurred any liability with respect
to any ERISA Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of
ERISA for which the PBGC requires 30 day notice.
(c) No action by Borrower to terminate or withdraw from any
ERISA Plan has been taken and no notice of intent to terminate an ERISA
Plan has been filed under Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to an ERISA
Plan under Section 4042 of ERISA, and no event has occurred or
condition exists which might constitute grounds for the commencement of
such a proceeding.
ARTICLE VI
AFFIRMATIVE COVENANTS
While any obligation of Borrower or Guarantor under the Loan Documents
(other than inchoate indemnification or expense reimbursement obligations)
remains outstanding, the following provisions shall apply, except to the extent
that Lender otherwise consents in writing:
6.1 Completion of Project. Borrower shall promptly commence and
diligently proceed with the Project. In any event, Borrower shall complete the
Project on or before February 1, 1998. The Project shall be considered complete
for purposes of this Agreement only when (a) all work described in the Plans
(other than minor "punch list" corrective items, to be completed within thirty
(30) days) has been completed and fully paid for (except for mechanics' lien
claims being contested in accordance with Section 6.8, below), (b) all work
requiring inspection or certification by any Governmental Agency has been
completed and all requisite certificates, approvals and other necessary
authorizations (including any required certificates of occupancy) have been
obtained, and (c) sufficient Loan proceeds remain to pay any and all budgeted
amounts for post-completion costs.
6.2 Offsite Improvements. Borrower shall promptly commence and
diligently complete all offsite improvements of the public streets, walks,
sewers, utilities and like areas and facilities adjoining the Project, and
provide utilities and other facilities, in accordance with the requirements of
all Governmental Agencies.
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6.3 Conformity with Plans. Borrower shall construct the Project in
conformity with the Plans and in such a manner as not to encroach upon or
overhang any easement, right of way or land of others.
6.4 Change Orders. The Plans shall not be modified except pursuant to
Change Orders. All Change Orders:
(a) shall be in writing, numbered in sequence, signed by
Borrower and submitted to Lender prior to the proposed effectiveness
thereof;
(b) shall contain an estimate by Borrower and Contractor of
all increases and decreases in itemized Project Costs that would be
caused by the change, as well as the aggregate amount of all changes in
estimated Project Costs (both increases and decreases) previously made;
(c) shall contain a certification by Borrower and Contractor
stating the aggregate amount, including both increases and decreases,
of all changes in Project Costs reflected in Change Orders for which
Lender's written approval has not been obtained or has not been
required hereunder;
(d) shall be certified by Architect, Engineer and Contractor
to be in compliance with all applicable Laws and other requirements;
provided, however, that Architect's certification shall not be required
with respect to any modification that involves a change in Project
Costs of less than $10,000 and does not affect structural aspects of
the Improvements; and
(e) shall be subject to Lender's prior written approval if the
change affects structural aspects of the Improvements, or if the change
involves increases or decreases in estimated Project Costs of $10,000
or more for each change or related changes, or if such Change Order,
together with Change Orders not previously approved involve an
aggregate amount, including both increases and decreases, of over
$20,000.
6.5 Entry and Inspection. At all times prior to completion of the
Project, Lender and its agents shall have (a) the right of free access to the
Property and all sites away from the Property where materials for the Project
are stored, (b) the right to inspect all labor performed and materials furnished
for the Project and (c) the right to inspect and copy all documents pertaining
to the Project.
6.6 Permits and Warranties. Promptly upon receipt of the same by
Borrower, Borrower shall furnish Lender with true and complete copies of (a) all
licenses, permits, approvals, exemptions and other authorizations required in
connection with
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the Project and (b) all warranties and guaranties received from any Person
furnishing labor, materials, equipment, fixtures or furnishings in connection
with the Project.
6.7 Project Agreements. Borrower shall employ Contractor as general
contractor for the Project pursuant to a guaranteed maximum cost contract
approved in writing by Lender. Borrower shall not modify or terminate such
contract without Lender's reasonable prior written consent. Borrower shall not
enter into any other agreement with any Person (other than subcontractors within
the Approved Budget) with respect to the development of the Project with a total
contract price in excess of $10,000 without the prior written consent of Lender.
From time to time during the course of the Project, within 10 days after
Lender's demand therefor, Borrower shall deliver to Lender lists of all
contractors and subcontractors employed in connection with the Project. Each
such list shall show the name, address and telephone number of each contractor
and subcontractor, a general statement of the nature of the work to be done, the
labor and materials to be supplied, the names of materialmen, if known, the
approximate dollar value of labor, work and materials itemized with respect to
each contractor, subcontractor and materialman, and the unpaid portion and
status of such work or whether such materials have been delivered. Lender and
its agents shall have the right (but not the obligation) to directly contact
each contractor, subcontractor and materialman to verify the facts disclosed by
any such list. Lender may require that any contractor (including Contractor),
subcontractor or materialman furnish a payment and performance bond in an
amount, in form and content and issued by a bonding company reasonably
satisfactory to Lender.
6.8 Protection Against Liens. Borrower shall diligently file a valid
notice of completion upon completion of the Project, diligently file a notice of
cessation in the event of a cessation of labor on the Project for a period of 30
days or more, and take all actions reasonably required to prevent the assertion
of claims of lien against the Property. In the event that any claim of lien is
asserted against the Property or any stop notice or claim is asserted against
Lender by any Person furnishing labor or materials to the Project, Borrower
shall immediately give notice of the same to Lender and shall, promptly and in
any event within 10 days after Lender's demand, (a) pay and discharge the same,
(b) effect the release thereof by delivering to Lender a surety bond complying
with the requirement of applicable Laws for such release, or (c) take such other
action as Lender may approve in writing to release the Property and Lender from
any obligation or liability with respect to such stop notice or claim.
