<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition period from to
Commission File No. 1-7134
MERCURY AIR GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 11-1800515
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5456 McConnell Avenue, Los Angeles, CA 90066
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(310) 827-2737
--------------
(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 for 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 X No
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
<TABLE>
<CAPTION>
Number of Shares Outstanding
Title As of April 24, 1998
----- --------------------
<S> <C>
Common Stock, $.01 Par Value 7,235,951
</TABLE>
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS MARCH 31, JUNE 30,
1998 1997
------------ ------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,753,000 $ 2,889,000
Cash-restricted (Note 3) 7,000,000
Trade accounts receivable, net of allowance for doubtful
accounts of $2,571,000 at 3/31/98 and $1,875,000 at 6/30/97 (Note 3) 38,171,000 43,924,000
Notes receivable - current portion (Note 3) 2,003,000 1,939,000
Inventories, principally aviation fuel 2,034,000 1,948,000
Prepaid expenses and other current assets 3,262,000 2,705,000
------------ ------------
Total current assets 48,223,000 60,405,000
PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated
depreciation and amortization of $28,044,000 at 3/31/98 and
$25,180,000 at 6/30/97 (Note 7) 31,140,000 24,834,000
NOTES RECEIVABLE, net of current portion 58,000 956,000
OTHER ASSETS (Note 6) 13,419,000 6,110,000
DEFERRED INCOME TAXES 332,000
------------ ------------
$ 92,840,000 $ 92,637,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,101,000 $ 16,937,000
Accrued expenses and other current liabilities 4,894,000 4,475,000
Income taxes payable 66,000
Current portion of long-term debt 2,775,000 1,878,000
------------ ------------
Total current liabilities 21,836,000 23,290,000
LONG-TERM DEBT 16,872,000 15,195,000
CONVERTIBLE SUBORDINATED DEBENTURES 28,115,000 28,115,000
DEFERRED INCOME TAXES 489,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 5):
Preferred Stock - $.01 par value; authorized 3,000,000 shares;
no shares outstanding
Common Stock - $.01 par value; authorized 18,000,000 shares; outstanding
7,233,951 shares 3/31/98; outstanding 7,524,651 shares 6/30/97 72,000 75,000
Additional paid-in capital 20,830,000 20,796,000
Retained earnings 5,368,000 5,907,000
Notes receivable from sale of stock-officers (662,000) (662,000)
Cumulative translation adjustment $ (80,000) $ (79,000)
------------ ------------
Total stockholders' equity 25,528,000 26,037,000
------------ ------------
$ 92,840,000 $ 92,637,000
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------------------------------------
1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales and Revenues:
Sales $ 146,385,000 $ 175,862,000 $ 37,979,000 $ 58,629,000
Service revenues 44,155,000 39,903,000 14,741,000 13,828,000
-------------------------------------------------------------
190,540,000 215,765,000 52,720,000 72,457,000
Costs and Expenses:
Cost of sales 128,352,000 161,884,000 31,997,000 53,550,000
Operating expenses 41,216,000 36,722,000 14,128,000 13,240,000
-------------------------------------------------------------
169,568,000 198,606,000 46,125,000 66,790,000
-------------------------------------------------------------
Gross Margin (Excluding depreciation
and amortization) 20,972,000 17,159,000 6,595,000 5,667,000
-------------------------------------------------------------
Expenses (Income):
Selling, general and administrative 4,529,000 4,735,000 1,603,000 1,586,000
Provision for bad debts 1,520,000 792,000 614,000 247,000
Depreciation and amortization 3,659,000 2,902,000 1,269,000 1,113,000
Interest expense 2,648,000 2,611,000 894,000 930,000
Interest income (498,000) (262,000) (130,000) (45,000)
Loss resulting from bankruptcy of customer (Note 3) 7,050,000
-------------------------------------------------------------
18,908,000 10,778,000 4,250,000 3,831,000
-------------------------------------------------------------
Income Before Provision for Income Taxes 2,064,000 6,381,000 2,345,000 1,836,000
Provision for Income Taxes 816,000 2,520,000 929,000 702,000
-------------------------------------------------------------
Net Income $ 1,248,000 $ 3,861,000 $ 1,416,000 $ 1,134,000
=============================================================
Net Income Per Common Share - Basic (Note 4) $ 0.17 $ 0.51 $ 0.20 $ 0.15
=============================================================
Net Income Per Common Share and Common
Equivalent Share - Diluted (Note 4) $ 0.16 $ 0.41 $ 0.15 $ 0.13
=============================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
1998 1997
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,248,000 $ 3,861,000
Adjustments to derive cash flow from
Operating activities:
Bad debt expense 8,362,000 792,000
Depreciation and amortization 3,659,000 2,902,000
Amortization of officers' loans 116,000 116,000
Deferred income taxes (419,000) (46,000)
Changes in operating assets and liabilities:
Trade and other accounts receivable 6,118,000 (14,451,000)
Inventories (86,000) 243,000
Prepaid expenses and other current assets (693,000) (527,000)
Accounts payable (3,582,000) 3,841,000
Income taxes payable (198,000)
Accrued expenses and other current liabilities 419,000 (407,000)
------------------------------
Net cash provided by (used in) operating activities 15,142,000 (3,874,000)
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash-pledged certificates of deposit 1,000,000
Decrease in notes receivable 1,834,000 443,000
Addition to other assets (6,744,000) (1,044,000)
Acquisition of business, net of cash acquired (Note 7) (1,894,000) (7,150,000)
Additions to property, equipment and leaseholds (4,152,000) (2,674,000)
------------------------------
Net cash used in investing activities (9,956,000) (10,425,000)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 942,000 9,996,000
Reduction of long-term debt (3,288,000) (4,889,000)
Payment of dividend on common stock (94,000) (226,000)
Repurchase and retire common stock (3,032,000) (357,000)
Notes receivable-officers 70,000
Proceeds from issuance of common stock 150,000 4,000
------------------------------
Net cash (used in) provided by financing activities (5,322,000) 4,598,000
------------------------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (136,000) (9,701,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,889,000 11,820,000
------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,753,000 $ 2,119,000
==============================
CASH PAID DURING THE PERIOD:
Interest $ 3,193,000 $ 3,156,000
Income taxes 1,018,000 3,119,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Notes Payable for the acquisition of FBO $ 4,250,000 $ 4,650,000
Issuance of stock for the acquisition of RPA (Note 7) 1,220,000
Issuance of note payable for the acquisition of Aero Freightways Inc. 229,000
Note receivable assigned to the Company in exchange for the Company's
certificates of deposit which was used to guaranty a customer's debt.
( Note 3 ) 1,000,000
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
Note 1 - Basis of Presentation:
The accompanying unaudited financial statements reflect all
adjustments (consisting of normal, recurring accruals only) which are necessary
to fairly present the results for the interim periods. Such financial statements
have been prepared in accordance with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X and therefore do not include all the information or
footnotes necessary for a complete presentation. They should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
June 30, 1997, Quarterly Report on Form 10-Q for the period ended September 30,
1997, Quarterly Report on Form 10-Q for the period ended December 31, 1997 and
the notes thereto. The results of operations for the nine months ended March 31,
1998 are not necessarily indicative of results for the full year.
Note 2 - Income Taxes:
Income taxes have been computed based on the estimated annual
effective income tax rate for the respective years.
Note 3 - Loss Resulting From Bankruptcy Of Customer and Restricted Cash/Notes
Receivable
On October 5, 1997, Western Pacific Airlines, Inc. (WPAI) filed
bankruptcy under Chapter 11 and, as a result, the Company has written off
$5,000,000 of certificates of deposit which were pledged to guarantee a bank
loan to WPAI. In addition, the Company has written off $2,050,000 of accounts
receivable due from WPAI. Effective February 5, 1998 WPAI ceased operations.
At June 30, 1997, the Company had an additional $1,000,000 of
restricted cash representing a certificate of deposit which served as collateral
for a customer's (AeroPeru) bank loan. In November 1997, AeroPeru's bank used
the certificate of deposit to repay the bank loan and the $1,000,000 note was
assigned to the Company. In the quarter ended March 31, 1998, the Company
received $900,000 of cash from AeroPeru and the remaining balance of $100,000 in
April 1998.
Note 4 - Earnings Per Share:
At December 31, 1997, the Company adopted Statement of Financial
Accounting Standard No. 128 ("SFAS 128"), "Earnings per Share". SFAS 128
replaces the presentation of primary earnings per share with a presentation of
basic earnings per share based upon weighted average number of common shares for
the period. It also requires dual presentation of basic and diluted earnings per
share for companies with " complex capital structures," as defined. SFAS 128 was
adopted by the Company at December 31, 1997. Earnings per share for the current
and prior periods has been presented in conformity with the provisions of SFAS
128.
5
<PAGE> 6
Basic income per common share is computed by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted income per share is computed by dividing net income by the
weighted average number of common shares and common stock equivalents. Common
stock equivalents include stock options and shares resulting from the assumed
conversion of subordinated debentures, when dilutive.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended Three Months Ended Three Months
March 31, 1998 March 31, 1997 March 31, 1998 March 31, 1997
Diluted Basic Diluted Basic Diluted Basic Diluted Basic
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted average
number of
common shares
outstanding during
the period 7, 263,000 7 263,000 7,528,000 7,528,000 7,120,000 7,120,000 7,510,000 7,510,000
Common stock
equivalents
resulting from the
assumed exercise
of stock options 331,000 -- 304,000 -- 372,000 -- 300,000 --
Common shares
resulting from the
assumed
conversion of
debentures -- -- 4,019,000 -- 3,939,000 -- 4,019,000 --
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average
number of
common and
common
equivalent shares
outstanding during
the period 7,594,000 7,263,000 11,851,000 7,528,000 11,431,000 7,120,000 11,829,000 7,510,000
=========== =========== =========== =========== =========== =========== =========== ===========
Net income
$ 1,248,000 $ 1,248,000 $ 3,861,000 $ 3,861,000 $ 1,416,000 $ 1,416,000 $ 1,134,000 $ 1,134,000
Interest expense,
net of tax, on
convertible
debenture -- -- 1,035,000 -- 336,000 -- 345,000 --
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Adjusted income $ 1,248,000 $ 1,248,000 $ 4,896,000 $ 3,861,000 $ 1,752.000 $ 1,416,000 $ 1,479,000 $ 1,134,000
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings per share $ .16 $ .17 $ .41 $ .51 $ .15 $ .20 $ .13 $ .15
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
Note 5 - Stockholding's Equity:
During the nine months ended March 31, 1998, the Company repurchased
482,700 shares of its common stock at a cost of approximately $3,032,000 or an
average price per share of $6.28, which was charged to: Common Stock $5,000;
Additional paid in capital $1,334,000; and Retained Earnings $1,693,000. During
the nine months ended March 31, 1998, the Company issued 160,000 shares of its
common stock in
6
<PAGE> 7
connection with the acquisition of RPA and issued 32,000 shares upon the
exercise of stock options. These shares issued are included in Stockholders
Equity at $1,370,000 including $2,000 in common stock and $1,368,000 in
additional paid in capital.
Note 6- Other Assets:
At March 31, 1998, Other assets included $6,489,000 related to LAX
warehouse construction costs which will be reimbursed to the Company in the form
of rent credits over a five year period by the Airport Authority commencing in
the month when the warehouse is operational but no later than June 1998. The
Airport Authority will reimburse the Company for construction costs up to
approximately $7.4 million.
Note 7- Acquisitions:
On February 27, 1998, the Company acquired all the outstanding stock
of Rene Perez and Associates, Inc. ("RPA"), a computer services company located
in Miami, Florida, for $4,220,000. The purchase price consisted of $3,000,000 in
cash and 160,000 shares of common stock valued at $1,220,000 based on a closing
price of $7.625 per share. The purchase price has been preliminarily allocated
to assets and liabilities as follows:
<TABLE>
<S> <C>
Cash $ 1,490,000
Accounts receivable 3,702,000
Prepaid expenses and other current assets 59,000
Property, equipment and leaseholds 919,000
Intangibles 716,000
Accounts payable and other current liabilities (724,000)
Income taxes payable (261,000)
Deferred income taxes payable (1,240,000)
Notes payable (441,000)
-----------
Purchase price $ 4,220,000
===========
</TABLE>
On March 31, 1998, the Company acquired the assets of a cargo handling
company located at Hartsfield Atlanta International Airport in Georgia from
Corporate Express Delivery Leasing - Southeast, Inc. for $422,000 in cash. The
purchase price has been allocated to Property, Equipment and Leaseholds.
On January 16, 1998, the Company acquired all the outstanding stock of
Aero Freightways Inc., a general sales agency located in Ontario, Canada. The
purchase price consisted of a variable capital debenture with a face value of
$229,000 which is payable over three years.
7
<PAGE> 8
Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations-Comparison of the Three Months Ended March 31,1998 and
March 31, 1997 and comparison of the Nine Months ended March 31, 1998 and March
31, 1997:
The following tables set forth, for the periods indicated, the revenues and
gross margin for each of the Company's four operating units, as well as selected
other financial statement data.
<TABLE>
<CAPTION>
Nine Months Ended March 31, Three Months Ended March 31,
($ in millions) 1998 1997 1998 1997
Amount % of Total Amount % of Total Amount % of Total Amount % of Total
Revenues Revenues Revenues Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Fuel Sales and Services $ 128.4 67.3% $ 163.8 75.9% $ 32.3 61.3% $ 53.4 73.7%
FBOs 33.7 17.7% 26.5 12.3% 11.1 21.0% 10.6 14.6%
Cargo Operations 16.1 8.5% 14.5 6.7% 5.3 10.1% 4.3 5.9%
Government Contract Services 12.3 6.5% 11.0 5.1% 4.0 7.6% 4.2 5.8%
------- ----- ------- ----- ------- ----- ------- -----
TOTAL REVENUES $ 190.5 100.0% $ 215.8 100.0% $ 52.7 100.0% $ 72.5 100.0%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
% of Unit % of Unit % of Unit % of Unit
Amount Revenues Amount Revenues Amount Revenues Amount Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Margin (1):
Fuel Sales and Services $ 6.2 4.9% $ 6.4 3.9% $ 1.8 5.5% $ 2.1 3.9%
FBOs 7.0 20.7% 4.4 16.5% 2.6 23.6% 1.8 17.0%
Cargo Operations 4.6 28.2% 4.0 28.0% 1.1 20.7% 1.0 24.4%
Government Contract Services 3.2 26.0% 2.3 20.9% 1.1 27.4% .7 17.5%
------ ---- ------ --- ------ ---- ------ ---
TOTAL GROSS MARGIN $ 21.0 11.0% $ 17.1 8.0% $ 6.6 12.5% $ 5.7 7.8%
====== ==== ====== === ====== ==== ====== ===
</TABLE>
<TABLE>
<CAPTION>
% of Total % of Total % of Total % of Total
Amount Revenues Amount Revenues Amount Revenues Amount Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Selling, General and
Administrative $ 4.5 2.4% $ 4.7 2.2% $ 1.6 3.0% $ 1.6 2.2%
Provision for bad debts 1.5 .8% .8 .4% 0.6 1.2% .2 .3%
Depreciation and amortization 3.7 1.9% 2.9 1.3% 1.3 2.4% 1.1 1.5%
Loss resulting from bankruptcy
of customer 7.1 3.7%
Interest expense and other 2.1 1.1% 2.3 1.1% .7 1.5% .9 1.2%
----- --- ----- --- ----- --- ----- ---
Income before Income Taxes 2.1 1.1% 6.4 3.0% 2.3 4.4% 1.8 2.5%
Provision for Income Taxes .8 .4% 2.5 1.2% .9 1.8% .7 1.0%
----- --- ----- --- ----- --- ----- ---
NET INCOME $ 1.2 .7% $ 3.9 1.8% $ 1.4 2.7% $ 1.1 1.6%
===== === ===== === ===== === ===== ===
</TABLE>
(1) Gross Margin as used here and throughout Management's Discussion excludes
depreciation and amortization and selling, general and administrative
expense.
8
<PAGE> 9
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997.
Although total revenue fell by 27.2% to $52.7 million in the current period from
$72.5 million a year ago, gross margin increased 16.4% to $6.6 million in the
current period from $5.7 million a year ago principally due to higher volumes
and margins from FBOs and improved margins from government contract services.
The decrease in revenue was a result of both a decline in the price and volume
of fuel sold.
Revenues from fuel sales and services represented 61.3% of total revenues in the
current period compared to 73.7% of total revenues a year ago. Revenues from
fuel sales and services fell 39.5% to $32.3 million from $53.4 million last
year. The decline in revenues from fuel sales and services was due to both a
decrease in the price of fuel and the volume of fuel sold . The decline in fuel
volume resulted from the loss of Western Pacific in February 1998 and the loss
of certain other customers. Gross margin from fuel sales and services decreased
by 14.9% to $1.8 million in the current period from $2.1 million last year due
to lower volume. Revenues and operating income from fuel sales and services
include the activities of Mercury's contract fueling business, as well as
activities from a number of other commercial services including the provision of
certain refueling services, non-aviation fuel brokerage and other services
managed at LAX as part of Mercury's fuel sales services operations, and RPA
effective March 1998.
Revenues from FBOs increased by 5.0% in the current period to $11.1 million from
$10.6 million a year ago primarily due to the addition of Nashville in July
1997. Gross margin increased 45.7% in the current period to $2.6 million from
$1.8 million last year. The increase was attributable primarily to higher volume
of fuel sales and higher per gallon fuel margins on lower fuel costs.
Revenues from cargo operations in the current period increased 23.9% to $5.3
million from $4.3 million a year ago. This increase was due primarily to an
increase in space brokerage and partially to an increase in handling and General
Sales Agency (GSA). Gross margin from cargo operations in the current period
increased 5.1% to $1.1 million from $1.0 million in the year ago period due to
higher revenues. Gross margin as a percentage of revenues fell to 20.7% from
24.4% last year due to higher warehouse and administrative costs. With the
opening of the new warehouse in April 1998, it is anticipated that warehouse
costs as a percentage of revenue will rise until the new capacity is utilized.
Revenues from government contract services decreased 4.1% in the current period
to $4.0 million from $4.2 million in the year ago period. The decrease in
revenues from government contract services was due primarily to the loss of a
contract in Monterey, California in July 1997. Gross margin from government
contract services in the current period increased 50.1% to $1.1 million from
$0.7 million last year due to higher margins on the Central and South American
contracts.
Provision for bad debts increased by 148.6% in the current period to $614
thousand from $247 thousand a year ago reflecting a higher reserve rate based on
recent experience.
Depreciation and amortization expense increased 14.0% in the current period to
$1.269 million from $1.113 million a year ago primarily due to acquisition of
the Nashville FBO during the current year and capital expenditures during the
past twelve months.
Income tax expense approximated 39.6% of pre-tax income in the current period
and 38.2 % of pretax income in the year ago period reflecting the expected
effective annual tax rate.
9
<PAGE> 10
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997.
Due to a decline in the price of fuel and volume of fuel sold, revenues
decreased 11.7 % to $190.5 million in the current period from $215.8 million a
year ago. However, gross margin increased 22.2% to $21.0 million in the current
period from $17.2 million a year ago principally due to the acquisition of
additional FBOs in fiscal 1997 and fiscal 1998 and higher contributions from
government contract services and cargo.