6.9 Lender Engineer. Borrower hereby agrees to pay or reimburse Lender
for the reasonable costs charged by the Lender Engineer in connection with
review and approval of all plans, specifications, contracts, budgets and related
matters, inspection of the Project, and approval of Disbursement Requests.
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6.10 Maintenance and Repair. Borrower shall maintain the Property (and
all abutting grounds, sidewalks, roads, parking and landscape areas) in good
condition and repair (reasonable and normal wear and tear excepted), and shall
not commit or permit any waste or deterioration of the Property. Borrower shall
not remove, demolish or materially alter any Improvement, except to make
non-structural repairs which preserve or increase the Property's value, and
shall promptly restore, in a good and workmanlike manner, any Improvement (or
other aspect or portion of the Property) that is damaged or destroyed from any
cause (subject to Section III(r) of the Deed of Trust).
6.11 Compliance. Borrower shall comply in all material respects with
all Laws and requirements of Governmental Agencies (including without limitation
all requirements relating to the obtaining of licenses and permits), and all
rights of third parties, relating to Borrower, the Property or Borrower's
business thereon.
6.12 Performance of Obligations. Borrower shall faithfully perform all
of the obligations to be performed by Borrower under the Loan Documents.
6.13 Reporting Requirements. Borrower shall promptly give written
notice to Lender of:
(a) any trade name hereafter used by Borrower and change in
the name or location of Borrower;
(b) any material change in the Property or the business and
financial affairs of Borrower;
(c) any circumstance that renders the Approved Budget
materially inaccurate with respect to any estimated Project Cost;
(d) any aspect of the Project that is not in conformity with
the Plans;
(e) the creation or imposition of any mechanics' lien or other
lien against the Property;
(f) any default by Borrower or any other party under any
Project Agreement, or the receipt by Borrower of any notice of default
under any Project Agreement;
(g) any Default or Event of Default, setting forth in such
notice the details of such Default or Event of Default and the action
which has been taken, is being taken or is proposed to be taken by
Borrower with respect thereto;
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(h) all actions, suits, and proceedings before any court or
Governmental Agency, domestic or foreign, affecting Borrower which, if
determined adverse to Borrower could have a material adverse effect on
the Property or the ability of Borrower to perform its obligations
under this Agreement;
(i) any material dispute between Borrower and any Governmental
Agency which may have a material adverse effect on the Property or the
ability of Borrower to perform its obligations under this Agreement;
(j) any proceeding or inquiry by any federal, state or local
governmental authority (including, without limitation, the California
State Department of Health Services and the applicable Regional Water
Quality Control Board) (a) with respect to the presence of any
Hazardous Substance on or in connection with the Property or the
migration thereof from or to any other property or (b) with respect to
any illegal activity occurring on the Property or otherwise involving
the Property;
(k) any report or filing made by Borrower to any Governmental
Agency with respect to the presence of any Hazardous Substance on or
related to the Property, the migration thereof from or to any other
property or in connection with Borrower's business;
(l) all claims made or threatened by any third party against
Borrower or the Property relating to any loss or injury resulting from
any Environmental Law or Hazardous Substance;
(m) except as previously disclosed in writing to Lender,
Borrower's discovery of any occurrence or condition on the Property, or
on any real property adjoining or in the vicinity of the Property, that
could cause the Property or any part thereof to be subject to any
restrictions on its ownership, occupancy, transferability or use under
any Environmental Law, building code, or zoning regulation; and
(n) any breach or default which occurs under any other
agreement involving the borrowing of money or the extension of credit
between Borrower and any other creditor, if such breach or default
consists of the failure to pay any installment on indebtedness of over
$500,000 when due, or if such breach or default causes the acceleration
of any indebtedness over $500,000.
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6.14 Financial Reporting Requirements. Borrower shall deliver to Lender
the following financial information and such additional information as requested
by Lender from time to time:
(a) Within 120 days of Borrower's fiscal year end, the
consolidating and consolidated financial statements of Borrower and
Guarantor. These financial statements must be audited (with an
unqualified opinion) by a Certified Public Accountant ("CPA")
acceptable to Borrower. Along with the financial statements, Borrower
shall also provide to Lender a CPA compliance certificate in form
reasonably satisfactory to Lender.
(b) Within 30 days of the month's end, the consolidating and
consolidated financial statements of Borrower and Guarantor (including
balance sheet, income statement and statement of cash flows). These
financial statements may be Borrower prepared. The statements shall
reflect the results for the month just ended as well as the results for
the year-to-date period and shall be accompanied by a compliance
certificate in form reasonably satisfactory to Lender.
(c) Within 60 days after the start of each of Borrower's
fiscal years, a one year consolidated operating plan covering the
current fiscal year. Such plan will detail, on a monthly basis,
Borrower's best estimate of revenues, expenses and balance sheet
categories, and will be presented in the customary form of balance
sheet, income statement and statement of cash flows.
6.15 Maintenance of Records. Borrower shall keep adequate records and
books of account, in which complete entries will be made, in accordance with
GAAP consistently applied, reflecting all financial transactions of Borrower.
6.16 Insurance Policies Required. Borrower shall maintain, or cause to
be maintained at Borrower's sole expense, with insurers reasonably approved by
Lender, the following policies of insurance in form and substance reasonably
satisfactory to Lender:
(a) workers' compensation insurance as may be required by
applicable workers' compensation insurance laws, covering all employees
of Borrower and the Contractor, and any other insurance required by law
in connection with the Project;
(b) builder's risk-all risk insurance covering 100% of the
replacement cost of all Improvements (including Offsite Materials)
during the course of construction in the event of fire, lightning,
windstorm, earthquake, vandalism,
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malicious mischief and all other risks normally covered by "all risk"
coverage policies in the area where the Property is located (including
loss by flood if the Property is in an area designated as subject to
the danger of flood);
(c) following completion of the Project, fire and hazard "all
risk" insurance covering 100% of the replacement cost of the
Improvements and the Personal Property in the event of fire, lightning,
windstorm, earthquake, vandalism, malicious mischief and all other
risks normally covered by "all risk" coverage policies in the area
where the Property is located (including loss by flood if the Property
is in an area designated as subject to the danger of flood);
(d) public liability insurance in amounts reasonably required
by Lender from time to time, and in no event less than $1,000,000 for
"single occurrence";
(e) property damage insurance in amounts reasonably required
by Lender from time to time, and in no event less than $1,000,000;
(f) upon substantial completion of the Project, all business
interruption insurance that Lender reasonably requires (including
insurance against income loss during a period of restoration of at
least one year); and
(g) all other insurance reasonably required by Lender from
time to time.
All such insurance (except the workers' compensation insurance provided by the
Contractor covering the Contractor's employees) shall provide that it may not be
cancelled or materially modified without 30 days' prior written notice to
Lender. The policies required under subparagraphs (b), (c) and (f) shall include
a "lender's loss payable endorsement" (Form 438BFU) in form and substance
satisfactory to Lender, showing Lender as encumbrancer. Lender shall be an
additional named insured in the policies required under subparagraphs (d) and
(e). No such insurance shall include deductible amounts to which Lender has not
previously consented in writing (which consent shall not be unreasonably
withheld or delayed). Certificates of insurance for the above policies (and/or
original policies, if required by Lender) shall be delivered to Lender from time
to time within 10 days after demand therefor. All policies insuring against
damage to the Improvements shall contain an agreed value clause sufficient to
eliminate any risk of co-insurance. No less than 30 days prior to the expiration
of each policy, Borrower shall deliver to Lender evidence of renewal or
replacement of such policy reasonably satisfactory to Lender.
6.17 Insurance Claims and Condemnation Proceedings. Borrower shall give
Lender immediate notice of any material casualty to any portion of the Project,
and of
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the institution or threatened institution of any proceeding for the condemnation
or other taking for public or quasi-public use of any portion of the Property,
and shall provide Lender with copies of all documents which pertain to any such
casualty or proceeding. Borrower shall take all action reasonably required by
Lender in connection therewith to protect the interests of Borrower and/or
Lender, and Lender shall be entitled (without regard to the adequacy of its
security) to participate in any action, claim, adjustment or proceeding and to
be represented therein by counsel of its choice.
6.18 Treatment of Insurance and Condemnation. Borrower hereby assigns
to Lender, as security for all obligations to Lender secured by a lien on the
Property, all amounts payable to Borrower in connection with any casualty to or
taking of any portion of the Property for public use, and any proceeds of any
related settlement (collectively, "Compensation"). Borrower shall deliver all
Compensation to Lender immediately upon receipt. Any Compensation received by
Lender shall either (a) be disbursed to Borrower for repairs and reconstruction
if the requirements of Section III(r) have been satisfied, subject to all of the
terms and conditions applicable to disbursement of proceeds of the Loan pursuant
to Deed of Trust, or (b) be applied by Lender against obligations to Lender
secured by a lien on the Property, in accordance with the rights, procedures and
other provisions set forth in Deed of Trust, other Loan Documents and applicable
Laws.
6.19 Payment of Taxes. Borrower shall pay and discharge all lawful
claims, including taxes, assessments and governmental charges or levies imposed
upon it, its income or profits, the Property, or the Improvements before
penalties attach thereto; provided, however, that Borrower shall not be required
to pay any such tax, assessment charge or levy, the payment of which is being
contested in good faith and by proper proceedings, which serves to stay
enforcement of such obligations and any lien securing such obligations, provided
Borrower has obtained a bond, insurance or other security reasonably
satisfactory to Lender to specifically secure these liens or obligations.
6.20 Additional Environmental Assessments and Audits. Borrower shall
permit Lender to obtain, at Borrower's sole cost and expense, such additional
environmental assessments or environmental audits of the Property as may be
requested by Lender, provided Lender has reason to believe that an environmental
problem may exist with respect to the Property. Lender shall have no obligation
to order such assessments or audits and shall not have any obligation to take
any corrective action in connection with either the assessment or audit, or with
any violation of any Environmental Law or other laws revealed by such reports.
Any such environmental assessment or audit shall be prepared by an environmental
firm or consultant acceptable to Lender.
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6.21 Lender Expenses. Within ten (10) days following written demand
therefor to Borrower, Borrower shall reimburse Lender for any and all Lender
Expenses incurred in connection with and after the execution of this Agreement,
whether or not the Loan is made. In the event that those Lender Expenses are not
paid within ten (10) days of the notice, Lender, in its sole and absolute
discretion, may treat the amount of any Lender Expenses as a disbursement of
Loan proceeds hereunder and pay the same (whether by reimbursement of itself or
by payment to third parties) notwithstanding the fact that the conditions
precedent set forth in Article IV hereof and/or the requirements of any other
Article hereof have not been satisfied. In such event, the failure to timely pay
the Lender Expenses shall constitute an Event of Default.