Revenues from fuel sales and services represented 67.3% of total revenues in the
current period compared to 75.9% of total revenue a year ago. Revenues from fuel
sales and services decreased 21.7% to $128.3 million from $163.8 million last
year. The decrease in revenues from fuel sales and services was due to both a
decrease in the price of fuel and volume of fuel sold. Gross margin from fuel
sales and services decreased 3.4% in the current period to $6.2 million from
$6.4 million a year ago. The decrease in gross margin from fuel sales and
services in the current period compared to last year was attributable to a
decrease in gallons sold.
Revenue from FBOs increased 27.3% in the current period to $33.7 million from
$26.5 million a year ago primarily due to the addition of seven new locations in
fiscal 1997 and one new location in July 1997. Gross Margin increased 59.7% to
$7.0 million from $4.4 million in the year ago period due to higher revenues and
higher per gallon fuel margins.
Revenues from cargo operations in the current period increased 11.6% to $16.1
million from $14.5 million a year ago. The increase was primarily due to an
increase in space brokerage activity. Gross margin from cargo operations in the
current period increased 12.4% to $4.5 million from $4.0 million in the year ago
period due to higher space brokerage activity.
Revenues from government contract services in the current period increased 12.5%
to $12.3 million from $11.0 million in the year ago period. The increase in
revenues from government contract services in the current period compared to
last year was primarily due to the Central and South American contracts added in
June 1997. Gross margin from government contract services in the current period
increased 39.9% to $3.2 million from $2.3 million last year due to higher
revenues and higher margins on the Central and South American contracts.
Selling general and administrative expenses in the current period decreased 4.4%
to $4.5 million from $4.7 million in the year ago period. The decrease was
primarily due to lower compensation expense and lower professional fees.
Provision for bad debts increased by 91.9% in the current period to $1.52
million from $792 thousand a year ago reflecting a higher reserve rate based on
recent experience.
Depreciation and amortization expense in the current period increased 26.1% to
$3,659,000 from $2,902,000 a year ago. The increase in the current period is
primarily related to the acquisitions of eight FBO locations since August 1996.
Loss resulting from the bankruptcy of a customer in 1998 was $7,050,000 and
resulted from the bankruptcy filing by Western Pacific Airlines, Inc. (WPAI) on
October 5, 1997. The charge includes a $5 million reduction in restricted cash
and approximately $2,050,000 write off of WPAI's account receivable. The
restricted cash consisted of pledged certificates of deposits which guaranteed
bank loans to WPAI.
Income tax expense approximated 39.5% of pretax income in both periods
reflecting the expected effective annual tax rate.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES:
Mercury has historically financed its operations primarily through operating
cash flow and debt. In February 1996, the Company issued $28 million of
convertible subordinated debentures for the purpose, among other reasons, of
expanding operations through acquisitions. Mercury's cash balance at March 31,
1998 totaled $2,753,000.
Net cash provided by operating activities totaled $15,142,000 during the period
ended March 31, 1998. During this period, the primary sources of net cash
provided by operating activities was the non-cash charge for bad debt expense of
$8,362,000, depreciation and amortization of $3,659,000 and a decrease in
accounts receivable of $6,118,000. The non-cash charge for bad debt expense of
$8,362,000 included a $5,000,000 reduction in restricted cash, a write off of
$1,842,000 in accounts receivable and $1,520,000 increase in allowance for
doubtful accounts. The primary use of cash from operating activities was a
reduction in accounts payable of $3,582,000.
Net cash used in investing activities was $9,956,000 during the current period.
The primary source of cash from investing activities included a reduction of
$1,834,000 in notes receivable and a reduction of $1,000,000 in restricted cash.
The primary use of cash from investing activities included additions to
property, equipment and leaseholds of $4,152,000 , additions to other assets of
$6,744,000 primarily related to the Company's investment in its LAX warehouse
facility and acquisition of businesses, net of cash acquired, of $1,894,000.
Net cash used in financing activities was $5,322,000 during the current period.
The primary use of cash from financing activities in the current nine month
period was the reduction in long-term debt of $ 3,288,000 and repurchases of
482,700 shares of common stock totaling $3,032,000 or $6.28 per share.
Management is currently authorized by Mercury's board of directors and under
Mercury's loan agreements to repurchase up to an additional $3,000,000 of Common
Stock.
The Company's senior unsecured bank credit facility consists of a $18,600,000
Revolver and various term facilities. At March 31, 1998, there was no
outstanding balance under the Revolver and the balance of the term loans
totalled $10,374,000.
On April 2, 1998, the Company raised $19 million from a tax exempt bond
financing pursuant to a loan agreement between the Company and the California
Economic Development Financing Authority, ("CEDFA"). These funds will be used to
finance the Company's LAX cargo warehouse expansion and expansion of its Burbank
FBO. On April 2, 1998, the company borrowed $8.3 million of the bond proceeds
related to costs incurred to date and paid down a $4.4 million term loan. The
loan carries a variable rate which is based on a weekly remarketing of the tax
exempt bonds issued by CEDFA. (Since the issuance of the bond, the per annum
interest rate has averaged 3.93% through 5/6/98). The Company's senior bank
group has issued a one-year, renewable letter of credit in the amount of
approximately $19.3 million to secure the Company's obligations under the loan
agreement. The loan will be repaid at the rate of $500,000 every six months with
a redemption of $4 million at the end of the fifteenth year. The Company's
revolving credit line was reduced from $25 million to $18.6 million in
connection with the issuance of the letter of credit.
Absent a major prolonged surge in oil prices or a capital intensive acquisition,
the Company believes its operating cash flow, Revolver, vendor credit and cash
balance will provide it with sufficient liquidity during the next twelve months.
In the event that fuel prices increase significantly for an extended period of
time, the Company's liquidity could be adversely affected unless the Company is
able to increase vendor credit or increase lending limits under its revolving
credit facility. The Company believes, however, its Revolver and vendor credit
should provide it with sufficient liquidity in the event of a major temporary
surge in oil prices.
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The Company has the following significant contracts or commitments for the
purchase of equipment or installation of facilities. The Company is party to a
lease and various contracts pursuant to which it will remodel and reconstruct a
174,000 square foot cargo warehouse at a cost of approximately $10,000,000. To
date, the Company has spent approximately $8.0 million on this project. The
warehouse became operational in April 1998. The Company has also entered into a
new lease with respect to its Burbank, California FBO. Pursuant to the terms of
the lease, the Company will construct new hangar and terminal space and
refurbish some of its existing space at a cost of approximately $9.0 million.
Upon completion of the construction, the Company's lease will be extended
through April 2025. Under the terms of its lease for an FBO presently under
construction in Charleston, South Carolina, the Company will fund a portion of
the construction cost, currently estimated at $800,000. The recently completed
tax exempt bond financing through CEDFA will be used to fund the LAX warehouse
project and Burbank FBO.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit
No. Description
10.1 First Amendment of 1998 to Credit Agreement and Other Loan
Documents dated as of April 1, 1998 by and among Sanwa Bank
California, Mellon Bank, N.A., BankBoston, N.A. and Mercury Air
Group, Inc.
10.2 Reimbursement Agreement dated as of April 1, 1998 by and among
Sanwa Bank California, Mellon Bank, N.A., BankBoston, N.A. and
Mercury Air Group, Inc.
10.3 Loan Agreement between California Economic Development Financing
Authority and Mercury Air Group, Inc. relating to $19,000,000
California Economic Development Financing Authority Variable Rate
Demand Airport Facilities Revenue Bonds, Series 1998 (Mercury Air
Group, Inc. Project) dated as of April 1, 1998.
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<PAGE> 14
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.
Mercury Air Group, Inc.
Registrant
-------------------------------------
Seymour Kahn
Chairman and Chief
Executive Officer
-------------------------------------
Randy Ajer
Secretary/Treasurer
Chief Accounting Officer
Date: May 6, 1998
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<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT OF 1998 TO CREDIT AGREEMENT
AND
OTHER LOAN DOCUMENTS
THIS FIRST AMENDMENT OF 1998 TO CREDIT AGREEMENT AND OTHER LOAN
DOCUMENTS (the "Amendment") is made and dated as of the 1st day of April, 1998,
by and among SANWA BANK CALIFORNIA ("Sanwa"), MELLON BANK, N.A. and BANKBOSTON,
N.A., as the current Lenders under the Credit Agreement referred to below (and
as the term "Lender" and capitalized terms not otherwise defined herein are used
in the Credit Agreement), SANWA, as Agent for the Lenders, and MERCURY AIR
GROUP, INC., a New York corporation (the "Company").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of March
14, 1997, by and among the Agent, the Lenders and the Company (the "Credit
Agreement"), the Lenders agreed to extend credit to the Company on the terms and
subject to the conditions set forth therein.
B. The Company, the Agent and the Lenders have agreed to amend
the Credit Agreement in certain respects as set forth more particularly below.
NOW, THEREFORE, in consideration of the above Recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Bond Financing Letter of Credit Facility. To reflect the agreement
of the parties to provide for the issuance of the Bond Financing Letter of
Credit under separate credit facility documentation, effective as of the
Effective Date (as defined in Paragraph 10 below):
(a) Paragraph 4(c) of the Credit Agreement is hereby deleted in
its entirety and replaced with the following:
"4(c) [INTENTIONALLY OMITTED.]"
(b) All references in the Credit Agreement to the "Bond Financing
Letter of Credit" are hereby deleted and references to "Letters of Credit"
contained in the Credit Agreement and the other Loan Documents shall be deemed
to be references to "Standard Letters of Credit" only.
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<PAGE> 2
(c) The schedule of Other Permitted Debt attached to the Credit
Agreement as Exhibit H is hereby amended and restated in its entirety and
replaced by the schedule attached hereto as Replacement Exhibit H.
(d) Paragraph 12(p) of the Credit Agreement is hereby amended to
add the following phrase at the end of the parenthetical set forth therein: "and
as provided in the Bond Financing Reimbursement Agreement".
(e) Paragraph 13(e) is hereby amended to read in its entirety as
follows:
"13(e) There shall occur an Event of Default under (and as
the term 'Event of Default' is defined in) the Bond Financing
Reimbursement Agreement or the Company or any Subsidiary shall
default in any payment of principal or interest on any Indebtedness
(other than the Obligations and the L/C Obligations (as defined in
the Bond Financing Reimbursement Agreement)) in an aggregate amount
in excess of $1,000,000.00 or any other event shall occur, the effect
of which is to permit such Indebtedness to be declared or otherwise
to become due prior to its stated maturity; or"
(f) New definitions of "Bond Financing Reimbursement Agreement"
and "New 1998 Bond Financing Letter of Credit" are hereby added to Paragraph 16
of the Credit Agreement, in correct alphabetical order, to read in their
entirety as follows:
"Bond Financing Reimbursement Agreement" shall mean that
certain Reimbursement Agreement dated as of April 1, 1998 by and
among Sanwa, as "Agent," the Lenders hereunder as the "Credit Support
Providers," BankBoston, N.A., as "Issuing Bank", and the Company, as
the account party with respect to the letter of credit issued
pursuant thereto, as the same may be amended, extended or replaced
from time to time."
"New 1998 Bond Financing Letter of Credit" shall mean the
letter of credit issued for the account of the Company pursuant to
the Bond Financing Reimbursement Agreement, as the same may be
amended, extended and replaced from time to time."
(g) Paragraphs 12(i) and 12(m) of the Credit Agreement are hereby
amended to replace the reference to "Bond Financing Letter of Credit" set forth
therein immediately prior to the Effective Date with a reference to "New 1998
Bond Financing Letter of Credit".
2. Participation in Credit Facilities. To reflect the agreement of the
parties hereto that all Lenders hereunder be "Credit Support Providers" and hold
an equivalent "Percentage Share" under (and as those terms are defined in) the
Bond Financing Reimbursement Agreement, on and after the Effective Date, any
financial institution which is or subsequently becomes a "Lender" under the
Credit Agreement, whether by way of assignment from an existing Lender or
otherwise, shall concurrently execute such documents, instruments and agreements
as are deemed necessary or appropriate by the Agent to assume a "Percentage
Share" under the Bond
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<PAGE> 3
Financing Reimbursement Agreement equal to such Person's Percentage Share under
the Credit Agreement.
3. Collateralization of Obligations. To reflect the agreement of the
parties hereto that the Obligations under the Credit Agreement and the L/C
Obligations under (as that term is defined in) the Bond Financing Reimbursement
Agreement be at all times either unsecured or equally and ratably secured, the
Company hereby agrees to execute such documents, instruments and agreements in
connection with the provision of collateral security under either of the Credit
Agreement or the Bond Financing Reimbursement Agreement as may be deemed
necessary or appropriate by the Agent to assure such that the Lenders and the
Credit Support Providers hold any and all Liens pro rata and pari passu.
4. Reduction in Availability. To reflect the agreement of the parties
hereto that the credit limits currently contained in the Credit Agreement be
reduced to reflect the issuance of the New 1998 Bond Financing Letter of Credit
under the Bond Financing Reimbursement Agreement, effective as of the Effective
Date:
(a) The definition of "Revolving Loan Credit Limit" set forth in
Paragraph 16 of the Credit Agreement is hereby amended to read in its entirety
as follows:
"Revolving Loan Credit Limit" shall mean at any date
$18,600,000.00, as such amount may be increased or decreased by
written agreement of the Agent, the Company and one hundred percent
(100%) of the Lenders and as such amount shall be permanently
decreased on the Conversion Date by the dollar amount of the
convertible Term Loan made on such Conversion Date."
(b) Paragraph 6(e) of the Credit Agreement is hereby amended to
renumber subparagraphs (2) and (3) as subparagraphs (3) and(4), respectively,
and to add a new subparagraph (2) to read in its entirety as follows:
"(2) The Company shall prepay the outstanding principal
balance of the Leasehold Improvement Term Loan in full on or before
the date of issuance of the New 1998 Bond Financing Letter of Credit,
the Company acknowledging that funds prepaid may not be reborrowed
under Paragraph 2 hereof."
(c) In addition to the prepayment set forth in new subparagraph
(2) to Paragraph 6(e) of the Credit Agreement, on the Effective Date the Company
shall prepay Loans outstanding such that the aggregate amount of Loans
outstanding shall not exceed availability as reduced hereby.
5. Aero Freightways Transaction. Effective as of the Effective Date
the Agent and the Lenders consent to the acquisition by the Company of Aero
Freightways, Inc. described more particularly on Schedule 1 attached hereto and
waive any Event of Default or Potential Default
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<PAGE> 4
which may be deemed to exist under Paragraph 12(d) of the Credit Agreement as a
direct result thereof.
6. Additional Subsidiaries. To reflect the acquisitions by the Company
of Rene Perez & Associates and Aero Freightways, Inc., the schedule of
Subsidiaries attached to the Credit Agreement as Exhibit E is hereby amended and
restated in its entirety and replaced with the schedule attached hereto as
Replacement Exhibit E.
7. Required Guaranties. To reflect the requirement of the Agent and
the Lenders that unless such requirement is waived by one hundred percent (100%)
of the Lenders, each U.S. domestic Subsidiary of the Company must execute and
deliver a Guaranty and be a "Guarantor" for all purposes of the Credit Agreement
and the other Loan Documents, effective as of the Effective Date:
(a) Paragraph 8(a) of the Credit Agreement is hereby amended to
read in its entirety as follows:
"8(a) Guaranties. As credit support for the Obligations,
except to the extent such requirement is waived by one hundred
percent (100%) of the Lenders, the Company shall cause each now
existing and each hereafter created or acquired U.S. domestic
Subsidiary of the Company to execute and deliver to the Agent for the
benefit of the Lenders a credit guaranty in the form of that attached
hereto as Exhibit A (each, a "Guaranty" and, collectively, the
"Guaranties").
(b) The definition of "Guarantors" set forth in Paragraph 16 of
the Credit Agreement is hereby amended to read in its entirety as follows:
"Guarantors" shall mean, collectively and severally, each of
the Subsidiaries of the Company which executes and delivers a
Guaranty as required pursuant to Paragraph 8(a) above."
(c) Each of the Lenders, by executing this Amendment, hereby
waives the requirement that Mercury Environmental and Scientific Services, Inc.,
a California corporation, and AEG Finance Corporation, each a U.S. domestic
Subsidiary of the Company, execute and deliver a Guaranty pursuant to Paragraph
8(a) of the Credit Agreement.
8. No Arbitration. To reflect the agreement of the parties to delete
the requirement that any dispute among the parties be resolved through
arbitration, Paragraph 15(m) of the Credit Agreement is hereby deleted in its
entirety and replaced with the following:
"15(m) [INTENTIONALLY OMITTED.]"
9. Reaffirmation of Guaranties. By executing this Amendment as
provided below, each Guarantor acknowledges the terms and conditions agreed to
by the Company, the Agent and
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<PAGE> 5
the Lenders under this Amendment, and affirms and agrees that (a) the execution
and delivery by the Company and the performance of its obligations under this
Amendment shall not in any manner or to any extent affect any of the obligations
of such Guarantor or the rights of the Agent or the Lenders under the Guaranty
executed by such Guarantor or any other document or instrument made or given by
such Guarantor in connection therewith, (b) the term "Obligations" as used in
the Guaranties includes, without limitation, the Obligations of the Company
under the Credit Agreement as amended hereby, and (c) each Guaranty remains in
full force and effect.
10. Effective Date. This Amendment shall be effective as of the date
(the "Effective Date") that there has been delivered to the Agent:
(a) A copy of this Amendment, duly executed by each party hereto
and acknowledged by each of the Guarantors;
(b) Evidence satisfactory to the Agent and each of the Lenders
that the Bond Financing Reimbursement Agreement has been or will concurrently
with the execution and delivery of this Amendment be executed and delivered by
the Company and the other parties thereto; and
(c) Such corporate resolutions, incumbency certificates and other
authorizing documentation as the Agent may request.
11. Representations and Warranties. The Company hereby represents and
warrants to the Agent and the Lenders that at the date hereof and at and as of
the Effective Date:
(a) The Company has the corporate power and authority and the
legal right to execute, deliver and perform this Amendment and has taken all
necessary corporate action to authorize the execution, delivery and performance
of this Amendment. This Amendment has been duly executed and delivered on behalf
of the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
(b) Both prior to and after giving effect hereto: (1) the
representations and warranties of the Company contained in the Credit Agreement
and the other Loan Documents are accurate and complete in all respects, and (2)
there has not occurred an Event of Default or Potential Default.
12. No Other Amendment. Except as expressly amended hereby, the Loan
Documents shall remain in full force and effect as written and amended to date.
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<PAGE> 6
13. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
MERCURY AIR GROUP, INC.,
a New York corporation
By_________________________________
Name_______________________________
Title______________________________
SANWA BANK CALIFORNIA, as Agent and
as a Lender
By_________________________________
Name_______________________________
Title______________________________
MELLON BANK, N.A., as a Lender
By_________________________________
Name_______________________________
Title______________________________
BANKBOSTON, N.A., as a Lender
By_________________________________
Name_______________________________
Title______________________________
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<PAGE> 7
ACKNOWLEDGED AND AGREED TO this ___ day of March, 1998:
EXCEL CARGO, INC.
By_________________________________
Name_______________________________
Title______________________________
FLORACOOL, INC.
By_________________________________
Name_______________________________
Title______________________________
HERMES AVIATION, INC.
By_________________________________
Name_______________________________
Title______________________________
MAYTAG AIRCRAFT CORPORATION
By_________________________________
Name_______________________________
Title______________________________
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<PAGE> 8
MERCURY AIR CARGO, INC.
By_________________________________
Name_______________________________
Title______________________________
VULCAN AVIATION, INC.
By_________________________________
Name_______________________________
Title______________________________
WOFFORD FLYING SERVICE, INC.
By_________________________________
Name_______________________________
Title______________________________
RENE PEREZ & ASSOCIATES, INC.
By_________________________________
Name_______________________________
Title______________________________
9
<PAGE> 9
SCHEDULE 1
DESCRIPTION OF AERO FREIGHTWAYS, INC. ACQUISITION
[TO B SUPPLIED BY THE COMPANY]
10
<PAGE> 1
EXHIBIT 10.2
REIMBURSEMENT AGREEMENT
THIS REIMBURSEMENT AGREEMENT (the "Agreement") is made and dated
as of the 1st day of April, 1998, by and among SANWA BANK CALIFORNIA ("Sanwa"),
MELLON BANK, N.A. ("Mellon"), BANKBOSTON, N.A. ("BankBoston") (Mellon,
BankBoston and those other financial institutions from time to time party hereto
being referred to herein individually as a "Credit Support Provider" and,
collectively, as the "Credit Support Providers"), BankBoston, as issuing bank
for the Letter of Credit referred to below (in such capacity, "Issuing Bank"),
Sanwa, as agent for the Credit Support Providers (in such capacity, the
"Agent"), and MERCURY AIR GROUP, INC., a New York corporation (the "Company").
RECITALS
A. Pursuant to that certain Indenture of Trust dated as of April
1, 1998 by and between the California Economic Development Financing Authority
(the "Authority") and U.S. Bank Trust National Association (the "Trustee") (the
"Indenture") and that certain Loan Agreement dated as of April 1, 1998 between
the Authority and the Company (the "Loan Agreement"), the Authority agreed to
issue its Variable Rate Demand Airport Facilities Revenue Bonds, Series 1998
(Mercury Air Group, Inc. Project (the "Bonds") in the aggregate principal amount
of $19,000,000.00.
B. Pursuant to the Loan Agreement, the Company will borrow from
the Authority the proceeds of the sale of the Bonds, which proceeds will be
utilized by the Company pursuant to the Loan Agreement to finance all or a
portion of the costs of construction, renovation, expansion and equipping of
certain airport facilities located at the Burbank-Glendale-Pasadena Airport in
Burbank, California and at the Los Angeles International Airport in Los Angeles,
California.
C. As a condition precedent to the issuance of the Bonds, the
Authority has required that the Company obtain and deliver to the Trustee, for
the benefit of the holders of the Bonds, an irrevocable, direct pay letter of
credit to secure the payment of the principal and interest (but not premiums)
payable with respect to the Bonds.
D. The Company has requested that BankBoston issue its
irrevocable direct pay letter of credit to the Trustee substantially in the form
of that attached hereto as Exhibit A (as amended, extended and replaced from
time to time, the "Letter of Credit") and Issuing Bank has agreed to do so on
the terms and subject to the conditions set forth herein, including, without
limitation, that each of the Credit Support Providers, including BankBoston in
its capacity as such, and any additional Credit Support Providers which may in
the future become party hereto, purchase and take from Issuing Bank an undivided
participation interest in the Letter of Credit and the L/C Obligations (as that
term and capitalized terms not otherwise defined herein are defined in Paragraph
12 below) and that Sanwa agree to act as Agent for the Credit Support Providers
with respect thereto.
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<PAGE> 2
NOW, THEREFORE, in consideration of the above Recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Letter of Credit Facility.
1(a) Letter of Credit. On the terms and subject to the
conditions set forth herein, upon delivery by the Company to Issuing Bank of any
required Letter of Credit Application, Issuing Bank shall issue the Letter of
Credit for the account of the Company in support of the Bonds and the Company's
obligations under the Loan Agreement. The Letter of Credit shall: (1) be in a
maximum available amount not to exceed $19,281,096.00, (2) have an initial term
of one year, (3) be automatically renewed annually unless Issuing Bank, in its
sole and absolute discretion (but subject to the provisions of Paragraph 1(g)
below), gives notice to the Trustee of its intent not to renew the Letter of
Credit not less than sixty (60) days prior to the currently stated expiration
date, and (4) otherwise be in form and substance satisfactory to the Agent,
Issuing Bank and one hundred percent (100%) of the Credit Support Providers.
1(b) Repayment of L/C Drawings under Letter of Credit. Any
L/C Drawing under the Letter of Credit shall be payable in full on the date of
such L/C Drawing. Such payments shall be made by the Company directly to Issuing
Bank. Following a L/C Drawing and timely payment of such L/C Drawing as required
hereunder and subject to the condition that there does not otherwise exist an
Event of Default or Potential Default hereunder, Issuing Bank will cause to be
delivered to the Company any Bonds which have been delivered to it or its
nominee pursuant to Article IV of the Indenture.
1(c) Purchase of Participation Interests; Risk Sharing. Upon
the issuance of the Letter of Credit, the Credit Support Providers shall be
automatically deemed to have purchased an undivided participation interest
therein and in all L/C Obligations pro rata in accordance with their respective
Percentage Shares. The Credit Support Providers hereby absolutely and
unconditionally (including, without limitation, following the occurrence of an
Event of Default) agree to purchase and sell among themselves the dollar amount
of any L/C Drawing and any other L/C Obligation which is not paid on the date
when due by the Company, so that each unrepaid L/C Drawing and any other L/C
Obligation shall be held and participated in by the Credit Support Providers in
accordance with their respective Percentage Shares.
1(d) Absolute L/C Obligation to Repay. The Company's
obligation to repay L/C Drawings and other L/C Obligations shall be absolute,
irrevocable and unconditional under any and all circumstances whatsoever and
irrespective of any set-off, counterclaim or defense to payment which the
Company may have or have had, against the Agent, Issuing Bank, any Credit
Support Provider or any other Person, including, without limitation, any
set-off, counterclaim or defense based upon or arising out of:
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<PAGE> 3
(1) Any lack of validity or enforceability of this
Agreement or any of the other L/C Documents;
(2) Any amendment or waiver of or any consent to
departure from the terms of the Letter of Credit;
(3) The existence of any claim, setoff, defense or
other right which the Company or any other Person may have at any time
against the Trustee or any other beneficiary of the Letter of Credit or
any transferee of the Letter of Credit (or any Person for whom the
Trustee, any such other beneficiary or any such transferee may be
acting);
(4) Any allegation that any demand, statement or any
other document presented under the Letter of Credit is forged,
fraudulent, invalid or insufficient in any respect, or that any
statement therein is untrue or inaccurate in any respect whatsoever or
that variations in punctuation, capitalization, spelling or format were
contained in the drafts or any statements presented in connection with
any L/C Drawing;
(5) Any payment by Issuing Bank under the Letter of
Credit against presentation of a draft or certificate that does not
strictly comply with the terms of the Letter of Credit, or any payment
made by Issuing Bank under the Letter of Credit to any Person purporting
to be a trustee in bankruptcy, debtor-in-possession, assignee for the
benefit of creditors, liquidator, receiver or other representative of or
successor to any beneficiary or any transferee of the Letter of Credit,
including any arising in connection with any insolvency proceeding;
(6) Any exchange or release of any guaranty
supporting the L/C Obligations or any exchange, release or
non-perfection of any collateral securing the L/C Obligations; or
(7) Any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing, including any other
circumstance that might otherwise constitute a defense available to, or
a discharge of the Company.
Nothing contained herein shall constitute a waiver of any rights of the Company
against the Agent, Issuing Bank or any Credit Support Provider arising out of
the gross negligence or willful misconduct of such Person in connection with the
Letter of Credit.
1(a) Uniform Customs and Practice. The Uniform Customs and
Practice for Documentary Credits as published by the International Chamber of
Commerce most recently at the time of issuance of the Letter of Credit shall
(unless otherwise expressly provided in the Letter of Credit) apply to the
Letter of Credit.
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1(b) Relationship to Letter of Credit Application. In the event
of any inconsistency between the terms and provisions of this Agreement and the
terms and provisions of the Letter of Credit Application, the terms and
provisions of this Agreement shall supersede and govern.
1(c) Annual Renewal or Extension of Letter of Credit. In the
event any Credit Support Provider determines, in its sole and absolute
discretion, that it will not continue to act in such capacity hereunder
following the then currently scheduled expiration date of the Letter of Credit,
it shall, no later than ninety (90) days prior to such expiration date, so
notify the Agent, the Company, Issuing Bank and each other Credit Support
Provider in writing. Following receipt of such notice from any Credit Support
Provider and, unless another Credit Support Provider or Credit Support Providers
agree in writing to purchase and take the non-renewing Credit Support Provider's
Percentage Share of the L/C Obligations, Issuing Bank shall notify the Trustee
that it will not renew or extend the Letter of Credit. In the event the Letter
of Credit is renewed or extended, it is expressly acknowledged and agreed that
any Credit Support Provider which gave notice that it would not continue to act
as a Credit Support Provider hereunder shall have no obligation to fund any
portion of any L/C Drawings or other L/C Obligations with respect to the Letter
of Credit as so renewed or extended.
1. Miscellaneous Provisions.
2(b) Requirements of Law; Increased Costs. In the event that
any applicable law, order, regulation, treaty or directive issued by any central
bank or other governmental authority, agency or instrumentality or in the
governmental or judicial interpretation or application thereof, or compliance by
Issuing Bank or any Credit Support Provider with any request or directive
(whether or not having the force of law) issued by any central bank or other
governmental authority, agency or instrumentality:
(1) Does or shall subject Issuing Bank or any Credit
Support Provider to any tax of any kind whatsoever with respect to this
Agreement, the Letter of Credit or the other L/C Documents or the
transactions contemplated hereby or thereby, or change the basis of
taxation of payments to Issuing Bank or such Credit Support Provider of
principal, fee, interest or any other amount payable hereunder (except
for change in the rate of tax on the overall net income of Issuing Bank
or such Credit Support Provider);
(2) Does or shall impose, modify or hold applicable any
reserve, capital requirement, special deposit, compulsory loan or
similar requirements against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or other
credit extended by, or any other acquisition of funds by, any office of
Issuing Bank or such Credit Support Provider which are not otherwise
included in the determination of interest payable on the L/C
Obligations; or
(3) Does or shall impose on Issuing Bank or such Credit
Support Provider any other condition;
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and the result of any of the foregoing is to increase the cost to Issuing Bank
or such Credit Support Provider of issuing, renewing, maintaining, supporting or
participating in the Letter of Credit or to reduce any amount receivable in
respect thereof or the rate of return on the capital of Issuing Bank or such
Credit Support Provider or any corporation controlling Issuing Bank or such
Credit Support Provider, then, in any such case, the Company shall promptly pay
to Issuing Bank or such Credit Support Provider, upon its written demand made
through the Agent, any additional amounts necessary to compensate Issuing Bank
or such Credit Support Provider for such additional cost or reduced amounts
receivable or rate of return as determined by Issuing Bank or such Credit
Support Provider. If Issuing Bank or a Credit Support Provider becomes entitled
to claim any additional amounts pursuant to this Paragraph 2(a), it shall
promptly notify the Company through the Agent of the event by reason of which it
has become so entitled. A certificate as to any additional amounts payable
pursuant to the foregoing sentence containing the calculation thereof in
reasonable detail submitted by Issuing Bank or the Credit Support Provider to
the Company through the Agent shall be conclusive in the absence of manifest
error. The provisions hereof shall survive the termination of this Agreement and
payment of the unrepaid L/C Drawings and all other L/C Obligations.
2(a) Nature and Place of Payments. All payments made on
account of the L/C Obligations shall be made by the Company to the Agent (or the
Issuing Bank as provided in Paragraph 1(b) above) for the account of Issuing
Bank and the Credit Support Providers, as applicable, without setoff or
counterclaim, in lawful money of the United States of America in immediately
available same day funds, free and clear of and without deduction for any taxes,
fees or other charges of any nature whatsoever imposed by any taxing authority
and must be received by the Agent by 12:00 noon (Los Angeles time) on the day of
payment, it being expressly agreed and understood that if a payment is received
after 12:00 noon (Los Angeles time) by the Agent, such payment will be
considered to have been made by the Company on the next succeeding Business Day
and interest thereon shall be payable by the Company at the then applicable rate
during such extension. All payments on account of the L/C Obligations shall be
made to the Agent through its Contact Office . If any payment required to be
made by the Company hereunder becomes due and payable on a day other than a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and interest thereon shall be payable at the then applicable rate
during such extension. The Agent is hereby irrevocably authorized by the
Company, upon prior notice to the Company (which notice may be telephonic), to
debit the general operating account of the Company, if any, maintained with the
Agent for the full amount of monthly and periodic interest billings, fees and
other L/C Obligations payable hereunder; provided, however, that the failure of
the Agent to so debit such account shall not in any manner or to any extent
affect the obligation of the Company to pay such L/C Obligations as provided
herein and in the other L/C Documents.
2(b) Default Interest. Any L/C Obligation which is not paid
in full on the date when due shall bear interest at a per annum rate equal to
three percent (3%) in excess of the Alternate Base Rate, said interest to be
payable upon demand.
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2(c) Computations. All computations of interest and fees
payable hereunder shall be based upon a year of three hundred and sixty (360)
days for the actual number of days elapsed.
1. Letter of Credit Fees. The Company shall pay the following
fees:
3(a) To the Agent for the pro rata benefit of the Credit
Support Providers, including Issuing Bank in its capacity as such, in accordance
with their respective Percentage Shares:
(1) On or before the date of issuance by Issuing Bank of
the Letter of Credit, in advance, for the period from the date of
issuance of the Letter of Credit to but not including October 1, 1998
and in advance on each October 1 and April 1 thereafter, commencing
October 1, 1998, a non-refundable letter of credit fee in an amount
calculated on the basis of a 360 day year for the actual number of days
in the applicable calculation period at the per annum rate of one and
one quarter of one percent (1.25%) per annum of the face amount of the
Letter of Credit upon the required payment date (provided, however, that
the first three-twentieths of one percent (0.15%) of such fee shall be
retained by Issuing Bank and only the balance allocated among the Credit
Support Providers, including Issuing Bank in its capacity as such, pro
rata in accordance with their respective Percentage Shares); and
(2) Such renewal, increase and extension fees relating
to the Letter of Credit as are customarily charged by Issuing Bank to
its customers from time to time.
3(b) Directly to Issuing Bank, from time to time upon demand,
such fees and charges, including, without limitation, miscellaneous charges and
transfer fees, relating to the Letter of Credit as Issuing Bank customarily
charges with respect to similar letters of credit issued by it.
2. Guaranties; Additional Documents.
4(a) Guaranties As credit support for the L/C Obligations,
except to the extent such requirement is waived by one hundred percent (100%) of
the Credit Support Providers, the Company shall cause each now existing and
hereafter created or acquired U.S. domestic Subsidiary of the Company to execute
and deliver to the Agent for the benefit of the Credit Support Providers a
credit guaranty in the form of that attached hereto as Exhibit B (each, a
"Guaranty" and, collectively, the "Guaranties"). Each of the Credit Support
Providers hereby waives the requirement that Mercury Environmental and
Scientific Services, Inc., a California corporation, and AEG Finance
Corporation, each a U.S. domestic Subsidiary of the Company, execute and deliver
a Guaranty hereunder.
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4(b) Additional Documents The Company agrees to execute and
deliver and to cause to be executed and delivered to the Agent from time to time
such documents, instruments and agreements as are in the Agent's judgment
necessary or desirable to obtain for the Agent on behalf of Issuing Bank and the
Credit Support Providers the benefit of the L/C Documents.
3. Conditions to Credit Events.
5(b) First Credit Event. As conditions precedent to the
initial issuance of the Letter of Credit:
(1) The Company shall have delivered or shall have had
delivered to the Agent, in form and substance satisfactory to the Agent
and its counsel, each of the following (with sufficient copies for each
of the Credit Support Providers):
(i) A duly executed copy of this Agreement;
(ii) A duly executed copy of a Guaranty from each
of the Guarantors;
(iii) Such credit applications, financial
statements, authorizations and such information concerning the
Company, the Guarantors and their respective business, operations
and condition (financial and otherwise) as any Credit Support
Provider may reasonably request;
(iv) Certified copies of resolutions of the Board
of Directors of the Company approving the execution and delivery
of the L/C Documents to which the Company is party;
(v) A certificate of the Secretary or Assistant
Secretary of the Company certifying the names and true signatures
of the officers of the Company authorized to sign the L/C
Documents to which the Company is party;
(vi) Certified copies of resolutions of the Boards
of Directors of each of the Guarantors approving the execution
and delivery of the Guaranty to be executed by such Guarantor;
(vii) A certificate of the Secretary or an
Assistant Secretary of each of the Guarantors certifying the
names and true signatures of the officer(s) of the Guarantor
authorized to sign the Guaranty to be executed by such Guarantor;
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(viii) A certificate of the chief financial
officer or treasurer of the Company in the form of that attached
hereto as Exhibit C dated as of the date of the proposed Credit
Event, confirming the accuracy and completeness of the
representations and warranties of the Company set forth in the
L/C Documents and the fact that there does not exist a Potential
Default or an Event of Default;
(ix) An opinion of counsel to the Company and the
Guarantors, which counsel shall be satisfactory to the Agent,
substantially in the form of that attached hereto as Exhibit D;
(x) Evidence satisfactory to the Agent, Issuing
Bank and the Credit Support Providers that all conditions
precedent to the issuance of the Bonds (other than delivery of
the Letter of Credit) have been satisfied and that the Bonds will
be issued on terms satisfactory to the Agent, Issuing Bank and
the Credit Support Providers.
(2) All acts and conditions (including, without
limitation, the obtaining of any necessary regulatory approvals and the
making of any required filings, recordings or registrations) required to
be done and performed and to have happened precedent to the execution,
delivery and performance of the L/C Documents and to constitute the same
legal, valid and binding obligations, enforceable in accordance with
their respective terms, shall have been done and performed and shall
have happened in due and strict compliance with all applicable laws.
(3) All documentation, including, without limitation,
documentation for corporate and legal proceedings in connection with the
transactions contemplated by the L/C Documents shall be satisfactory in
form and substance to the Agent, Issuing Bank, the Credit Support
Providers and their counsel.