6.22 Indemnification of Lender. Regardless of any act or omission of
Lender (except as hereinafter provided), Borrower shall on demand, indemnify and
hold Lender harmless from all claims, demands and liabilities, including
penalties and reasonable attorneys fees, arising either before or after payment
of the Note out of (a) any default by Borrower or action taken by Lender as a
result thereof; (b) any actual or alleged damage or injury to persons or
property of any nature arising out of or in any way connected with the Property,
whether resulting from the acts or omissions of Borrower, of any contractor,
subcontractor or material supplier, engineer, architect or other Person, or of
Lender when exercising any right available under this Agreement or any other
Loan Document; (c) any claim by any Governmental Agency, or by any surety
furnishing a bond, related to payment or performance of any obligation with
respect to the Property whether such claim be founded upon existing, future, or
contingent liability, and whether such obligation be expressed or implied; or
(d) any action or proceeding purporting to affect the rights or duties of Lender
with respect to the Property or the payment of any proceeds of the Loan,
provided that Borrower shall not be required to indemnify and hold Lender
harmless from any such claims, demands and liabilities to the extent such
claims, demands and liabilities arise out of the gross negligence or willful
misconduct of Lender or its agents. Borrower's obligations under this Section
6.22 shall not be construed to include any obligation of Borrower set forth in
the Environmental Indemnity Agreement.
6.23 Additional Information. Borrower shall provide in a timely manner
to Lender such additional information concerning the condition or operations,
financial or otherwise, of Borrower or the Property as Lender may from time to
time reasonably request.
6.24 Maintain Deed of Trust. After recordation of the Deed of Trust,
Borrower shall, at its own cost and expense, maintain the Deed of Trust as a
first lien on the Property, and Borrower shall deliver or cause to be delivered
to Lender from
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time to time such endorsements to the Title Insurance Policy as Lender
reasonably determines are required to insure the continuing priority of the Deed
of Trust as a first lien on the Property. Borrower shall furnish to a title
company acceptable to Lender surveys, indemnifications, subordinations, and any
other information required to enable the title company to issue such
endorsements.
6.25 Appraisals. Borrower shall permit Lender, if and when required by
a state or federal regulator of Lender or at any time when an Event of Default
has occurred and is continuing, to have the Property appraised by an appraiser
selected by Lender in its sole discretion. Borrower shall pay the reasonable
cost for each such appraisal and such cost shall be treated as a Lender Expense.
6.26 ERISA Plans. Borrower shall give prompt written notice to Lender
of:
(a) The occurrence of any reportable event respecting any
ERISA Plan under Section 4043(b) of ERISA for which the PBGC requires
30 day notice.
(b) Any action by Borrower to terminate or withdraw from an
ERISA Plan or the filing of any notice of intent to terminate an ERISA
Plan under Section 4041 of ERISA.
(c) Any notice of noncompliance received with respect to an
ERISA Plan under Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect to an
ERISA Plan under Section 4042 of ERISA.
ARTICLE VII
NEGATIVE COVENANTS
While any obligation of Borrower or Guarantor under the Loan Documents
(other than inchoate indemnification and expense reimbursement obligations)
remains outstanding, the following provisions shall apply, except to the extent
that Lender otherwise consents in writing:
7.1 Liens or Encumbrances. Borrower shall not permit or suffer any
additional liens or encumbrances upon the Property except:
(a) liens for taxes or assessments or other governmental
charges not delinquent or being contested in good faith and by proper
proceedings, which
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serve to stay enforcement of such obligations and any lien securing
such obligations, provided Borrower has obtained a bond, insurance or
other security reasonably satisfactory to Lender to specifically
secure these liens or obligations;
(b) purchase money liens on equipment and goods, or
materialmen's or mechanics' liens prior to the required removal thereof
hereunder (including under Section 6.8 hereof);
(c) liens in favor of Lender;
(d) liens or security interests granted pursuant to the
Subordinate Loan Documents, which liens or security interests (and the
debt secured thereby) shall be subordinate to the liens and security
interests in favor of Lender and to Borrower's obligations to Lender,
all in accordance with the terms of the Sirrom Subordination; and
(e) liens consented to or approved in writing by Lender.
7.2 Change in Organization or Operations. Borrower shall not and
Borrower shall see to it that Guarantor shall not, make any material change,
revision, amendment or modification in its organization, operations, or the type
of business which it conducts.
7.3 No Conveyance or Encumbrance. Except for involuntary, immaterial
transfers by reason of eminent domain, or replacements of fixtures or equipment
pertaining to the Property, Borrower shall not convey, transfer or encumber any
interest in the Property in any way without the consent of Lender as more
specifically provided in the Deed of Trust. All easements affecting the Property
shall be submitted to Lender for its approval (which will not be unreasonably
withheld or delayed) prior to the execution thereof by Borrower, accompanied by
a drawing or survey showing the location of the proposed easement.
7.4 Change in Property Restrictions. Borrower shall not initiate, join
in or consent to any change in any applicable zoning ordinance, general plan or
similar Law, or to any private restrictive covenant or any similar public or
private restriction on the use of the Property.
7.5 Liens on Personal Property. Borrower shall not install in, or use
in connection with, the Property any personal property which any Person other
than Lender has the right to remove or repossess under any circumstances, or on
which any Person other than Lender has a lien (other than Permitted Liens).
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7.6 Sale or Lease of Property. Except for involuntary, immaterial
transfers by reason of eminent domain, or replacements of fixtures or equipment
pertaining to the Property, Borrower shall not sell, lease or otherwise transfer
any interest in the Property or the Personal Property (other than sales of
portions of the Property with respect to which Lender is obligated to release,
or has previously released, the lien of the Deed of Trust, dispositions of
Personal Property expressly permitted by the Loan Documents and grants of
utility easements permitted by this Agreement) without the prior written consent
of Lender, which consent may be withheld in Lender's absolute discretion.
(a) Included Transfers. Transfers requiring Lender's prior
written consent shall include (except as specifically permitted in
Sections 7.3 and 7.6 above), without limitation, the following:
(i) involuntary transfers and transfers by operation
of law;
(ii) liens and assignments as security for
obligations, whether voluntary or involuntary; and
(iii) the issuance, transfer, disposition or
encumbering of more than 50% of the outstanding capital stock
of Borrower, whether voluntary or involuntary.
(b) No Release. No sale, lease or other transfer shall relieve
Borrower from primary liability for its obligations under the Loan
Documents or relieve Guarantor from any liability under the Guaranty,
and Borrower shall deliver to Lender all documents reasonably required
by Lender to evidence its continuing liability.
7.7 Removal of Personal Property. Except as permitted under the Credit
Agreement, Borrower shall not cause or permit the removal from the Property of
any items of Personal Property (other than tools and equipment used in the
development of the Project) unless (a) no Event of Default remains uncured and
(b) Borrower promptly substitutes and installs on the Property other items of
equal or greater value in the operation of the Property, all of which items
shall be free of liens (other than Permitted Liens) and shall be subject to the
liens of the Deed of Trust and the Security Agreement, and executes and delivers
to Lender all documents required by Lender in connection with the attachment of
such liens to such items. Borrower shall keep detailed records of each such
removal and shall make such records available to Lender upon request from time
to time.
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ARTICLE VIII
EVENTS OF DEFAULT
8.1 Events of Default. Notwithstanding the terms of this Agreement or
the Note to the contrary, Lender may, at its option, declare all outstanding
sums hereunder 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, upon occurrence and during
the continuance of any of the following (each an "Event of Default"):
(a) Borrower fails to pay (i) on the Maturity Date all amounts
then remaining unpaid under this Agreement, the Note or any of the
other Loan Documents, or (ii) when due any payment of interest,
principal or any other sum due under this Agreement, the Note or any of
the other Loan Documents.
(b) Borrower fails or neglects to perform, keep, or observe
any other term, provision, covenant, condition or agreement set forth
in this Agreement, the Note or any other Loan Document and either (i)
such failure shall continue for more than 10 days after notice of such
failure is given by Lender to Borrower, unless such failure is not
reasonably capable of being cured within such 10-day period (but is
reasonably capable of being cured within 60 days after such notice) and
Borrower commences action to cure such failure within such 10-day
period and diligently and continuously prosecutes such action to
completion and causes such failure to be cured within 60 days after
such notice, or (ii) such failure is not reasonably capable of being
cured within 60 days after notice of such failure is given by Lender to
Borrower.
(c) Borrower or Guarantor ("Designated Party") commences a
voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy" as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is
commenced against any Designated Party and the petition is not
controverted within twenty (20) days, or is not dismissed within sixty
(60) days, after commencement of the case; or a custodian (as defined
in the Bankruptcy Code) is appointed for, or takes charge of, all or
substantially all of the property of any Designated Party and such
appointment is not dismissed within 60 days, or any Designated Party
commences any other proceeding under any reorganization, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to such any Designated Party, or there is commenced against
any Designated Party any such proceeding which remains undismissed for
a period of sixty (60) days, or any Designated
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Party is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; or any
Designated Party suffers any appointment of a custodian or the like
for it or for a substantial part of its property which appointment
continues undischarged or unstayed for a period of sixty (60) days; or
any Designated Party makes a general assignment for the benefit of
creditors; or any Designated Party shall generally not pay its debts
as such debts become due, or shall admit in writing its inability to
pays its debts generally.
(d) Any representation or warranty under this Agreement or any
agreement, instrument or certificate executed pursuant to this
Agreement or in connection with any transaction contemplated hereby
shall prove to have been false or misleading in any material respect
when made.
(e) Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against Borrower or Guarantor in an aggregate amount of
five hundred thousand dollars ($500,000) or more in excess of any
insurance coverage, and such lawsuit or lawsuits are not dismissed or
fully bonded within ten (10) calendar days after service of process
upon Borrower or Guarantor (as applicable).
(f) Any judgments or arbitration awards in an aggregate amount
in excess of five hundred thousand dollars ($500,000) are entered
against Borrower or Guarantor and, absent procurement of a stay of
execution, such judgment or award remains unbonded or unsatisfied for
ten (10) calendar days after the date of entry; or Borrower or
Guarantor enters into any settlement agreement with respect to any
litigation or arbitration, in an aggregate amount of five hundred
thousand dollars ($500,000) or more in excess of any insurance
coverage.
(g) A material adverse change occurs in the operations,
business, property, assets, financial condition or prospects of
Borrower or Guarantor.
(h) The Improvements on the Property are materially damaged or
destroyed by fire or other casualty and sufficient insurance proceeds
are not available to either restore the Improvements or complete
construction of the Improvements.
(i) The Deed of Trust shall at any time cease to be a valid
first priority lien on the Property.
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(j) Any Governmental Agency takes action that Lender
reasonably believes adversely affects Borrower's financial condition or
ability to repay the Loan.
(k) An "Event of Default" occurs and is continuing under the
Credit Agreement.
(l) All or any material portion of the Property is condemned,
seized or appropriated by a Governmental Agency.