5(b) Renewal, Extension, Amendment and Replacement of Letter
of Credit. Without limiting the discretionary right of any Credit Support
Provider to refuse to permit the renewal, extension, amendment or replacement of
the Letter of Credit, and subject, in the case of each annual renewal or
extension of the Letter of Credit to the procedures set forth in Paragraph 1(g)
above, as conditions precedent to any such renewal, extension, amendment or
replacement, at and as of the date of such action:
(1) There shall have been delivered to Issuing Bank,
through the Agent, the required Letter of Credit Application therefor;
(2) The representations and warranties of the Company
contained in the L/C Documents shall be accurate and complete in all
material respects as if made on and as of the date of such renewal,
extension, amendment or replacement or, with respect to any
representation made as of a specific date, shall have been accurate and
complete as of such date; and
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(3) There shall not have occurred an Event of Default or
Potential Default.
By permitting the renewal, extension, amendment or replacement of the Letter of
Credit, the Company shall be deemed to have represented and warranted the
accuracy and completeness of the statements set forth in subparagraphs (b)(2)
through (b)(3) above, as applicable.
2. Representations and Warranties of the Company.
As an inducement to the Agent, Issuing Bank and each Credit
Support Provider to enter into this Agreement, the Company represents and
warrants to the Agent, Issuing Bank and each Credit Support Provider that:
6(a) Financial Condition. The financial statements, dated the
Statement Date and the Interim Date, copies of which have heretofore been
furnished to each Credit Support Provider by the Agent, are complete and correct
and present fairly in accordance with GAAP the financial condition of the
Company and its consolidated Subsidiaries at such dates and the consolidated and
consolidating results of their operations and changes in financial position for
the fiscal periods then ended.
6(b) No Change. Since the Interim Date there has been no
material adverse change in the business, operations, assets or financial or
other condition of the Company or the Company and its Subsidiaries taken as a
whole. Except as expressly disclosed in writing to the Agent, Issuing Bank and
the Credit Support Providers prior to the Effective Date, from the Interim Date
through the Effective Date, neither the Company nor any of its Subsidiaries has
entered into, incurred or assumed any material long-term debt, mortgages, leases
or oral or written commitments, nor commenced any significant project, nor made
any purchase or acquisition of any significant property.
6(c) Corporate Existence; Compliance with Law. The Company
and each of its Subsidiaries: (1) is duly organized, validly existing and in
good standing as a corporation under the laws of the jurisdiction of its
organization and is qualified to do business in each jurisdiction where its
ownership of property or conduct of business requires such qualification and
where failure to qualify would have a material adverse effect on the Company or
such Subsidiary or its property and/or business or on the ability of the Company
or such Subsidiary to pay or perform the L/C Obligations, (2) has the corporate
power and authority and the legal right to own and operate its property and to
conduct business in the manner in which it does and proposes so to do, and (3)
is in compliance with all Requirements of Law and Contractual Obligations, the
failure to comply with which could have a material adverse effect on the
business, operations, assets or financial or other condition of the Company or
the Company and its Subsidiaries taken as a whole.
6(d) Corporate Power; Authorization; Enforceable L/C
Obligations. The Company and each of its Subsidiaries has the corporate power
and authority and the legal right to execute, deliver and perform the L/C
Documents to which it is a party and has taken all necessary corporate action to
authorize the execution, delivery and
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performance of such L/C Documents. The L/C Documents to which the Company or any
of its Subsidiaries is party have been duly executed and delivered on behalf of
such Person and constitute legal, valid and binding obligations of such Person
enforceable against such Person in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally and the effect of equitable principles whether
applied in an action at law or a suit in equity.
6(e) No Legal Bar. The execution, delivery and performance of
the L/C Documents to which the Company or any of its Subsidiaries is party, the
borrowing under the Loan Agreement and the use of the proceeds thereof, will not
violate any Requirement of Law or any Contractual Obligation of the Company or
any of its Subsidiaries the violation of which could have a material adverse
effect on the business, operations, assets or financial or other condition of
the Company or the Company and its Subsidiaries taken as a whole or create or
result in the creation of any Lien on any assets of the Company or any of its
Subsidiaries.
6(f) No Material Litigation. Except as disclosed on Exhibit E
hereto, no litigation, investigation or proceeding of or before any arbitrator,
court or Governmental Authority is pending or, to the knowledge of the Company,
threatened by or against the Company or any of its Subsidiaries or against any
of such parties' properties or revenues which is likely to be adversely
determined and which, if adversely determined, is likely to have a material
adverse effect on the business, operations, property or financial or other
condition of the Company or the Company and its Subsidiaries taken as a whole.
6(g) Taxes. The Company and each of its Subsidiaries have
filed or caused to be filed all tax returns that are required to be filed and
have paid all taxes shown to be due and payable on said returns or on any
assessments made against them or any of their property other than taxes which
are being contested in good faith by appropriate proceedings and as to which the
Company or applicable Subsidiary has established adequate reserves in conformity
with GAAP.
6(h) Investment Company Act. The Company is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
6(i) Subsidiaries. Attached hereto as Exhibit F is an
accurate and complete list of the Subsidiaries, their respective jurisdictions
of incorporation and the percentage of their capital stock owned by the Company
or other Subsidiaries. All of the issued and outstanding shares of capital stock
of such Subsidiaries have been duly authorized and issued and are fully paid and
non-assessable.
6(j) Federal Reserve Board Regulations. Neither the Company
nor any of its Subsidiaries is engaged or will engage, principally or as one of
its important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective meanings of
such terms under Regulation U. No part of the proceeds of any funding under the
Loan Agreement or any L/C Drawing will be
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used for "purchasing" or "carrying" "margin stock" as so defined or for any
purpose which violates, or which would be inconsistent with, the provisions of
the Regulations of the Board of Governors of the Federal Reserve System.
6(k) ERISA. The Company and each of its Subsidiaries are in
compliance in all respects with the requirements of ERISA and no Reportable
Event has occurred under any Plan maintained by the Company or any of its
Subsidiaries which is likely to result in the termination of such Plan for
purposes of Title IV of ERISA.
6(l) Assets. The Company and each of its Subsidiaries has
good and marketable title to all property and assets reflected in the financial
statements dated the Interim Date referred to in Paragraph 6(a) above, except
property and assets sold or otherwise disposed of in compliance with Paragraph
8(h) below and otherwise in the ordinary course of business subsequent to the
Interim Date. Neither the Company nor any of its Subsidiaries has outstanding
Liens on any of its properties or assets nor are there any security agreements
to which the Company or any of its Subsidiaries is a party, or title retention
agreements, whether in the form of leases or otherwise, of any personal property
except as reflected in the financial statements referred to in Paragraph 6(a)
above or as permitted under Paragraph 8(a) below.
6(m) Securities Acts. The Company has not issued any
unregistered securities in violation of the registration requirements of Section
5 of the Securities Act of 1933, as amended, or any other law, and is not
violating any rule, regulation or requirement under the Securities Act of 1933,
as amended, or the Securities and Exchange Act of 1934, as amended. The Company
is not required to qualify an indenture under the Trust Indenture Act of 1939,
as amended, in connection with its execution and delivery of the L/C Documents.
6(n) Consents, Etc. No consent, approval, authorization of,
or registration, declaration or filing with any Governmental Authority or any
other Person is required on the part of the Company or any of its Subsidiaries
in connection with the execution and delivery of the L/C Documents or the
performance of or compliance with the terms, provisions and conditions hereof or
thereof other than such as have been obtained prior to or concurrently with the
occurrence of the Effective Date.
6(o) Copyrights, Patents, Trademarks and Licenses, etc. The
Company owns or is licensed or otherwise has the right to use all of the
patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of its business, without conflict with the rights of any other
Person. To the best knowledge of the Company, no slogan or other advertising
device, product, process, method, substance, part or other material now
employed, or now contemplated to be employed, by the Company infringes upon any
rights held by any other Person. Except as specifically disclosed in Exhibit E
hereto, no claim or litigation regarding any of the foregoing is pending or, to
the knowledge of the Company, threatened, and, to the knowledge of the Company,
no patent, invention, device, application, principle or any statute,
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law, rule, regulation, standard or code is pending or proposed, which, in either
case, could, reasonably be expected to have a material adverse effect on the
Company or any of its Subsidiaries.
6(p) Hazardous Materials. Except for incidents that (1) have
been fully remediated in accordance with all applicable Hazardous Materials
Laws; (2) would not violate Paragraph 7(j)(2) below if such circumstance
occurred subsequent to the date of this Agreement; or (3) are disclosed on
Exhibit E hereto, neither the Company nor, to the best knowledge of the Company,
any other Person has: (1) caused or permitted any Hazardous Materials to be
released or disposed of in, on, under or about any Property or any part thereof;
(2) caused or permitted to be incorporated into or utilized in the construction
of any improvements located on any Property any chemical, material, or substance
to which exposure is prohibited, limited or regulated by any Hazardous Materials
Laws or which, even if not so regulated, is known to pose a hazard (either in
its present form or if disturbed or removed) to the health and safety of the
occupants of or visitors to such Property or of property adjacent to such
Property; or (3) discovered the presence on or under any Property of any
underground tanks used for the storage of Hazardous Materials or any occurrence
or condition on any Property or any property adjacent to or in the vicinity of
such Property that could cause such Property or any part thereof to be subject
to any restrictions on the ownership, occupancy, transferability or use of such
Property under any Hazardous Materials Laws. The handling, storage, use and
generation of Hazardous Materials, other than petroleum products or consumer
products used in the ordinary course of business of each Property, is
substantially limited to the types of Hazardous Materials described in Exhibit
E.
6(q) Regulated Entities. The Company is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other Federal or state statute or regulation limiting its ability to incur
Indebtedness.
1. Affirmative Covenants. The Company hereby covenants and agrees
with the Agent, Issuing Bank and each Credit Support Provider that, as long the
Letter of Credit is Outstanding or any L/C Obligations remain unpaid, the
Company shall:
7(b) Financial Statements. Furnish or cause to be furnished
to the Agent and to each of the Credit Support Providers directly:
(1) Within ninety (90) days after the last day of each
fiscal year of the Company; (i) consolidated and consolidating
statements of income and statements of changes in financial position for
such year and balance sheets as of the end of such year presented fairly
in accordance with GAAP and accompanied by an unqualified report of
Deloitte & Touche LLP or another firm of independent certified public
accountants reasonably acceptable to the Agent, and (ii) a copy of the
Company's 10K filed with the Securities and Exchange Commission;
(2) Within forty five (45) days after the last day of
each fiscal quarter: (i) consolidated and consolidating statements of
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income and changes in financial position for such calendar quarter and
balance sheets as of the end of such calendar quarter of the Company and
its Subsidiaries, and (ii) a copy of the Company's 10Q filed with the
Securities and Exchange Commission for such quarter; and
(3) Concurrently with the delivery of each of the
financial statements delivered pursuant to subparagraph (1) and (2)
above a certificate of the chief financial officer of the Company
stating that such financial statements are presented fairly in
accordance with GAAP, confirming as of the last day of such fiscal
period the continuing accuracy and completeness of all representations
and warranties of the Company set forth in the L/C Documents or, with
respect to any representation and warranty made as of a specific date,
the accuracy and completeness as of such date, and that there does not
exist a Potential Default or an Event of Default hereunder.
7(a) Other Information. Promptly furnish or cause to be
furnished to the Agent (with the Agent providing the same to each of the Credit
Support Providers) such additional financial and other information, including,
without limitation, financial statements of the Company and the Guarantors as
the Agent or any Credit Support Provider (through the Agent) may from time to
time reasonably request, including, without limitation, such information as is
necessary to enable any Credit Support Provider to participate out any of its
interests in the L/C Obligations hereunder or to enable other financial
institutions to become signatories hereto.
7(b) Payment of Indebtedness. Itself, and shall cause each of
its Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity
or before it becomes delinquent, defaulted or accelerated, as the case may be,
all its Indebtedness (including taxes), except: (1) Indebtedness (other than the
L/C Obligations and the Adjunct Facility Obligations) being contested in good
faith and for which provision is made to the satisfaction of the Agent for the
payment thereof in the event the Company or such Subsidiary is found to be
obligated to pay such Indebtedness and which Indebtedness is thereupon promptly
paid by the Company or such Subsidiary, and (2) additional Indebtedness (other
than the L/C Obligations and the Adjunct Facility Obligations) in an amount not
to exceed $300,000.00 in the aggregate at any date outstanding.
7(c) Maintenance of Existence and Properties. Itself, and
shall cause each of its Subsidiaries to, maintain its corporate existence and
maintain all rights, privileges, licenses, approvals, franchises, properties and
assets necessary or desirable in the normal conduct of its business, and comply
with all Contractual Obligations and Requirements of Law the failure to comply
with which could have a material adverse effect on the business, operations,
assets or financial or other condition of the Company or the Company and its
Subsidiaries taken as a whole.
7(d) Inspection of Property; Books and Records; Discussions.
Itself, and shall cause each of its Subsidiaries to, keep proper books of record
and
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account in which full, true and correct entries in conformity with GAAP and all
Requirements of Law the failure to comply with which could have a material
adverse effect on the business, operations, assets or financial or other
condition of the Company or the Company and its Subsidiaries taken as a whole
shall be made of all dealings and transactions in relation to its business and
activities, and permit representatives of the Agent or any Credit Support
Provider (at no cost or expense to the Company or any Subsidiary and during
normal business hours (unless there shall have occurred and be continuing an
Event of Default)) to visit and inspect any of its properties and examine and
make abstracts from any of its books and records at any reasonable time and as
often as may reasonably be desired by the Agent or any Credit Support Provider
and to discuss the business, operations, properties and financial and other
condition of the Company and any of its Subsidiaries with officers and employees
of such parties, and with their independent certified public accountants.
7(e) Notices. Promptly give written notice to the Agent and
each of the Credit Support Providers directly of:
(1) The occurrence of any Potential Default or Event of
Default;
(2) Any litigation or proceeding affecting the Company
or any of its Subsidiaries which is likely to be resolved adversely and
which if resolved adversely could have a material adverse effect on the
business, operations, property, or financial or other condition of the
Company or the Company and its Subsidiaries taken as a whole;
(3) Any material adverse change in the business,
operations, property or financial or other condition of the Company or
the Company and its Subsidiaries taken as a whole; and
(4) Prior to the occurrence thereof, the formation of
any Subsidiary following the Effective Date.
7(a) Expenses. Pay all reasonable out-of-pocket expenses
(including fees and disbursements of counsel): (1) of the Agent and Issuing Bank
incident to the preparation, negotiation and administration of the L/C Documents
and the protection of the rights of the Credit Support Providers, Issuing Bank
and the Agent under the L/C Documents, and (2) of the Agent and Issuing Bank
and, following the occurrence of an Event of Default, each of the Credit Support
Providers incident to the enforcement of payment of the L/C Obligations, whether
by judicial proceedings or otherwise, including, without limitation, in
connection with bankruptcy, insolvency, liquidation, reorganization, moratorium
or other similar proceedings involving the Company or a "workout" of the L/C
Obligations. The obligations of the Company under this Paragraph 7(g) shall be
effective and enforceable whether or not the Letter of Credit is issued
hereunder and shall survive payment of all other L/C Obligations.
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7(b) L/C Documents. Comply with and observe all terms and
conditions of the L/C Documents.
7(c) Insurance. Obtain and maintain insurance with
responsible companies in such amounts and against such risks as are usually
carried by corporations engaged in similar businesses similarly situated, and
furnish any of the Credit Support Providers on request (made through the Agent)
full information as to all such insurance.
7(d) Hazardous Materials. Itself, and shall cause each of its
Subsidiaries to:
(1) Immediately advise the Agent in writing if (i) any
Hazardous Materials Claims are hereafter asserted; (ii) any quantity of
Hazardous Materials has been released, discharged, or disposed of on,
under, or from any Property, such release is reportable under applicable
Hazardous Materials Laws to any governmental agency or third party, and
such incident has not been previously disclosed to Agent; (iii) any
discharge, release, or disposal of any Hazardous Materials in, on, or
under any Property would, if remediation of such condition were required
by any applicable governmental agency with jurisdiction over such
Property, result in remediation costs in excess of $10,000.00; and (iv)
upon removal of any underground or aboveground tanks used to store any
Hazardous Materials, the characterization of any releases, discharges,
or disposal of any Hazardous Materials is required under applicable
Hazardous Materials Laws, and such characterization, and any material
updates required by any governmental agency with jurisdiction over such
incident, shall also be provided to Agent. Prior to the occurrence
thereof, the formation of any Subsidiary following the Effective Date.
(2) Use its best, commercially reasonable efforts to
keep and maintain each Property in compliance with, and not cause or
permit any Property to be in violation of, any Hazardous Material Laws,
and in all events shall ensure that in the event any discharge, release
or disposal of any Hazardous Materials has occurred in, on, under, or
about any Property that such incident: (i) does not have any material
adverse impact upon the ability of the operator of such Property to
continue to operate the Property in substantially the same manner as
occurred prior to the incident; and (ii) such operator complies with all
orders, notices and other directives of any and all governmental
agencies or authorities with jurisdiction over the incident, including,
without limitation, implementation of such remediation or abatement
measures as may be required by such agencies or may be reasonably
necessary to bring such Property into compliance with applicable
Hazardous Materials Laws.
7(a) Compliance with Laws. Itself, and shall cause each of
its Subsidiaries to, comply, in all material respects with all Requirements of
Law and Contractual Obligations the failure to comply with which could have a
material adverse effect on the business, operations, assets or financial or
other condition of the Company or the Company and its consolidated Subsidiaries
taken as a whole.
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1. Negative Covenants. The Company hereby agrees that, as long as
the Letter of Credit is Outstanding or any L/C Obligations remain unpaid, the
Company shall not, directly or indirectly:
8(b) Liens. And shall not permit any Subsidiary to, create,
incur, assume or suffer to exist any Lien upon any of its property and assets
except:
(1) Liens or charges for current taxes, assessments or
other governmental charges which are not delinquent or which remain
payable without penalty, or the validity of which are contested in good
faith by appropriate proceedings upon stay of execution of the
enforcement thereof, provided the Company or such Subsidiary, as
applicable, shall have set aside on its books and shall maintain
adequate reserves for the payment of same in conformity with GAAP;
(2) Liens, deposits or pledges made to secure statutory
obligations, surety or appeal bonds, or bonds to obtain, or to obtain
the release of, attachments, writs of garnishment or for stay of
execution, or to secure the performance of bids, tenders, contracts
(other than for the payment of borrowed money), leases or for purposes
of like general nature in the ordinary course of the business of the
Company or such Subsidiary;
(3) Purchase money security interests for property
hereafter acquired, conditional sale agreements, or other title
retention agreements, with respect to property hereafter acquired;
provided, however, that no such security interest or agreement shall
extend to any property other than the property acquired;
(4) Statutory Liens of landlord's, carriers,
warehousemen, mechanics, materialmen and other similar Liens imposed by
law and created in the ordinary course of business for amounts not yet
due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves are being
maintained in conformity with GAAP;
(5) Attachment and judgment Liens not otherwise
constituting an Event of Default any of which Liens are in existence
less than thirty (30) days after the entry thereof or with respect to
which execution has been stayed, payment is covered in full by
insurance, or the Company or such Subsidiary shall in good faith be
prosecuting an appeal or proceedings for review and shall have set aside
on its books such reserves as may be required by GAAP with respect to
such judgment or award;
(6) Liens incidental to the conduct of the business or
the ownership of the property of the Company or such Subsidiary which
were not incurred in connection with borrowed money and which do not in
the aggregate materially detract from the value of the property or
materially impair the use thereof in
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the operation of the business and which, in any event, do not secure
obligations aggregating in excess of $500,000.00; and
(7) Liens securing Other Permitted Secured Debt.