(m) Work on the Project ceases for 15 consecutive days for any
reason (other than governmental orders, decrees or regulations, acts of
God, strikes or other causes beyond Borrower's reasonable control,
provided that the same do not, in the aggregate and in Lender's
reasonable judgment, threaten to delay the completion of the Project
beyond the required completion date set forth in this Agreement).
(n) Any contractor for the Project whose contract exceeds
$10,000 in value breaches such contract in any material respect, and
Borrower fails to enter into an agreement with a substitute contractor
acceptable to Lender within the Approved Budget allocation for such
contract, within 30 days after such event.
(o) Borrower or Guarantor is dissolved, liquidated or
terminated, or all or substantially all of the assets of Borrower or
Guarantor are sold or otherwise transferred without Lender's prior
written consent.
(p) The Guaranty is repudiated, revoked or terminated without
Lender's prior written consent, or Guarantor claims that its Guaranty
is ineffective or unenforceable, in whole or in part and for any
reason, with respect to amounts then outstanding or amounts that might
in the future be outstanding.
(q) The occurrence of a reportable event with respect to an
ERISA Plan which is, in the reasonable judgment of Lender, likely to
result in the termination of such ERISA Plan for purposes of Title IV
of ERISA, or could reasonably be expected, in the reasonable judgment
of Lender, to subject Borrower to any tax, penalty or liability (or any
combination of the foregoing) which, in the aggregate, would exceed
$500,000.
(r) Any default occurs under the Subordinate Loan Documents or
any other agreement in connection with any credit Borrower or Guarantor
has obtained from any other creditor(s) or which Borrower or Guarantor
has guaranteed if the default consists of failing to make a payment
when due or
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gives the other creditor(s) the right to accelerate any obligations in
an aggregate amount in excess of five hundred thousand dollars
($500,000).
(s) The Guaranty or the Sirrom Subordination is revoked or no
longer in effect.
ARTICLE IX
REMEDIES
9.1 Remedies. Upon the occurrence and during the continuance of an
Event of Default, Lender shall be entitled to pursue any and all remedies,
rights, privileges and benefits contained in this Agreement or in the Note, the
Deed of Trust or the other Loan Documents, or available at law or in equity or
by statute, including, without limitation, declaring the Note immediately due
and payable and pursuing foreclosure under the Deed of Trust. No remedy
conferred upon or reserved to Lender hereunder or under any of the other Loan
Documents is intended to be exclusive of any other remedy conferred upon or
reserved to Lender hereunder or under any of the other Loan Documents or at law
or in equity or by statute, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or under the other Loan Documents
or now or hereafter existing at law or in equity or by statute. Every power or
remedy given by the Loan Documents to Lender may be exercised, concurrently or
independently, from time to time and as often as may be deemed expedient by
Lender, and Lender may pursue inconsistent remedies. Without limiting the
foregoing, Lender may, at its option and in its absolute discretion, during the
continuance of an Event of Default, do any or all of the following:
(a) Terminate the Disbursement or release of Loan proceeds and
apply all or any part of such proceeds as Lender reasonably deems
appropriate to fulfill Loan Document obligations which Borrower does
not timely perform and/or to protect Lender's interests under the Loan
Documents;
(b) Apply any payments received thereafter against interest
and principal of the Loan and costs and other amounts owing hereunder,
in such order as Lender may determine in its sole discretion; and
(c) In its own right or by a court-appointed receiver, take
possession of the Property, enter into contracts for and otherwise
proceed with the completion of the Project, and pay the costs thereof
out of the proceeds of the Loan and funds in the Overrun Account; and
in the event that such costs exceed the total of such funds, Lender
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shall have the right to pay such excess costs by expenditure of its own
funds (which funds shall be deemed to be additional advances to
Borrower and shall be secured by the Security Documents).
As used in this Agreement, the phrase "during the continuance" when used with
respect to any default or Event of Default, shall mean that such default or
Event of Default shall not have been waived by Lender or cured or shall not have
been cured within any applicable cure periods (if any) provided for in the Loan
Documents, or available under applicable law; and shall not be construed to give
the Borrower any additional time periods beyond the applicable cure period set
forth in the Loan Documents (if any) to cure or remedy such Event of Default.
Any "cure" or purported cure of any default or Event of Default under the Loan
Documents following the lapse of any applicable cure period (if any) shall not
be effective to cure or remedy such default or Event of Default, and such
default or Event of Default shall be deemed to be continuing under the Loan
Documents.
9.2 Appointment of Receiver. Borrower agrees that in addition to any
and all remedies, rights, privileges and benefits contained in this Agreement or
in the Note and other Loan Documents, or available at law, or in equity, or by
statute, upon the occurrence and during the continuance of an Event of Default,
Borrower agrees and stipulates that any court of competent jurisdiction may
appoint a receiver to operate and manage the Property.
9.3 Acceleration. In the event that the Property, or any part thereof,
or any interest therein, is sold, agreed to be sold, conveyed or alienated by
Borrower, or by operation of law or otherwise (other than the taking of an
immaterial portion of the Property by eminent domain or for replacement of
fixtures or equipment), all obligations under the Note and other Loan Documents,
irrespective of the Maturity Date, at the option of Lender and without demand or
notice, shall immediately become due and payable.
9.4 Disclaimer. Whether or not Lender elects to employ any or all of
the remedies available to it upon the occurrence and during the continuance of
an Event of Default, Lender shall not be liable for: (i) payment of any expense
incurred in connection with the exercise of any remedy available to Lender
(except to the extent arising out of the gross negligence or willful misconduct
of Lender or its agents), or (ii) the performance or non-performance of any
other obligations of Borrower.
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ARTICLE X
MISCELLANEOUS
10.1 Nonliability of Lender. Borrower acknowledges and agrees that:
(a) the relationship between Borrower and Lender is and shall
remain solely that of borrower and lender, and Lender neither
undertakes nor assumes any responsibility to review, inspect,
supervise, approve or inform Borrower of any matter in connection with
the Project, including matters relating to: (i) the Plans, (ii)
architects, contractors, subcontractors and materialmen, or the
workmanship of or materials used by any of them, or (iii) the progress
of the Project and its conformity with the Plans; and Borrower shall
rely entirely on its own judgment with respect to such matters and
acknowledges that any review, inspection, supervision, approval or
information supplied to Borrower by Lender in connection with such
matters is solely for the protection of Lender and that neither
Borrower nor any third party is entitled to rely on it;
(b) notwithstanding any other provision of any Loan Document:
(i) Lender is not a partner, joint venturer, alter-ego, manager,
controlling person or other business associate or participant of any
kind of Borrower and Lender does not intend to ever assume any such
status; (ii) Lender's activities in connection with the Loan shall not
be "outside the scope of the activities of a lender of money" within
the meaning of California Civil Code Section 3434, as modified or
recodified from time to time, and Lender does not intend to ever assume
any responsibility to any Person for the quality or safety of the
Property; and (iii) Lender shall not be deemed responsible for or a
participant in any acts, omissions or decisions of Borrower;
(c) Lender shall not be directly or indirectly liable or
responsible for any loss or injury of any kind to any Person or
property resulting from any construction on, or occupancy or use of,
the Property (except to the extent proximately caused by Lender's or
its agents' gross negligence or willful misconduct), whether arising
from: (i) any defect in any building, grading, landscaping or other
onsite or offsite improvement; (ii) any act or omission of Borrower or
any of Borrower's agents, employees, independent contractors, licensees
or invitees; or (iii) any accident on the Property or any fire or other
casualty or hazard thereon; and
(d) By accepting or approving anything required to be
performed or given to Lender under the Loan Documents, including any
certificate, financial statement, survey, appraisal or insurance
policy, Lender shall not be deemed to have warranted or represented the
sufficiency or legal effect of the same, and no such acceptance or
approval shall constitute a warranty or representation by Lender to
anyone.
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10.2 No Waiver. No failure on the part of Lender to exercise, and no
delay in exercising, any right, power, or remedy under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right under any Loan Document preclude any other or further exercise thereof or
the exercise of any other right. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law.
10.3 Notices. Any communication between the parties hereto or notices
required to be given under this Agreement shall be given at the respective
addresses indicated on the Deed of Trust, or at such other addresses as either
party may designate by written notice to the other party, and shall be deemed to
have been given on the earlier of actual receipt by the intended recipient or
(i) in the case of notice by express carrier with delivery fees prepaid, one
Business Day after it is sent, (ii) in the case of notice by letter, three
Business Days after it is deposited in the mails certified and return receipt
requested, or (iii) the same day if given by facsimile or telecommunication,
provided such facsimile or telecommunication is sent between the hours of 8:00
a.m. and 5:00 p.m. Los Angeles, California time. Any party may change its
address for notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if there is more
than one Borrower, notice to any Borrower will constitute notice to all
Borrowers. For notice purposes, Borrower, any Guarantor or third party trustor
agrees to keep Lender informed at all times of their respective current
address(es).
10.4 No Third Party Beneficiary. Neither party intends that this
Agreement is or will be for the benefit of or enforceable by any third party
even though proceeds of the Loan are received by the third party or used either
directly or indirectly for the benefit of the third party.
10.5 Successors and Assigns. The terms and provisions of this Agreement
shall be binding upon, and the benefits shall inure to, the parties and their
respective successors and assigns; provided, however, that Borrower shall not
assign this Agreement or any of the rights, duties or obligations of Borrower
hereunder without the prior written consent of Lender.
10.6 Attorneys' Fees. In the event any action is brought to interpret
or enforce this Agreement or any part thereof, the prevailing party shall be
entitled to recover reasonable attorneys' fees, expert witness fees, and
litigation related expenses, in addition to costs of suit.
10.7 Costs, Expenses, and Taxes. Borrower agrees to pay on demand all
reasonable costs and expenses (other than Lender's normal internal overhead
expenses)
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in connection with the preparation, execution, delivery, filing, recording,
review, appraisal, environmental audit, and administration of the Loan or any of
the Loan Documents, including, without limitation, the actual reasonable fees
and out-of-pocket expenses of counsel for Lender. In addition, Borrower shall
pay any and all stamp and other taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing, and recording of any
of the Loan Documents and the other documents to be delivered under any such
Loan Documents, and agrees to save Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees.
10.8 Choice of Law and Venue. The Loan Documents shall be deemed to
have been made in the State of California and the validity of this Agreement,
the construction, interpretation, and enforcement hereof, and the rights of the
parties hereto shall be determined under, governed by, and construed in
accordance with the internal laws of the State of California, without regard to
principles of conflicts of law. BORROWER AND LENDER EACH WAIVE ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE IN
THE STATE OF CALIFORNIA ON ANY BASIS WHATSOEVER.
10.9 Severability of Provisions. Any provision of any Loan Document
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in any
other jurisdiction.
10.10 Headings. Article and Section headings in the Loan Documents are
included in such Loan Documents for the convenience of reference only and shall
not constitute a part of the applicable Loan Documents for any other purpose.