8(a) Indebtedness. And shall not permit any Subsidiary to,
create, incur, assume or suffer to exist, or otherwise become or be liable in
respect of any Indebtedness except:
(1) The L/C Obligations and the Adjunct Facility
Obligations;
(2) Indebtedness reflected in the financial statements
referred to in Paragraph 6(a) above;
(3) Trade debt incurred in the ordinary course of
business;
(4) Indebtedness secured by Liens permitted under
Paragraph 8(a) above; and
(5) Other Permitted Debt.
8(a) Consolidation and Merger. And shall not permit any
Subsidiary to, liquidate or dissolve or enter into any consolidation, merger
(other than in connection with a Permitted Acquisition and subject to the
Company being the surviving corporation and there not existing either prior to
or after giving effect to such merger an Event of Default or Potential Default),
partnership, joint venture (other than a partnership or joint venture in which
the investment of the Company or its Subsidiaries will not violate Paragraph
8(g) below), syndicate or other combination.
8(b) Acquisitions. And shall not permit any Subsidiary to,
purchase or acquire or incur liability for the purchase or acquisition of any or
all of the assets or business of any person, firm or corporation, other than
Permitted Acquisitions.
8(c) Payment of Dividends. Declare or pay any dividends upon
its shares of stock now or hereafter outstanding or make any distribution of
assets to its stockholders as such, whether in cash, property or securities,
except: (1) dividends payable in shares of capital stock and cash in lieu of
fractional shares or in options, warrants or other rights to purchase shares of
capital stock, and (2) provided that at the date of payment thereof there does
not exist an Event of Default or Potential Default, dividends in an aggregate
amount not to exceed $400,000.00 in any fiscal year (or following the conversion
of one hundred percent (100%) of the Subordinated Debt, $600,000.00).
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8(d) Purchase or Retirement of Stock. Acquire, purchase,
redeem or retire any shares of its capital stock now or hereafter outstanding in
excess in the aggregate from and after March 14, 1997 for a purchase price of
$3,000,000.00.
8(e) Investments; Advances. And shall not permit any
Subsidiary to, make or commit to make any advance, loan or extension of credit
(other than extensions of credit to customers in the ordinary course of business
and extensions of credit to the Guarantors) or capital contribution to, or
purchase any stock, bonds, notes, debentures or other securities of, or make any
other investment in, any Person (other than a Guarantor) which when taken in the
aggregate for the Company and its Subsidiaries with all similar transactions
from and after March 14, 1997 would exceed $5,000,000.00.
8(f) Sale of Assets. And shall not permit any Subsidiary to,
sell, lease, assign, transfer or otherwise dispose of any of its assets (other
than obsolete or worn out property or in connection with the discontinuance of
operations, any such discontinuance to be based upon a reasonable business
plan), whether now owned or hereafter acquired, other than in the ordinary
course of business as presently conducted and at fair market value.
8(g) Capital Expenditures. Make or commit to make Capital
Expenditures in excess of $3,000,000.00 during any fiscal year; provided,
however, that the limitation contained in this Paragraph 8(i) shall not apply to
Capital Expenditures associated with Permitted Acquisitions or funded with the
proceeds of the bond financing supported by the Letter of Credit.
8(h) Subordinated Debt. Make or permit to be made any
prepayment on account of the Subordinated Debt or, other than pursuant to
Section 12.2 of the Subordinated Debt Indenture, repurchase any debentures
evidencing any Subordinated Debt, or amend or consent to the amendment or waiver
of any term or provision of the Subordinated Debt Indenture without the prior
written consent of the Agent and one hundred percent (100%) of the Credit
Support Providers.
8(i) Restriction on Negative Pledges. Grant, enter into or
permit to remain in effect any agreement with any Person (other than the Agent,
Issuing Bank and the Credit Support Providers pursuant to Paragraph 8(a) above
and as provided in the Adjunct Facility Agreement) which would have the effect
of prohibiting or restricting in any manner the Company or any of its
Subsidiaries from granting to the Agent for the benefit of the Credit Support
Providers such Liens upon assets and properties of the Company and its
Subsidiaries as the Company, such Subsidiaries and the Credit Support Providers
might otherwise agree.
8(j) Formation of Additional Subsidiaries. Following the
Effective Date form or permit any Subsidiary to form any additional Subsidiary
other than additional Subsidiaries in which the investment of the Company and
its Subsidiaries does not violate Paragraph 8(g).
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8(k) Indenture Restrictions. Initiate or permit the
initiation of any voluntary redemption of Bonds or initiate or consent to or
acquiesce in any change in any Rate Period (as defined in the Indenture).
1. Events of Default. Upon the occurrence of any of the following
events (an "Event of Default"):
9(b) The Company shall fail to pay any L/C Drawing on the
date when due or fail to pay within five days of the date when due any other L/C
Obligation; or
9(c) Any representation or warranty made by the Company in
any L/C Document shall be inaccurate or incomplete in any material respect on or
as of the date made; or
9(d) The Company or any Guarantor shall fail to maintain its
corporate existence or shall default in the observance or performance of any
covenant or agreement contained in Paragraph 8 above; or
9(e) The Company shall fail to observe or perform any other
term or provision contained in the L/C Documents and such failure shall continue
for ten (10) days; or
9(f) There shall occur an Event of Default under (and as the
term "Event of Default" is defined in) the Adjunct Facility Agreement, whether
or not the lenders thereunder shall elect to accelerate the Adjunct Facility
Obligations or otherwise exercise rights, powers or remedies available with
respect thereto, or the Company or any Subsidiary shall default in any payment
of principal of or interest on any Indebtedness (other than the L/C Obligations
and the Adjunct Facility Obligations) in an aggregate amount in excess of
$1,000,000.00 or any other event shall occur, the effect of which is to permit
such Indebtedness to be declared or otherwise to become due prior to its stated
maturity; or
9(g) (1) The Company or any of its Subsidiaries, shall
commence any case, proceeding or other action (i) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (ii) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets, or the
Company or any of its Subsidiaries shall make a general assignment for the
benefit of its creditors; or (2) there shall be commenced against the Company or
any of its Subsidiaries, any case, proceeding or other action of a nature
referred to in clause (1) above which (i) results in the entry of an order for
relief or any such adjudication or appointment, or (ii) remains undismissed,
undischarged or unbonded for a period of thirty (30) days; or (3) there shall be
commenced against the Company or any of its Subsidiaries, any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or
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similar process against all or substantially all of its assets which results in
the entry of an order for any such relief which shall not have been vacated,
discharged, stayed, satisfied or bonded pending appeal within sixty (60) days
from the entry thereof; or (4) the Company or any of its Subsidiaries, shall
take any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in (other than in connection with a final settlement), any of the
acts set forth in clause (1), (2) or (3) above; or (5) the Company or any of its
Subsidiaries, shall generally not, or shall be unable to, or shall admit in
writing its inability to pay its debts as they become due; or
9(h) (1) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (2) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or nor waived, shall exist with respect to any
Plan, (3) a Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable Event or
institution of proceedings is, in the reasonable opinion of the Agent, likely to
result in the termination of such Plan for purposes of Title IV of ERISA, and,
in the case of a Reportable Event, the continuance of such Reportable Event
unremedied for ten days after notice of such Reportable Event pursuant to
Section 4043(a), (c) or (d) of ERISA is given or the continuance of such
proceedings for ten days after commencement thereof, as the case may be, (4) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA, (5) any
withdrawal liability to a Multiemployer Plan shall be incurred by the Company or
(6) any other event or condition shall occur or exist; and in each case in
clauses (1) through (6) above, such event or condition, together with all other
such events or conditions, if any, is likely to subject the Company or any of
its Subsidiaries to any tax, penalty or other liabilities in the aggregate
material in relation to the business, operations, property or financial or other
condition of the Company or the Company and its Subsidiaries taken as a whole;
or
9(i) One or more judgments or decrees shall be entered
against the Company or any of its Subsidiaries and such judgments or decrees
(other than decrees involving amounts in the aggregate of less than $100,000.00)
shall not have been vacated, discharged, stayed, satisfied or bonded pending
appeal within thirty (30) days from the entry thereof or in any event later than
five days prior to the date of any proposed sale thereunder; or
9(j) The Company shall voluntarily suspend the transaction of
business for more than five days in any calendar year commencing in fiscal year
1998; or
9(k) Any Guarantor shall fail to observe or perform any
provision of its Guaranty or shall attempt to rescind or revoke its Guaranty,
with respect to future transactions or otherwise;
THEN, automatically upon the occurrence of an Event of Default
under Paragraph 9(f) above, at the option of any Credit Support Provider upon
the occurrence of an Event of Default under Paragraph 9(a) above and, in all
other cases, at the option of the Majority
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Credit Support Providers, the aggregate contingent liability of the Company to
reimburse future L/C Drawings with respect to Outstanding Letter of Credit and
all other L/C Obligations shall become immediately due and payable, without
demand upon or presentment to the Company, which are expressly waived by the
Company and the Agent, Issuing Bank and the Credit Support Providers may
immediately exercise all rights, powers and remedies available to them at law,
in equity or otherwise, including, but not limited to, those rights, powers and
remedies provided under the Indenture. In the event that following the
occurrence of an Event of Default the aggregate contingent liability of the
Company to reimburse future L/C Drawings and other L/C Obligations shall become
due and payable as provided in the immediately preceding sentence, the Issuing
Bank shall provide prompt notice of such fact to the Trustee in the manner
provided in the Indenture. All amounts paid by the Company on account of the
aggregate contingent liability of the Company under Outstanding Letter of Credit
shall be held by the Agent as collateral security for the benefit of Issuing
Bank and the Credit Support Providers until the Letter of Credit is no longer
Outstanding and all unrepaid L/C Drawings and other L/C Obligations have been
paid in full with interest thereon as provided herein, the Company hereby being
automatically deemed to have granted to the Agent, Issuing Bank and the Credit
Support Providers a first priority, perfected security interest in all such
monies and to have authorized the Agent to debit such monies in satisfaction of
the obligation of the Company to repay L/C Drawings; provided, that, nothing
contained herein shall in any manner or to any extent affect the liability of
the Company with respect to L/C Drawings and other L/C Obligations in the event
for whatever reason the Agent does not so debit such monies on account thereof.
2. The Agent and Issuing Bank.
10(b) Appointment. Each Credit Support Provider hereby
irrevocably designates and appoints the Agent as the agent of such Credit
Support Provider under the L/C Documents and each such Credit Support Provider
hereby irrevocably authorizes the Agent, as the agent for such Credit Support
Provider, to take such action on its behalf under the provisions of the L/C
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of the L/C Documents, together with such
other powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary elsewhere in the L/C Documents, the Agent shall not have any
duties or responsibilities, except those expressly set forth herein or therein,
or any fiduciary relationship with any Credit Support Provider, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into the L/C Documents or otherwise exist against the Agent. The Company
shall pay to the Agent an agency fee in such amount and at such times as the
Agent and the Company may from time to time agree in writing.
10(c) Delegation of Duties. Each of the Agent and Issuing
Bank may execute any of its duties under the L/C Documents by or through agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Neither the Agent nor Issuing Bank shall be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
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10(d) Exculpatory Provisions. Neither the Agent, Issuing Bank
nor any of their respective officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (1) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
the L/C Documents (except for its or such Person's own gross negligence or
willful misconduct), or (2) responsible in any manner to any of the Credit
Support Providers for any recitals, statements, representations or warranties
made by the Company or any officer thereof contained in the L/C Documents or in
any certificate, report, statement or other document referred to or provided for
in, or received by the Agent or Issuing Bank under or in connection with the L/C
Documents or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of the L/C Documents or for any failure of the Company to perform
its obligations hereunder. Neither the Agent nor Issuing Bank shall be under any
obligation to any Credit Support Provider to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, the L/C Documents or to inspect the properties, books or records of the
Company.
10(e) Reliance by Agent and Issuing Bank. Each of the Agent
and Issuing Bank shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certification,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation reasonably believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Company), independent accountants and other
experts selected by the Agent and Issuing Bank. Each of the Agent and Issuing
Bank may deem and treat the payee of any note as the owner thereof for all
purposes. As to the Credit Support Providers: (1) each of the Agent and Issuing
Bank shall be fully justified in failing or refusing to take any action under
the L/C Documents unless it shall first receive such advice or concurrence of
the Majority Credit Support Providers or all of the Credit Support Providers, as
appropriate, or it shall first be indemnified to its satisfaction by the Credit
Support Providers ratably in accordance with their respective Percentage Shares
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any action (except for liabilities and expenses
resulting from the Agent's gross negligence or willful misconduct), and (2) each
of the Agent and Issuing Bank shall in all cases be fully protected in acting,
or in refraining from acting, under the L/C Documents in accordance with a
request of the Majority Credit Support Providers or all of the Credit Support
Providers, as appropriate, and such request and any action taken or failure to
act pursuant thereto shall be binding upon all the Credit Support Providers.
10(f) Notice of Default. Neither the Agent nor Issuing Bank
shall be deemed to have knowledge or notice of the occurrence of any Potential
Default or Event of Default hereunder unless such Person has received notice
from a Credit Support Provider or the Company referring to the L/C Documents,
describing such Potential Default or Event of Default and stating that such
notice is a "notice of default." In the event that the Agent or Issuing Bank
receives such a notice, such Person shall give notice thereof to the Credit
Support Providers. The Agent shall take such action with respect to such
Potential Default or Event of Default as shall be reasonably directed by the
Majority Credit Support Providers provided that such action is consistent with
the provisions of this Agreement; provided
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that, unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Potential Default or Event of Default as it
shall deem advisable in the best interest of the Credit Support Providers.
10(g) Non-Reliance. Each Credit Support Provider expressly
acknowledges that neither the Agent, Issuing Bank nor any of their respective
officers, directors, employees, agents, attorneys-in-fact or affiliates has made
any representations or warranties to it and that no act by the Agent or Issuing
Bank hereinafter taken, including any review of the affairs of the Company,
shall be deemed to constitute any representation or warranty by the Agent or
Issuing Bank to any Credit Support Provider. Each Credit Support Provider
represents to the Agent and Issuing Bank that it has, independently and without
reliance upon the Agent or any other Credit Support Provider, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, operations, property, financial and
other condition and creditworthiness of the Company and made its own decision to
enter into this Agreement. Each Credit Support Provider also represents that it
will, independently and without reliance upon the Agent, Issuing Bank or any
other Credit Support Provider, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Company. Except for notices, reports and other documents
expressly required to be furnished to the Credit Support Providers by the Agent
or Issuing Bank hereunder, neither the Agent or Issuing Bank shall have any duty
or responsibility to provide any Credit Support Provider with any credit or
other information concerning the business, operations, property, financial and
other condition or creditworthiness of the Company which may come into the
possession of the Agent, Issuing Bank or any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates.
10(h) Indemnification. The Credit Support Providers agree to
indemnify each of the Agent and Issuing Bank, acting in their respective
capacities as such (to the extent not reimbursed by the Company and without
limiting the obligation of the Company to do so), ratably according to the
respective amounts of their Percentage Shares, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the payment of the L/C
Obligations) be imposed on, incurred by or asserted against the Agent or Issuing
Bank in any way relating to or arising out of the L/C Documents or any documents
contemplated by or referred to herein or the transactions contemplated hereby or
any action taken or omitted by the Agent or Issuing Bank under or in connection
with any of the foregoing; provided that no Credit Support Provider shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's or Issuing Bank's gross negligence or willful
misconduct. The agreements in this subsection shall survive the payment of the
L/C Obligations.
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10(i) Individual Capacity. Each of the Agent, Issuing Bank
and their respective affiliates may make loans to, accept deposits from and
generally engage in any kind of business with the Company as though the Agent
were not the Agent hereunder and Issuing Bank were not Issuing Bank hereunder.
With respect to such loans made or renewed by them, each of the Agent and
Issuing Bank shall have the same rights and powers under the L/C Documents as
any Credit Support Provider and may exercise the same as though it were not the
Agent or Issuing Bank, and the terms "Credit Support Provider" and "Credit
Support Providers" shall include the Agent and Issuing Bank in their individual
capacities.
10(j) Successor Agent. The Agent may resign as Agent under
the L/C Documents upon sixty (60) days' notice to the Credit Support Providers
and agrees that it will so resign in the event it ceases to hold any Percentage
Share of the L/C Obligations. The Agent may be removed from such capacity in the
event the Credit Support Providers (other than the Agent) shall determine in
their reasonable business judgment that the Agent has consistently failed to
perform the obligations of the Agent hereunder. If the Agent shall resign or be
removed as provided herein, then the Credit Support Providers (other than the
Agent) shall appoint from among the Credit Support Providers a successor agent
or, if such Credit Support Providers are unable to agree on the appointment of a
successor agent, the Agent shall appoint a successor agent for the Credit
Support Providers (which successor agent shall, in either case and assuming that
there does not exist a Potential Default or Event of Default, be reasonably
acceptable to the Company), whereupon such successor agent shall succeed to the
rights, powers and duties of the Agent, and the term "Agent" shall mean such
successor agent effective upon its appointment, and the former Agent's rights,
powers and duties as Agent shall be terminated, without any other or further act
or deed on the part of such former Agent or any of the parties to this Agreement
or any of the L/C Documents or successors thereto. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Paragraph 10 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under the L/C Documents.
1. Miscellaneous Provisions.
11(b) No Assignment. The Company may not assign its rights or
obligations under this Agreement without the prior written consent of one
hundred percent (100%) of the Agent, Issuing Bank and the Credit Support
Providers. Subject to the foregoing, all provisions contained in this Agreement
or any document or agreement referred to herein or relating hereto shall inure
to the benefit of the Agent, Issuing Bank and each Credit Support Provider, its
successors and assigns, and shall be binding upon the Company, its successors
and assigns.
11(c) Amendment. This Agreement may not be amended or terms
or provisions hereof waived unless such amendment or waiver is in writing and
signed by the Majority Credit Support Providers, the Agent and the Company;
provided, however, that without the prior written consent of one hundred percent
(100%) of the Agent, Issuing Bank and the Credit Support Providers and (other
than with respect to subparagraph (3) below) the Company, no amendment or waiver
shall: (1) reduce the rate of interest or fees on, or
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modify the required amount or due date for, any L/C Drawing or any other L/C
Obligations, (2) extend, amend or replace the Letter of Credit, (3) modify any
Credit Support Provider's Percentage Share, (4) modify any provision of the L/C
Documents requiring one hundred percent (100%) of the Credit Support Providers
to act, (5) modify the definition of "Majority Credit Support Providers," (6)
release any Subsidiary from its obligations under its Guaranty or release any
collateral at any time held for the L/C Obligations, or (7) amend this Paragraph
11(b). It is expressly agreed and understood that the failure by the required
Credit Support Providers to elect to accelerate the contingent liability of the
Company with respect to the Outstanding Letter of Credit or to accelerate other
L/C Obligations hereunder and/or to participate in the extension or renewal of
the Letter of Credit shall not constitute an amendment or waiver of any term or
provision of this Agreement.