10.11 Entire Agreement. This Agreement and the documents described
herein represent the entire agreement of the parties with respect to the subject
matter hereof and supersede all prior oral and written communication between the
parties as to such subject matter. If there is any conflict between this
Agreement and any documents referred to herein, this Agreement shall prevail. No
amendment of this Agreement shall be valid unless it is in writing and signed by
the parties to this Agreement.
10.12 Assignments and Participations. Lender may, at any time after the
Loan is funded in full, upon written notice to Borrower, sell, assign, grant
participations in, or otherwise transfer to any other person, firm or
corporation ("Participant") all or part of the indebtedness of Borrower
outstanding under this Agreement and the other Loan Documents. Borrower hereby
acknowledges and agrees that any such disposition will give rise to a direct
obligation of Borrower to each Participant. Borrower agrees
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and consents to Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loan to one or more purchasers, whether related
or unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more Participants, or potential Participants, any information or
knowledge Lender may have about Borrower or about any other matter relating to
the Loan, and Borrower hereby waives any rights to privacy it may have with
respect to such matters. Borrower also agrees that the Participants will be
considered the absolute owners of such interests in the Loan and will have all
the rights granted under the participation agreement or agreements governing the
sale of such participation interests.
10.13 Documentation. In addition to the instrument and documents
mentioned or referred to herein, Borrower shall, at its own cost and expense,
supply Lender with such other instruments, documents, information and data
regarding Borrower, the Property and the Project as Lender may reasonably
require.
10.14 Revival Clause. If any of the payments of money or transfers of
property made to Lender by Borrower hereunder or under the other Loan Documents
should for any reason subsequently be declared to be "fraudulent" or a "voidable
preference" within the meaning of any state or federal law relating to
fraudulent conveyances, preferential, or otherwise voidable or recoverable, in
whole or in part, for any reason, under the Bankruptcy Code or any other federal
or state law (collectively referred to herein as "Voidable Transfers"), and
Lender is required to repay or restore the amount of any such Voidable
Transfers, or any portion thereof, then, as to the amount repaid or restored
pursuant to any such Voidable Transfer (including all reasonable costs, expenses
and attorneys' fees of Lender related thereto, including, without limitation,
relief from stay or similar proceedings), the liability of Borrower shall
automatically be revived, reinstated and restored in such amount or amounts, and
shall exist as though such Voidable Transfer had never been made to Lender.
Nothing set forth herein is an admission that any such Voidable Transfer has
occurred. Borrower expressly acknowledges that Lender may rely upon advice of
counsel, and if so advised by counsel, may settle, without defending, any action
to avoid any alleged Voidable Transfer, and that upon settlement, Borrower shall
again be liable for any deficiency resulting from such settlement as provided in
this Section.
10.15 Survival of Representations and Warranties. All representations
and warranties of the Borrower contained herein or in any other Loan Document,
or in any certificate or other writing delivered by or on behalf of the Borrower
pursuant to any Loan Document, will survive the making of the Loan and the
execution and delivery of the Loan Documents, and recordation of the Deed of
Trust, and have been or will be relied upon by Lender, notwithstanding any
investigation made by Lender or on its behalf.
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10.16 Appointment of Bank as Attorney in Fact. Until all the
obligations have been paid in full, Borrower irrevocably appoints Lender as its
attorney in fact and authorizes and empowers it to, during the continuance of an
Event of Default, endorse and affix Borrower's name to or upon any check, draft,
note, instrument or other writing relating to any Collateral, or upon any check
or other instrument given in payment thereof, or upon any omitted assignment,
notification of assignment, demand or auditor's verification relating to
Collateral and upon all other instruments and writings required to assert and
protect Lender's rights in the Collateral.
10.17 Counterparts. This Agreement and all of the other Loan Documents
may be executed in multiple counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same instrument. A
photocopy or telephonic facsimile of any such executed counterpart may be relied
upon by Lender as an original.
10.18 WAIVER OF JURY TRIAL. The parties to this Agreement acknowledge
that jury trials often entail additional expenses and delays not occasioned by
nonjury trials. The parties to this Agreement further agree and stipulate that a
fair trial may be had before a state or federal judge by means of a bench trial
without a jury. In view of the foregoing, and as a specifically negotiated
provision of this Agreement, each party to this Agreement hereby expressly
waives any right to trial by jury of any claim, demand, action or cause of
action (a) arising under this Agreement, the other Loan Documents or any other
instrument, document or agreement executed or delivered in connection herewith,
or (b) in any way connected with or related or incidental to the dealings of the
parties hereto or any of them with respect to this Agreement, the other Loan
Documents or any other instrument, document or agreement executed or delivered
in connection herewith, or the transactions related hereto or thereto, in each
case whether now existing or hereafter arising, and whether sounding in contract
or tort or otherwise; and each party hereby agrees and consents that any such
claim, demand, action or cause of action shall be decided by court trial without
a jury, and that any party to this Agreement may file an original counterpart or
a copy of this section with any court as written evidence of the consent of the
parties hereto to the waiver of their right to trial by jury.
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
"LENDER":
THE SUMITOMO BANK OF CALIFORNIA,
a California banking corporation
By: /s/ Sajeda Simjee
-----------------------------------
Sajeda Simjee, Vice President
-----------------------------------
[Printed Name and Title]
"BORROWER":
AB PLASTICS CORPORATION, a California corporation
By: /s/ Michael A. Gibbs
-----------------------------------
Michael A. Gibbs , CEO
-----------------------------------
[Printed Name and Title]
By: /s/ Paul J. Iacono
-----------------------------------
Paul J. Iacono, Vice President - Finance
and CFO
-----------------------------------
[Printed Name and Title]
-40-
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0
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