11(d) Cumulative Rights; No Waiver. The rights, powers and
remedies of the Agent, Issuing Bank and the Credit Support Providers hereunder
are cumulative and in addition to all rights, power and remedies provided under
any and all agreements between the Company and any of such Persons relating
hereto, at law, in equity or otherwise. Any delay or failure by the Agent,
Issuing Bank or the Credit Support Providers to exercise any right, power or
remedy shall not constitute a waiver thereof by such Persons, and no single or
partial exercise by any of such Persons of any right, power or remedy shall
preclude other or further exercise thereof or any exercise of any other rights,
powers or remedies.
11(e) Entire Agreement. This Agreement and the documents and
agreements referred to herein embody the entire agreement and understanding
between the parties hereto and supersede all prior agreements and understandings
relating to the subject matter hereof and thereof.
11(f) Survival. All representations, warranties, covenants
and agreements herein contained on the part of the Company shall survive the
termination of this Agreement and shall be effective until the L/C Obligations
are paid and performed in full or longer as expressly provided herein.
11(g) Notices. All notices given by any party to the others
shall be in writing unless otherwise provided for herein, delivered by facsimile
transmission, by personal delivery or by overnight courier, addressed to the
party as set forth on Schedule 1 attached hereto, as such Schedule 1 may be
amended from time to time. Any party may change the address to which notices are
to be sent by notice of such change to each other party given as provided
herein. Such notices shall be effective on the date received.
11(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California
without giving effect to its choice of law rules.
11(i) Counterparts. This Agreement and the other L/C
Documents may be executed in any number of counterparts, all of which together
shall constitute one agreement.
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11(j) Sharing of Payments. If any Credit Support Provider
shall receive and retain any payment, whether by setoff, application of deposit
balance or security, or otherwise, in respect of the L/C Obligations in excess
of such Credit Support Provider's Percentage Share thereof, then such Credit
Support Provider shall purchase from the other Credit Support Providers for cash
and at face value and without recourse, such participation in the L/C
Obligations held by them as shall be necessary to cause such excess payment to
be shared ratably as aforesaid with each of them; provided, that if such excess
payment or part thereof is thereafter recovered from such purchasing Credit
Support Provider, the related purchases from the other Credit Support Providers
shall be rescinded ratably and the purchase price restored as to the portion of
such excess payment so recovered, but without interest. Each Credit Support
Provider is hereby authorized by the Company to exercise any and all rights of
setoff, counterclaim or bankers' lien against the full amount of the L/C
Obligations, whether or not held by such Credit Support Provider. Each Credit
Support Provider hereby agrees to exercise any such rights first against the L/C
Obligations and only then to any other Indebtedness of the Company to such
Credit Support Provider.
11(k) Consent to Jurisdiction. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE
COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL
DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF
THE COMPANY, THE AGENT, ISSUING BANK AND THE CREDIT SUPPORT PROVIDERS CONSENTS,
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF
THOSE COURTS. EACH OF THE COMPANY, THE AGENT, ISSUING BANK AND THE CREDIT
SUPPORT PROVIDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE
COMPANY, THE AGENT, ISSUING BANK AND THE CREDIT SUPPORT PROVIDERS EACH WAIVE
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.
11(l) Waiver of Jury Trial. THE COMPANY, THE CREDIT SUPPORT
PROVIDERS, ISSUING BANK AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF
ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY
AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE CREDIT SUPPORT PROVIDERS AND
THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL
26
<PAGE> 27
WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT
THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION
AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
11(m) Indemnity. Whether or not the transactions contemplated
hereby are consummated, the Company shall indemnify and hold the Agent, Issuing
Bank and each Credit Support Provider and each of their respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including reasonable attorney's fees and
expenses, including the documented cost of internal counsel) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the L/C Obligations and the termination, resignation or replacement
of the Agent or replacement of Issuing Bank as issuer of the Letter of Credit or
any Credit Support Provider) be imposed on, incurred by or asserted against any
such Person in any way relating to or arising out of this Agreement or any
document contemplated by or referred to herein, or the transactions contemplated
hereby, or any action taken or omitted by any such Person under or in connection
with any of the foregoing, including with respect to any investigation,
litigation or proceeding (including any insolvency proceeding or appellate
proceeding) related to or arising out of this Agreement or the issuance, renewal
or modification of the Letter of Credit or the use of the proceeds of any
drawing under the Letter of Credit, whether or not any Indemnified Person is a
party thereto (all the foregoing, collectively, the "Indemnified Liabilities");
provided, however, that the Company shall have no obligation hereunder to any
Indemnified Person with respect to Indemnified Liabilities resulting from the
gross negligence or willful misconduct of such Indemnified Person. The
agreements in this Paragraph 11(l) shall survive payment of all other L/C
Obligations.
11(n) Marshalling; Payments Set Aside. Neither the Agent nor
the Credit Support Providers shall be under any obligation to marshall any
assets in favor of the Company or any other Person or against or in payment of
any or all of the L/C Obligations. To the extent that the Company makes a
payment or payments to the Agent or the Credit Support Providers (through the
Agent), or the Agent on behalf of the Credit Support Providers enforces their
Liens or exercise their rights of set-off, and such payment or payments or the
proceeds of such enforcement or set-off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
(including pursuant to any settlement entered into by the Agent in its
discretion) to be repaid to a trustee, receiver or any other party in connection
with any insolvency proceeding, or otherwise, then (1) to the extent of such
recovery the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or set-off had not occurred, and (2) each
Credit Support Provider severally agrees to pay to the
27
<PAGE> 28
Agent upon demand its ratable share of the total amount so recovered from or
repaid by the Agent.
11(o) Set-off. In addition to any rights and remedies of the
Credit Support Providers provided by law, if an Event of Default exists, each
Credit Support Provider is authorized at any time and from time to time, without
prior notice to the Company (but only with prior written notice to and the
written consent of the Agent at any time at which the L/C Obligations are
secured by any interest in real property), any such notice being waived by the
Company to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held by, and other indebtedness at any time owing to, such Credit Support
Provider to or for the credit or the account of the Company against any and all
L/C Obligations owing to such Credit Support Provider, now or hereafter
existing, irrespective of whether or not the Agent or such Credit Support
Provider shall have made demand under this Agreement or any L/C Document and
although such L/C Obligations may be contingent or unmatured. Each Credit
Support Provider agrees promptly to notify the Company and the Agent after any
such set-off and application made by such Credit Support Provider; provided,
however, that the failure to give such notice shall not affect the validity of
such set-off and application.
11(p) Severability. The illegality or unenforceability of any
provision of this Agreement or any other L/C Document or any instrument or
agreement required hereunder or thereunder shall not in any way affect or impair
the legality or enforceability of the remaining provisions hereof or thereof.
11(q) No Third Parties Benefited. This Agreement and the
other L/C Documents are made and entered into for the sole protection and legal
benefit of the Company, the Credit Support Providers, Issuing Bank and the
Agent, and their permitted successors and assigns, and no other Person shall be
a direct or indirect legal beneficiary of, or have any direct or indirect cause
of action or claim in connection with, this Agreement or any of the other L/C
Documents. Neither the Agent, Issuing Bank nor any Credit Support Provider shall
have any obligation to any Person not a party to this Agreement or other L/C
Documents other than, in the case of Issuing Bank, to the Trustee or other
beneficiary under the Letter of Credit.
11(r) Termination of Adjunct Facility Agreement In the event
the Adjunct Facility Agreement shall cease, for whatever reason, to be in full
force and effect at any time during which the Letter of Credit is Outstanding or
any L/C Obligations remain unpaid, all terms and provisions contained in the
Adjunct Facility Agreement at such time which are in addition to the terms and
provisions contained herein and in the other L/C Documents, including, without
limitation, any and all financial covenants and all requirements for delivery by
the Company of compliance certificates with respect thereto, shall be
automatically be deemed to be incorporated herein by this reference and made a
part of the terms and provisions of this Agreement to the fullest extent as if
set forth herein in their entirety.
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<PAGE> 29
1. Definitions. For purposes of this Agreement, the terms set
forth below shall have the following meanings:
"Adjunct Facility Agreement" shall mean the credit facility
evidenced by that certain Credit Agreement dated as of March 14, 1997 by and
among the Company, the lenders from time to time party thereto, including the
Credit Support Providers, and Sanwa, as agent, as the same may be amended,
extended and replaced from time to time.
"Adjunct Facility Obligations" shall mean the "Obligations" under
(and as that term is defined in) the Adjunct Facility Agreement.
"Affiliate" shall mean, as to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with, such Person. "Control" as used herein means with respect to
any business entity the power to direct the management and policies of such
business entity.
"Agent" shall have the meaning given such term in the
introductory paragraph hereof and shall include any successor to Sanwa as the
initial "Agent" hereunder.
"Agreement" shall mean this Agreement, as the same may be
amended, extended or replaced from time to time.
"Alternate Base Rate" shall mean the higher of: (a) the annual
rate of interest announced from time to time by BankBoston at its head office in
Boston, Massachusetts as its "base rate" and (b) one half of one percent (0.50%)
above the Effective Federal Funds Rate.
"Authority" shall have the meaning given such term in Recital A
above.
"Bonds" shall have the meaning given such term in Recital A
above.
"Business Day" shall mean any day other than a Saturday, a Sunday
or a day on which banks in Los Angeles, California or Boston, Massachusetts are
authorized or obligated to close their regular banking business.
"Capital Expenditures" shall mean, for any period, the aggregate
of all expenditures by the Company and its Subsidiaries for the acquisition or
leasing of fixed or capital assets or additions to equipment (including
replacements, capitalized repairs and improvements during such period) which
should be capitalized under GAAP on a consolidated balance sheet of the Company
and its Subsidiaries (excluding expenditures associated with the Leasehold
Improvement Term Loan (as defined in the Adjunct Facility Agreement)), less net
proceeds from sales of fixed or capital assets received by the Company or any of
its Subsidiaries during such period. For the purpose of this definition, the
purchase price of equipment which is purchased simultaneously with the trade-in
of existing equipment owned by the Company or any of its Subsidiaries or with
insurance proceeds shall be included in Capital Expenditures only to the extent
of the gross amount of such purchase price less the credit granted by the seller
of such
29
<PAGE> 30
equipment for such equipment being traded in at such time, or the amount of such
proceeds, as the case may be.
"Commonly Controlled Entity" of a Person shall mean a Person,
whether or not incorporated, which is under common control with such Person
within the meaning of Section 414(c) of the Internal Revenue Code.
"Contact Office" shall mean the office of the Agent located at
601 South Figueroa Street, W8-12, Los Angeles, California 90017 or such other
office as the Agent may notify the Company, Issuing Bank and the Credit Support
Providers from time to time in writing.
"Contractual Obligation" as to any Person shall mean any
provision of any security issued by such Person or of any agreement, instrument
or undertaking to which such Person is a party or by which it or any of its
property is bound.
"Effective Date" shall mean the date on which all conditions
precedent to the issuance of the Letter of Credit set forth in Paragraph 5(a)
above have been met to the satisfaction of the Agent, Issuing Bank and the
Credit Support Providers.
"Effective Federal Funds Rate" shall mean on any date the rate
per annum equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (of if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York or,
if such rate is not so published for any day that is a Business Day, the average
of the quotations for such day on such transactions received by the Agent from
three funds brokers of recognized standing selected by the Agent.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may from time to time be supplemented or amended.
"Event of Default" shall have the meaning given such term in
Paragraph 9 above.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Guarantors" shall mean, collectively and severally, each of the
Subsidiaries of the Company which executes and delivers a Guaranty as required
pursuant to Paragraph 4(a) above.
"Guaranty" shall have the meaning given such term in Paragraph
4(a) above.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Hazardous Materials" shall mean:
30
<PAGE> 31
(a) "Hazardous substances", "hazardous wastes," "hazardous
materials," or "toxic substances," as defined in any of the Hazardous Material
Laws;
(b) Any pollutant or contaminant, or hazardous, dangerous
or toxic chemical, material, waste or substance ("pollutant") which Hazardous
Material Laws prohibit, limit or otherwise regulate as to use, exposure,
release, generation, manufacture, sale, transport, handling, storage, treatment,
reuse, presence, disposal or recycling;
(c) Petroleum, crude oil or any fraction of petroleum or
crude oil;
(d) Any radioactive material, including any source,
special nuclear or by-product material, as defined at 42 U.S.C. Section 2011 et
seq., and amendments thereto and reauthorizations thereof;
(e) Asbestos-containing materials in any form or
condition; and
(f) Polychlorinated biphenyls.
"Hazardous Materials Claims" shall mean any enforcement, cleanup,
removal or other governmental or regulatory action or order with respect to the
Property, pursuant to any Hazardous Materials Laws, and/or any claim asserted in
writing by any third party relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Materials.
"Hazardous Materials Laws" shall mean any applicable federal,
state or local laws, ordinances or regulations relating to Hazardous Materials.
"Indebtedness" of any Person shall mean all items of indebtedness
which, in accordance with GAAP and practices, would be included in determining
liabilities as shown on the liability side of a statement of condition of such
Person as of the date as of which indebtedness is to be determined, including,
without limitation, all obligations for money borrowed and capitalized lease
obligations, and shall also include all indebtedness and liabilities of others
assumed or guaranteed by such Person or in respect of which such Person is
secondarily or contingently liable (other than by endorsement of instruments in
the course of collection) whether by reason of any agreement to acquire such
indebtedness or to supply or advance sums or otherwise, including, without
limitation, reimbursement obligations with respect to letters of credit issued
for the account of such Person.
"Interim Date" shall mean December 31, 1997.
"L/C Documents" shall mean this Agreement, the Letter of Credit,
all Letter of Credit Applications, the Guaranties and any and all other
documents, instruments and agreements executed by the Company or any of the
Guarantors in connection herewith or therewith, as any of the same may be
amended, extended or replaced from time to time.
"L/C Drawing" shall mean any drawing under a Letter of Credit.
31
<PAGE> 32
"L/C Obligations" shall mean any and all debts, obligations and
liabilities of the Company to the Agent, Issuing Bank and the Credit Support
Providers (whether now existing or hereafter arising, voluntary or involuntary,
whether or not jointly owed with others, direct or indirect, absolute or
contingent, liquidated or unliquidated, and whether or not from time to time
decreased or extinguished and later increased, created or incurred), arising out
of or related to the L/C Documents.
"Letter of Credit" shall have the meaning given such term in
Recital D above.
"Letter of Credit Application" shall mean any application for the
issuance, amendment, renewal or replacement of the Letter of Credit, which
Issuing Bank may from time to time require be executed and delivered by the
Company in connection with any such issuance, amendment, renewal or replacement.
"Lien" shall mean any security interest, mortgage, pledge, lien,
claim on property, charge or encumbrance (including any conditional sale or
other title retention agreement), any lease in the nature thereof, and the
filing of or agreement to give any financial statement under the Uniform
Commercial Code of any jurisdiction.
"Loan Agreement" shall have the meaning given such term in
Recital A above.
"Majority Credit Support Providers" shall mean the Credit Support
Providers holding not less than sixty-six percent (66%) of the Percentage
Shares; provided, however, that at any time during which the number of Credit
Support Providers hereunder are less than three, the term "Majority Credit
Support Providers" shall mean one hundred percent (100%) of the Credit Support
Providers.
"Multiemployer Plan" as to any Person shall mean a Plan of such
Person which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"Other Permitted Debt" shall mean Indebtedness described on
Exhibit G attached hereto.
"Other Permitted Secured Debt" shall mean Indebtedness described
as such on Exhibit G attached hereto.
"Outstanding" shall mean with respect to the Letter of Credit,
the Letter of Credit when it has not been canceled, expired unutilized or fully
drawn upon and reference to the "amount" of the Outstanding Letter of Credit
shall be deemed to mean the amount available for drawing thereunder.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any successor
thereto.
"Percentage Share" shall mean, for any Credit Support Provider at
any date that percentage set forth as such on Schedule 2 attached hereto, as
said Schedule 2 may be modified
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<PAGE> 33
from time to time with the consent of one hundred percent (100%) of the Credit
Support Providers.
"Permitted Acquisition" shall mean an acquisition by the Company
as to which each of the following statements is accurate and complete (and the
Company by delivering a Loan Request for an Acquisition Loan the proceeds of
which will be utilized to fund such acquisition being automatically deemed to so
represent and warrant to the Agent and the Credit Support Providers):
(a) The business and/or assets being acquired is or are
consistent with the Company's current business activities;
(b) After consummation of the subject acquisition and
after giving effect to the allocation of the purchase price and projected
revenues, expenses and interest expense, the Company will be in full compliance
with all terms and conditions of this Agreement, including, without limitation,
all financial covenants contained herein; and
(c) The Agent, Issuing Bank and the Credit Support
Providers have consented to such acquisition in their sole and absolute
discretion.
"Person" shall mean any corporation, natural person, firm, joint
venture, partnership, limited liability company, trust, unincorporated
organization, government or any department or agency of any government.
"Plan" shall mean as to any Person, any pension plan that is
covered by Title IV of ERISA and in respect of which such Person or a Commonly
Controlled Entity of such Person is an "employer" as defined in Section 3(5) of
ERISA.
"Potential Default" shall mean an event which but for the lapse
of time or the giving of notice, or both, would constitute an Event of Default.
"Prime Rate" shall mean the floating per annum interest rate
announced publicly from time to time by the Agent at the Contact Office as its
"prime rate".
"Property" shall mean, collectively and severally, any and all
real property, including all improvements and fixtures thereon, owned or
occupied by the Company or any of its Subsidiaries.
"Regulation D" shall mean Regulation D of the Board of Governors
of the Federal Reserve System (12 C.F.R. Section 221), as the same may from time
to time be amended, supplemented or superseded.
"Reportable Event" shall mean a reportable event as defined in
Title IV of ERISA, except actions of general applicability by the Secretary of
Labor under Section 110 of ERISA.
"Requirements of Law" shall mean as to any Person the Certificate
of Incorporation and ByLaws or other organizational or governing documents of
such Person, and
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<PAGE> 34
any law, treaty, rule or regulation, or a final and binding determination of an
arbitrator or a determination of a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Single Employer Plan" shall mean as to any Person any Plan of
such Person which is not a Multiemployer Plan.
"Statement Date" shall mean June 30, 1997.
"Subordinated Debt" shall mean those $25,000,000 7-3/4%
Convertible Subordinated Debentures due February 1, 2006 issued by the Company
pursuant to the Subordinated Debt Indenture.
"Subordinated Debt Indenture" shall mean that certain Indenture
dated as of January 30, 1996 between the Company and IBJ Schroder Bank & Trust
Company, as Trustee, pursuant to which the Subordinated Debt was issued.
"Subsidiary" shall mean with respect to any Person, any
corporation more than fifty percent (50%) of the stock of which having by the
terms thereof ordinary voting power to elect the board of directors, managers or
trustees of such corporation shall, at the time as of which any determination is
being made, be owned by such Person, either directly or through Subsidiaries of
such Person (irrespective of whether or not at the time stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.
MERCURY AIR GROUP, INC.,
a New York corporation
By:_________________________________
Name:_______________________________
Title:______________________________
SANWA BANK CALIFORNIA, as Agent
and as a Credit Support Provider
By _________________________________
Name _______________________________
Title ______________________________
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BANKBOSTON, N.A., as Issuer of the Letter of
Credit and as a Credit Support Provider
By___________________________________________
Name_________________________________________
Title _______________________________________
MELLON BANK, N.A., as a Credit Support
Provider
By___________________________________________
Name_________________________________________
Title _______________________________________
35
<PAGE> 36
SCHEDULE OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT
------- --------
<S> <C>
A Form of Letter of Credit
B Form of Guaranty
C Form of Officer's Certificate
D Form of Required Opinion of Counsel
E Litigation and Environmental Schedule
F Schedule of Subsidiaries
G Schedule of Permitted Other Debt and Permitted Other Secured Debt
Schedule 1: Schedule of Addresses for Notice Purposes
Schedule 2: Schedule of Initial Percentage Shares
</TABLE>
36
<PAGE> 37
EXHIBIT A
FORM OF LETTER OF CREDIT
[TO BE PROVIDED BY BANKBOSTON AND APPROVED BY THE AGENT]
37
<PAGE> 38
EXHIBIT B
FORM OF GUARANTY
[TO BE PROVIDED BY MORRISON & FOERSTER]
38
<PAGE> 39
EXHIBIT C
FORM OF OFFICER'S CERTIFICATE
[TO BE PROVIDED BY MORRISON & FOERSTER]
39
<PAGE> 40
EXHIBIT D
FORM OF REQUIRED OPINION OF COUNSEL
[FORM TO BE PROVIDED BY MORRISON & FOERSTER]
40
<PAGE> 41
EXHIBIT E
LITIGATION AND ENVIRONMENTAL SCHEDULE
[TO BE PROVIDED BY THE COMPANY AND APPROVED BY THE AGENT]
41
<PAGE> 42
EXHIBIT F
SCHEDULE OF SUBSIDIARIES
[FORM TO BE PROVIDED BY THE COMPANY]
42
<PAGE> 43
EXHIBIT G
SCHEDULE OF PERMITTED OTHER DEBT AND PERMITTED OTHER SECURED DEBT
[TO BE PROVIDED BY THE COMPANY AND APPROVED BY
THE AGENT AND THE LENDERS]
43
<PAGE> 1
EXHIBIT 10.3
LOAN AGREEMENT
Between
CALIFORNIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY
and
MERCURY AIR GROUP, INC.
relating to
$19,000,000
California Economic Development Financing Authority
Variable Rate Demand Airport Facilities Revenue Bonds, Series 1998
(Mercury Air Group, Inc. Project)
Dated as of April 1, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITION OF TERMS.................................................2
SECTION 1.2. NUMBER AND GENDER...................................................2
SECTION 1.3. ARTICLES, SECTIONS, ETC.............................................2
ARTICLE II
REPRESENTATIONS
SECTION 2.1. REPRESENTATIONS OF THE AUTHORITY....................................2
SECTION 2.2. REPRESENTATIONS OF THE BORROWER.....................................3
ARTICLE III
ISSUANCE OF THE BONDS; APPLICATION OF
PROCEEDS/CONSTRUCTION OF PROJECT FACILITIES
SECTION 3.1. AGREEMENT TO ISSUE BONDS; APPLICATION OF BOND
PROCEEDS............................................................4
SECTION 3.2. INVESTMENT OF MONEYS IN FUNDS.......................................4
SECTION 3.3. AGREEMENT TO CONSTRUCT THE PROJECT..................................4
SECTION 3.4. DISBURSEMENTS FROM THE 1998 CONSTRUCTION FUND;
DISBURSEMENTS FROM THE 1998 COSTS OF ISSUANCE FUND..................5
SECTION 3.5. ESTABLISHMENT OF COMPLETION DATE; OBLIGATION OF
BORROWER TO COMPLETE...............................................6
ARTICLE IV
LOAN TO BORROWER; REPAYMENT PROVISIONS
SECTION 4.1. LOAN TO BORROWER....................................................7
SECTION 4.2. REPAYMENT AND PAYMENT OF OTHER AMOUNTS PAYABLE......................7
SECTION 4.3. UNCONDITIONAL OBLIGATION............................................8
SECTION 4.4. ASSIGNMENT OF AUTHORITY'S RIGHTS....................................9
SECTION 4.5. AMOUNTS REMAINING IN FUNDS..........................................9
SECTION 4.6. CREDIT FACILITY.....................................................0
</TABLE>
1
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE V
SPECIAL COVENANTS AND AGREEMENTS
SECTION 5.1. RIGHT OF ACCESS TO THE PROJECT......................................1
SECTION 5.2. THE BORROWER'S MAINTENANCE OF ITS EXISTENCE;
ASSIGNMENTS.........................................................2
SECTION 5.3. RECORDS AND FINANCIAL STATEMENTS OF BORROWER........................3
SECTION 5.4. MAINTENANCE AND REPAIR; TAXES; UTILITY AND OTHER
CHARGES; INSURANCE..................................................3
SECTION 5.5. QUALIFICATION IN CALIFORNIA.........................................3
SECTION 5.6. TAX-EXEMPT STATUS OF INTEREST ON BONDS..............................4
SECTION 5.7. NOTICE OF RATE PERIODS..............................................5
SECTION 5.8. REMARKETING OF THE BONDS............................................5
SECTION 5.9. CONTINUING DISCLOSURE...............................................5
ARTICLE VI
DAMAGE, DESTRUCTION AND CONDEMNATION;
CONTINUATION OF PAYMENT
SECTION 6.1. OBLIGATION TO CONTINUE PAYMENTS.....................................6
SECTION 6.2. DAMAGE TO OR CONDEMNATION OF OTHER PROPERTY.........................6
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.1. EVENTS OF DEFAULT...................................................6
SECTION 7.2. REMEDIES ON DEFAULT.................................................7
SECTION 7.3. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES.......................8
SECTION 7.4. NO REMEDY EXCLUSIVE.................................................9
SECTION 7.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER..........................9
ARTICLE VIII
PREPAYMENT
SECTION 8.1. REDEMPTION OF BONDS WITH PREPAYMENT MONEYS..........................9
</TABLE>
2
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 8.2. OPTIONS TO PREPAY INSTALLMENTS......................................9
SECTION 8.3. MANDATORY PREPAYMENT................................................9
SECTION 8.4. AMOUNT OF PREPAYMENT................................................0
SECTION 8.5. NOTICE AND DATE OF PREPAYMENT.......................................0
ARTICLE IX
NONLIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION
SECTION 9.1. NONLIABILITY OF AUTHORITY...........................................1
SECTION 9.2. EXPENSES............................................................1
SECTION 9.3. INDEMNIFICATION.....................................................1
ARTICLE X
MISCELLANEOUS
SECTION 10.1. NOTICES.............................................................2
SECTION 10.2. SEVERABILITY........................................................2
SECTION 10.3. EXECUTION OF COUNTERPARTS...........................................3
SECTION 10.4. AMENDMENTS, CHANGES AND MODIFICATIONS...............................3
SECTION 10.5. GOVERNING LAW; VENUE................................................3
SECTION 10.6. AUTHORIZED BORROWER REPRESENTATIVE..................................3
SECTION 10.7. TERM OF THE AGREEMENT...............................................3
SECTION 10.8. BINDING EFFECT......................................................3
SECTION 10.9. CREDIT PROVIDER.....................................................3
EXHIBIT A Description of the Project Facilities
</TABLE>
3
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of April 1, 1998 (this "Agreement"), by
and between the CALIFORNIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY, a public
instrumentality and political subdivision of the State of California (herein
called the "Authority"), and MERCURY AIR GROUP, INC., a corporation organized
and existing under the laws of the State of New York (the "Borrower"),
W I T N E S S E T H :
WHEREAS, the Authority was established for the purpose of promoting
and encouraging commerce and industry, and generally to foster economic
development in the State of California (the "State") and is authorized, among
other things, to issue tax-exempt revenue bonds to provide financing for private
economic development projects pursuant to Part 10.2 of Division 3 of Title 2 of
the California Government Code (commencing at Section 15710), as now in effect
and as it may from time to time hereafter be amended or supplemented (the
"Act"); and
WHEREAS, in order to further the purposes of the Act, the Authority
plans to undertake the financing of a portion of the cost of the constructing,
equipping, installing, improving and furnishing of certain airport facilities
(the "Project") located at the Burbank Glendale Pasadena Airport in Burbank,
California (the "Burbank Facility") and at the Los Angeles International Airport
in Los Angeles, California (the "Los Angeles Facility" and collectively with the
Burbank Facility, the "Project Facilities"), as described in Exhibit A hereto;
and
WHEREAS, the Project is a qualifying "project" under the Act, the
Authority intends to issue its $19,000,000 Variable Rate Demand Airport
Facilities Revenue Bonds, Series 1998 (Mercury Air Group, Inc. Project) (the
"Bonds") and to loan the proceeds of the sale of the Bonds to Mercury Air Group,
Inc. (the "Borrower") to assist in the financing of the Project pursuant to this
Agreement, as evidenced by a resolution of the Authority expressing its intent
to issue the Bonds adopted February 25, 1998; and
WHEREAS, the real property upon which the Project Facilities shall be
constructed, improved, installed and furnished shall be owned by the
governmental owner of the airport at which the Project Facility is to be
located; and
WHEREAS, the Bonds will be issued under the terms of an Indenture of
Trust (the "Indenture") of even date herewith, between the Authority and U.S.
Bank Trust National Association, a national banking association as trustee (the
"Trustee"); and
WHEREAS, the Borrower's obligations to repay the loan are evidenced by
this Agreement;
NOW, THEREFORE, in consideration of the premises and the respective
representations and covenants herein contained, the parties hereto agree as
follows:
<PAGE> 6
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITION OF TERMS. Unless the context otherwise
requires, the terms used in this Agreement shall have the meanings specified in
Section 1.01 of the Indenture (defined above), pursuant to which the Bonds will
be issued, as originally executed or as it may from time to time be supplemented
or amended as provided therein.
SECTION 1.2. NUMBER AND GENDER. The singular form of any word used
herein, including the terms defined in Section 1.01 of the Indenture, shall
include the plural, and vice versa. The use herein of a word of any gender shall
include all genders.
SECTION 1.3. ARTICLES, SECTIONS, ETC. Unless otherwise specified,
references to Articles, Sections and other subdivisions of this Agreement are to
the designated Articles, Sections and other subdivisions of this Agreement as
originally executed. The words "hereof," "herein," "hereunder" and words of
similar import refer to this Agreement as a whole. The headings or titles of the
several articles and sections, and the table of contents appended to copies
hereof, shall be solely for convenience of reference and shall not affect the
meaning, construction or effect of the provisions hereof.
ARTICLE II
REPRESENTATIONS
SECTION 2.1. REPRESENTATIONS OF THE AUTHORITY. The Authority makes the
following representations as the basis for its undertakings herein contained:
(a) The Authority is a body public and corporate and a public
instrumentality of the State, duly created and existing under the laws of the
State. Under the provisions of the Act, the Authority has the power to enter
into the transactions contemplated by this Agreement and to carry out its
obligations hereunder. By proper action, the Authority has been duly authorized
to execute, deliver and duly perform this Agreement and the Indenture.
(b) The Authority is not in default under any of the provisions of the
laws of the State which would affect its existence or its powers referred to in
subsection (a) above.
(c) To finance the cost of the Project, the Authority will issue the
Bonds which will mature, bear interest and be subject to redemption as set forth
in the Indenture. The Bonds will be issued under and secured by the Indenture,
pursuant to which the Authority's interest in this Agreement (except certain
rights of the Authority to receive notices hereunder, to receive payment for
expenses and indemnification and certain other payments hereunder, and to give
approvals or consents hereunder) will be pledged to the Trustee as security for
payment of the principal of, premium, if any, and interest on the Bonds.
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(d) The Authority has not pledged and will not pledge its interest in
this Agreement for any purpose other than to secure the Bonds under the
Indenture.
(e) The Authority has found and determined and hereby finds and
determines that all requirements of the Act with respect to the issuance of the
Bonds and the execution of this Agreement and the Indenture have been complied
with and that financing the Project by issuing the Bonds and entering into this
Agreement and the Indenture will be in furtherance of the purposes of the Act.
(f) On February 25, 1998, the Authority adopted its resolution
authorizing the issuance of the Bonds in an aggregate principal amount not to
exceed $19,000,000.
(g) No member, officer or other official of the Authority has any
interest whatsoever in the Borrower or in the transactions contemplated by this
Agreement.
(h) No allocation of a share of the State ceiling for private activity
bonds is required in connection with the issuance of the Bonds.
SECTION 2.2. REPRESENTATIONS OF THE BORROWER. The Borrower makes the
following representations as the basis for its undertakings herein contained:
(a) The Borrower is a New York corporation duly formed under the laws
of the State of New York, is qualified to do business in the State, is in good
standing in the State, and has the power to enter into and has duly authorized,
by proper corporate action, the execution and delivery of this Agreement and all
other documents contemplated hereby to be executed by the Borrower.
(b) Neither the execution and delivery of this Agreement, the
Remarketing Agreement, the Credit Agreement, the consummation of the
transactions contemplated hereby and thereby, nor the fulfillment of or
compliance with the terms and conditions hereof and thereof, conflicts with or
results in a breach of any of the terms, conditions or provisions of the
Borrower's Articles of Incorporation or Bylaws or of any corporate actions or of
any material agreement or instrument to which the Borrower is now a party or by
which it is bound, or constitutes a default (with due notice or the passage of
time or both) under any of the foregoing, or results in the creation or
imposition of any prohibited lien, charge or encumbrance whatsoever upon any of
the property or assets of the Borrower under the terms of any material
instrument or agreement to which the Borrower is now a party or by which it is
bound.
(c) The Project consists and will consist of those facilities
described in Exhibit A hereto, and, to the extent within its control, for so
long as it leases or operates the Project, the Borrower shall make no changes to
the Project or to the operation thereof which would affect the qualification of
the Project as a "project" under the Act. The Borrower shall comply with all
requirements set forth in the Tax Certificate.
(d) To the extent necessary to preserve the security for the Bonds and
the Tax-Exempt status of interest on the Bonds, all material certificates,
approvals, permits and
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authorizations of agencies of applicable local governmental agencies, the State
and the federal government have been or will be obtained with respect to the
construction of the Project Facilities and pursuant to such certificates,
approvals, permits and authorizations the Project Facilities have been or will
be constructed and are or will be in operation.
(e) To the best knowledge of the Borrower, no member, officer or other
official of the Authority has any interest whatsoever in the Borrower or in the
transactions contemplated by this Agreement.
(f) The Costs of the Project are as set forth in the Tax Certificate
dated the Issue Date and have been determined in accordance with standard
engineering/construction and accounting principles. All the information and
representations in the Tax Certificate are true and correct as of the date
thereof.
(g) No event has occurred and no condition exists which would
constitute an Event of Default (as defined in the Indenture) or which, with the
passing of time or with the giving of notice or both would become such an Event
of Default.
ARTICLE III
ISSUANCE OF THE BONDS; APPLICATION OF PROCEEDS/
CONSTRUCTION OF PROJECT FACILITIES
SECTION 3.1. AGREEMENT TO ISSUE BONDS; APPLICATION OF BOND PROCEEDS.
To provide funds to finance the Project, the Authority agrees that it will issue
under the Indenture, sell and cause to be delivered to the purchasers thereof,
the Bonds. The Authority will thereupon apply the proceeds received from the
sale of the Bonds as provided in the Indenture.
SECTION 3.2. INVESTMENT OF MONEYS IN FUNDS. Any moneys in any fund
held by the Trustee shall, to the extent permitted under the Indenture, at the
written request of an Authorized Borrower Representative, be invested or
reinvested by the Trustee as provided in the Indenture. Such investments shall
be deemed at all times a part of the fund from which such investments were made,
and the interest accruing thereon and any profit or loss realized therefrom
shall, except as otherwise provided in the Indenture, be credited or charged to
such fund.
SECTION 3.3. AGREEMENT TO CONSTRUCT THE PROJECT. The Borrower agrees
that it will equip, construct, rehabilitate and install, or complete the
construction, equipping, rehabilitation and installation of, the Project, and
will equip, construct, rehabilitate and install all other facilities and real
and personal property deemed necessary for the operation of the Project,
substantially in accordance with the description of the Project prepared by the
Borrower and approved by the Authority, including any and all supplements,
amendments and additions or deletions thereto or therefrom, it being understood
that the approval of the Authority shall not be required for changes in such
description which do not substantially alter the purpose
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and description of the Project as set forth in Exhibit A hereto. The Borrower
further agrees to proceed with due diligence to complete the Project within
three years from the date hereof.
In the event that the Borrower desires to alter or change the Project,
and such alteration or change substantially alters the purpose and description
of the Project as described in Exhibit A hereto, the Authority will enter into,
and will instruct the Trustee to consent to, such amendment or supplement to
Exhibit A as shall be required to reflect such alteration or change to the
Project upon receipt of:
(i) a certificate of the Authorized Borrower Representative
describing in detail the proposed changes and stating that they will
not have the effect of disqualifying the Project as facilities that
may be financed pursuant to the Act;
(ii) a copy of the proposed form of amended or supplemented
Exhibit A hereto; and
(iii) an opinion of Bond Counsel that such proposed changes will
not adversely affect the Tax-Exempt status of interest on the Bonds.
SECTION 3.4. DISBURSEMENTS FROM THE 1998 CONSTRUCTION FUND;
DISBURSEMENTS FROM THE 1998 COSTS OF ISSUANCE FUND.
(a) The Borrower will authorize and direct the Trustee, upon
compliance with Section 3.03 of the Indenture, to disburse the moneys in the
Construction Fund to or on behalf of the Borrower only for the following
purposes (and not for Costs of Issuance), subject to the provisions of Section
3.5 hereof:
(i) Payment to the Borrower of such amounts, if any, as shall be
necessary to reimburse the Borrower in full for all advances and
payments made by it, at any time prior to or after the delivery of the
Bonds, in connection with (A) the preparation of plans and
specifications for the Project (including any preliminary study or
planning of the Project or any aspect thereof) and (B) subject to any
limitation imposed by subsection (vi) hereof, the equipping,
construction, rehabilitation and installation of the Project.
(ii) Payment for labor, services, materials and supplies used by
or furnished to the Borrower to improve the site and to equip,
construct and install the Project, as provided in the plans,
specifications and work orders therefor; payment of the costs of
equipping, constructing, and installing utility services or other
related facilities; payment of the costs of all personal property
deemed necessary to construct the Project; insurance during the
construction period; and payment of the miscellaneous expenses
incidental to any of the foregoing items.
(iii) Payment of the fees, if any, of architects, engineers,
legal counsel and supervisors expended in connection with the leasing,
equipping, construction, rehabilitation and installation of the
Project.
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(iv) Payment of taxes including rent, property taxes, assessments
and other charges, if any, that may become payable during the
construction period with respect to the Project, or reimbursement
thereof, if paid by the Borrower.
(v) Payment of expenses incurred in seeking to enforce any remedy
against any developer, contractor or subcontractor in respect of any
default under a contract relating to the equipping, construction,
rehabilitation or installation of the Project.
(vi) Payment of any other Costs of the Project permitted by the
Tax Certificate (including, without limitation, interest accruing on
the Bonds during the construction period of the Project and
reimbursing the Borrower for financing the Costs of the Project, but
not including any Costs of Issuance).
All moneys remaining in the Construction Fund after the Completion
Date and after payment or provision for payment of all other items provided for
in the preceding subsections (i) to (vi), inclusive, of this Section, shall be
used in accordance with Section 3.03 of the Indenture.
Each of the payments referred to in this Section 3.4(a) shall be made
upon receipt by the Trustee of a written requisition in the form prescribed by
Section 3.03 of the Indenture, signed by the Authorized Borrower Representative.
(b) The Borrower will authorize and direct the Trustee, upon
compliance with Section 3.04 of the Indenture, to disburse the moneys in the
Costs of Issuance Fund to or on behalf of the Borrower only for Costs of
Issuance, subject to the provisions of Section 3.6 hereof. Each of the payments
referred to in this Section 3.4(b) shall be made upon receipt by the Trustee of
a written requisition in the form prescribed by Section 3.04 of the Indenture,
signed by the Authorized Borrower Representative.
SECTION 3.5. ESTABLISHMENT OF COMPLETION DATE; OBLIGATION OF BORROWER
TO COMPLETE. As soon as the Project is completed, the Authorized Borrower
Representative, on behalf of the Borrower, shall evidence the Completion Date by
providing a certificate to the Trustee and the Authority stating the Costs of
the Project and further stating that (i) the equipping, rehabilitation and
construction of the Project has been completed substantially in accordance with
the plans, specifications and work orders therefor, and all labor, services,
materials and supplies used in the equipping, rehabilitation and construction
have been paid or provided for, and (ii) all other facilities necessary in
connection with the Project have been constructed and installed in accordance
with the plans and specifications and work orders therefor and all costs and
expenses incurred in connection therewith have been paid or provided for.
Notwithstanding the foregoing, such certificate may state that it is given
without prejudice to any rights of the Borrower against third parties for any
claims or for the payment of any amount not then due and payable which exists at
the date of such certificate or which may subsequently exist.
At the time such certificate is delivered to the Trustee, moneys
remaining in the Construction Fund (other than moneys relating to provisional
payments permitted by Section 3.4),
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including any earnings resulting from the investment of such moneys, shall be
used as provided in Section 3.03 of the Indenture.
In the event the moneys in the Construction Fund available for payment
of the Costs of the Project should be insufficient to pay the costs thereof in
full, the Borrower agrees to pay directly, or to deposit in the Construction
Fund moneys sufficient to pay, any costs of completing the Project in excess of
the moneys available for such purpose in the Construction Fund. The Authority
makes no express or implied warranty that the moneys deposited in the
Construction Fund and available for payment of the Costs of the Project, under
the provisions of this Agreement, will be sufficient to pay all the amounts
which may be incurred for such Cost of the Project. The Borrower agrees that if,
after exhaustion of the moneys in the Construction Fund, the Borrower should
pay, or deposit moneys in the Construction Fund for the payment of, any portion
of the Costs of the Project pursuant to the provisions of this Section, it shall
not be entitled to any reimbursement therefor from the Authority, from the
Trustee or from the holders of any of the Bonds, nor shall it be entitled to any
diminution of the amounts payable under Section 4.2 hereof.
ARTICLE IV
LOAN TO BORROWER; REPAYMENT PROVISIONS
SECTION 4.1. LOAN TO BORROWER. The Authority covenants and agrees,
upon the terms and conditions in this Agreement, to make a loan to the Borrower
for the purpose of financing the Project. Pursuant to said covenant and
agreement, the Authority will issue the Bonds upon the terms and conditions
contained in this Agreement and the Indenture. The Authority and the Borrower
agree that the application of the proceeds of sale of the Bonds to finance the
Project will be deemed to be and treated for all purposes as a loan to the
Borrower of an amount equal to the aggregate principal amount of the Bonds.
SECTION 4.2. REPAYMENT AND PAYMENT OF OTHER AMOUNTS PAYABLE.
(a) With respect to the Bonds, the Borrower covenants and agrees to
pay to the Trustee as a Repayment Installment, on or before each date provided
in or pursuant to the Indenture for the payment of principal (whether at
maturity or upon redemption or acceleration) of, premium, if any, and/or
interest on the Bonds, until the principal of, premium, if any, and interest on
the Bonds shall have been fully paid or provision for the payment thereof shall
have been made in accordance with the Indenture, in immediately available funds,
for deposit in the Bond Fund, a sum equal to the amount then payable as
principal (whether at maturity or upon redemption or acceleration), premium, if
any, and interest upon the Bonds as provided in the Indenture.
Each payment made by the Borrower pursuant to this Section 4.2(a)
shall at all times be sufficient to pay the total amount of interest and
principal (whether at maturity or upon redemption or acceleration) and premium,
if any, then payable on the Bonds; provided that any amount held by the Trustee
in the Bond Fund on any due date for a Repayment Installment hereunder shall be
credited against the Repayment Installment due on such date, to the extent
available for such purpose; and provided further that, subject to the provisions
of this paragraph, if at any time the Available
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Amounts held by the Trustee in the Bond Fund are sufficient to pay all of the
principal of and interest and premium, if any, on the Bonds as such payments
become due, the Borrower shall be relieved of any obligation to make any further
payments with respect to the Bonds under the provisions of this Section.
Notwithstanding the foregoing, if on any date the amount held by the Trustee in
the Bond Fund is insufficient to make any required payments of principal of
(whether at maturity or upon redemption or acceleration) and interest and
premium, if any, on the Bonds as such payments become due, the Borrower shall
forthwith pay such deficiency as a Repayment Installment hereunder.
The obligation of the Borrower to make any payment under this Section
4.2(a) shall be deemed to have been satisfied to the extent of any corresponding
payment made by the Credit Provider, if any, under the Credit Facility, if any.
(b) In the event that no Credit Facility is in effect or the amounts
on deposit in the Bond Purchase Fund are insufficient to pay the purchase price
of any Bonds tendered for purchase on any Purchase Date, the Borrower covenants
to pay or cause to be deposited in the Bond Purchase Fund sufficient money to
pay the purchase price of any Bonds tendered for purchase or required to be
purchased under Section 4.06 or 4.07 of the Indenture.
(c) The Borrower also agrees to pay to the Trustee until the principal
of, premium, if any, and interest on the Bonds shall have been fully paid or
provision for the payment thereof shall have been made as required by the
Indenture, (i) the annual fee of the Trustee for its ordinary services rendered
as trustee, and its ordinary expenses incurred under the Indenture, as and when
the same become due, (ii) the reasonable fees, charges and expenses of the
Registrar, Paying Agent, Remarketing Agent, if any, and Tender Agent, if any, as
and when the same become due, (iii) the reasonable fees, charges and expenses of
the Trustee for the necessary extraordinary services rendered by it and
extraordinary expenses (including reasonable attorneys' fees) incurred by it
under the Indenture, as and when the same become due, (iv) the cost of printing
any Bonds required to be furnished by the Authority, and (v) any fees required
to be paid to the Authority in connection with the issuance of the Bonds. The
Borrower agrees that the provisions of this Section 4.2(c) shall survive the
discharge of the Indenture and the retirement of the Bonds or the resignation or
removal of the Trustee.
(d) The Borrower also agrees to pay (i) to the Authority, its fee of
$______ upon delivery of the Bonds; and (ii) within twenty (20) days after
receipt of request for payment thereof, all expenses required to be paid by the
Borrower under the terms of the Purchase Contract executed by it in connection
with the sale of the Bonds, and all reasonable expenses of the Authority related
to the Project which are not otherwise required to be paid by the Borrower under
the terms of this Agreement; provided that the Authority shall have obtained the
prior written approval of an Authorized Borrower Representative for any
expenditures other than those provided for herein or in the Purchase Contract.
(e) In the event the Borrower should fail to make any of the payments
required by subsection (c) or (d) of this Section, such payments shall continue
as obligations of the Borrower until such amounts shall have been fully paid.
The Borrower agrees to pay such amounts, together with interest thereon until
paid, to the extent permitted by law, at the rate borne by the Bonds.
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SECTION 4.3. UNCONDITIONAL OBLIGATION. The obligations of the Borrower
to make the payments required by Section 4.2 hereof and to perform and observe
the other agreements on its part contained herein shall be absolute and
unconditional, irrespective of any defense or any rights of setoff, recoupment
or counterclaim it might otherwise have against the Authority, and during the
term of this Agreement, the Borrower shall pay absolutely the payments to be
made on account of the loan as prescribed in Section 4.2 and all other payments
required hereunder, free of any deductions and without abatement, diminution or
setoff. Until such time as the principal of, premium, if any, and interest on
the Bonds shall have been fully paid, or provision for the payment thereof shall
have been made as required by the Indenture, the Borrower (i) will not suspend
or discontinue any payments provided for in Section 4.2 hereof with respect to
the Bonds; (ii) will perform and observe all of its other covenants contained in
this Agreement with respect to the Bonds and the Project; and (iii) except as
provided in Article VIII hereof, will not terminate this Agreement for any
cause, including, without limitation, the occurrence of any act or circumstances
that may constitute failure of consideration, destruction of or damage to, or
taking or condemnation of, all or any part of the Project, termination of one or
both leases underlying the Project Facilities, commercial frustration of
purpose, any change in the tax or other laws of the United States of America or
of the State or any political subdivision of either of these, or any failure of
the Authority or the Trustee to perform and observe any covenant, whether
express or implied, or any duty, liability or obligation arising out of or
connected with this Agreement or the Indenture.
SECTION 4.4. ASSIGNMENT OF AUTHORITY'S RIGHTS. As security for the
payment of the Bonds, the Authority will assign to the Trustee the Authority's
rights, but not its obligations, under this Agreement, including the right to
receive payments hereunder (except (i) the rights of the Authority to receive
notices under this Agreement, (ii) the right of the Authority to receive certain
payments, if any, with respect to expenses and indemnification and certain other
purposes under Sections 4.2(d), 4.2(e), 7.3, 9.2 and 9.3 hereof, and (iii) the
right of the Authority to give approvals or consents pursuant to this
Agreement), and the Authority hereby directs the Borrower to make the payments
required hereunder (except such payments for expenses and indemnification and
certain other purposes) directly to the Trustee. The Borrower hereby assents to
such assignment and agrees to make payments directly to the Trustee without
defense or setoff by reason of any dispute between the Borrower and the
Authority or the Trustee.
The Authority hereby acknowledges that the Borrower will be obligated
to reimburse the Credit Provider, if any, for amounts provided under the Credit
Facility to purchase Bonds which are tendered for purchase and not remarketed
pursuant to the Remarketing Agreement, and acknowledges that any and all
proceeds of any subsequent remarketing of the Bonds so purchased will be paid to
the Credit Provider, if any, in order to discharge the Borrower's reimbursement
obligation (or any loan by such Credit Provider, if any, to finance such
reimbursement obligation) to the Credit Provider, if any.
SECTION 4.5. AMOUNTS REMAINING IN FUNDS. It is agreed by the parties
hereto that any amounts remaining in any fund held by the Trustee under the
Indenture after payment in full of (i) the Bonds, or after provision for such
payment shall have been made as provided in the Indenture, (ii) the fees,
charges and expenses of the Trustee, the Registrar, the Tender Agent, the
Remarketing Agent, any Paying Agent and the Credit Provider, if any, due and
owing in
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accordance with this Agreement and the Indenture and (iii) all other amounts
required to be paid under this Agreement and the Indenture, shall be applied as
provided in Section 5.06 of the Indenture.
SECTION 4.6. CREDIT FACILITY.
(a) The Borrower will deliver (or cause to be delivered) to the
Trustee the irrevocable direct-pay letter of credit of BankBoston, N.A., in the
stated amount of $19,281,096, as the initial Credit Facility for the Bonds.
(b) At least thirty-five (35) days prior to the expiration or
termination of any existing Credit Facility including any renewals or extensions
thereof (other than an expiration of such Credit Facility at the final maturity
of the Bonds) the Borrower shall provide to the Trustee (with a copy to the
Remarketing Agent) (i) a renewal or extension of the term of the existing Credit
Facility for a term of at least one (1) year (or, if shorter, the period to
maturity of the Bonds) or a substitute Credit Facility meeting the requirements
set forth in subsection (c) below or (ii) the written consent of the Authority
to the continuation of the Bonds without a Credit Facility. In the event that
the Borrower desires to obtain the consent of the Authority to the continuation
of the Bonds without a Credit Facility, the Borrower shall accordingly notify
the Authority not less than sixty-five (65) days prior to the expiration or
termination of the existing Credit Facility. The Borrower shall not permit any
Credit Facility in effect to terminate with respect to any Bond during any Rate
Period unless the Bonds are then permitted to be redeemed at the option of the
Borrower pursuant to Section 4.01(a)(2) of the Indenture.
(c) The Borrower may at any time provide a substitute Credit Facility
with respect to the Bonds in accordance with the provisions hereof and of
Section 5.07 of the Indenture and upon delivery to the Trustee of the items
specified in subsection (e) below; provided, however, that the Borrower shall
not substitute any Credit Facility with respect to any Bond during a Rate Period
if such Bonds are not then permitted to be redeemed at the option of the
Borrower pursuant to Section 4.01(a)(2) of the Indenture.
Any such substitute Credit Facility must meet the following
conditions:
(i) the substitute Credit Facility must be (A) a letter of credit
issued by a commercial bank or other financial institution
substantially in the form of the initial Credit Facility provided
hereunder or (B) approved by the Authority;
(ii) the terms and provisions of the substitute Credit Facility
must be (A) in all material respects the same as the terms and
provisions of the initial Credit Facility provided hereunder or (B)
otherwise acceptable to the Authority;
(iii) the substitute Credit Facility must take effect on or
before the Business Day immediately preceding the termination of the
existing Credit Facility and the term of the substitute Credit
Facility must be at least one (1) year (or, if shorter, the period to
maturity of the Bonds); and
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(iv) the substitute Credit Facility must be in an amount
sufficient to pay principal of, interest on, premium, if any, which
will be applicable during the then current Rate Period, and the
purchase price of the Bonds.
(d) If no Credit Facility is in effect with respect to the Bonds, the
Borrower at any time may provide a Credit Facility with respect to the Bonds
upon delivery to the Trustee of the items specified in subsection (e) below;
provided, however, that no such provision of a Credit Facility may be made with
respect to any Bond unless the Bonds would then be permitted to be redeemed at
the option of the Borrower pursuant to Section 4.01(a)(2) of the Indenture.
(e) On or prior to the date of the delivery of a substitute Credit
Facility to the Trustee pursuant to subsection (c) above or a Credit Facility
pursuant to subsection (d) above, the Borrower shall cause to be furnished to
the Trustee (i) an opinion of Bond Counsel addressed to the Trustee to the
effect that the delivery of such Credit Facility to the Trustee is authorized
under the Indenture and this Agreement and complies with the terms thereof and
hereof and will not adversely affect the Tax-Exempt status of the Bonds, (ii) an
opinion or opinions of counsel to the Credit Provider addressed to the Trustee
and the Authority, to the effect that the Credit Facility has been duly
authorized, executed and delivered by the Credit Provider and constitutes the
valid, legal and binding obligation of the Credit Provider enforceable against
the Credit Provider in accordance with its terms, and (iii) (A) written evidence
from each Rating Agency then rating the Bonds to the effect that the Bonds will
be rated in one of the three highest long-term rating categories or the highest
short-term rating category (in each case, without regard to rating
subcategories) of such Rating Agency as a result of the provision of such Credit
Facility or (B) the written consent of the Authority to the provision of such
Credit Facility.
ARTICLE V
SPECIAL COVENANTS AND AGREEMENTS
SECTION 5.1. RIGHT OF ACCESS TO THE PROJECT. The Borrower agrees that
during the term of this Agreement, and, to the extent within its control, for so
long as the Borrower leases or operates the Project Facilities, the Authority,
the Trustee, the Credit Provider and the duly authorized agents of any of them
shall have the right (but not the duty) at all reasonable times during normal
business hours to enter upon the site of the Project Facilities to examine and
inspect the Project Facilities; provided, however, that this right is subject to
federal and State laws and regulations applicable to the site of the Project
Facilities (including regulations, rules and practices of the respective
landlords); and provided further that the Borrower reserves the right to
restrict access to the Project Facilities in accordance with reasonably adopted
procedures relating to safety and security. The rights of access hereby reserved
to the Authority, the Trustee and the Credit Provider may be exercised only
after such agent shall have executed release of liability (which release shall
not limit any of the Borrower's obligations hereunder) and secrecy agreements if
requested by the Borrower in the form then currently used by the Borrower, and
nothing contained in this Section or in any other provision of this Agreement
shall be construed to entitle the Authority, the Trustee or the Credit Provider
to any information or inspection involving the confidential knowhow of the
Borrower.
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SECTION 5.2. THE BORROWER'S MAINTENANCE OF ITS EXISTENCE; ASSIGNMENTS.
(a) The Borrower agrees that during the term of this Agreement and so
long as any Bond is Outstanding, it will maintain its corporate existence, will
not dissolve or otherwise dispose of all or substantially all of its assets, and
will not consolidate with or merge into another corporation or permit one or
more corporations to consolidate with or merge into it; provided, that the
Borrower may, without violating the agreements contained in this Section 5.2,
consolidate with or merge into another corporation or permit one or more other
corporations to consolidate with or merge into it, or sell or otherwise transfer
to another corporation all or substantially all of its assets as an entirety and
thereafter dissolve; provided, that in the event the Borrower is not the
surviving, resulting or transferee corporation, as the case may be, that the
surviving, resulting or transferee corporation (i) is a corporation organized
under the laws of the United States or any state, district or territory thereof;
(ii) is qualified to do business in the State or consents to service of process
in the State; and (iii) assumes in writing all of the obligations of the
Borrower under this Agreement.
Notwithstanding the foregoing, in connection with any consolidation,
merger, sale or other transfer, the Trustee and the Authority shall receive an
opinion of Bond Counsel to the effect that such merger, consolidation, sale or
other transfer will not in and of itself effect the Tax-Exempt status of the
Bonds.
Notwithstanding any other provision of this Section 5.2(a), the
Borrower need not comply with any of the provisions of Section 5.2(a) above if,
at the time of such transaction, all of the Bonds will be defeased as provided
in Article X of the Indenture.
(b) The rights and obligations of the Borrower under this Agreement
may be assigned by the Borrower, in whole or in part; provided, however, that
any assignment other than pursuant to Section 5.2(a) hereof shall be subject to
each of the following conditions:
(i) No such assignment shall relieve the Borrower from primary
liability for any of its obligations hereunder, and the Borrower shall
continue to remain primarily liable for the payments specified in
Section 4.2 hereof, and for performance and observance of the other
agreements on its part herein provided to be performed and observed by
it.
(ii) Any such assignment from the Borrower shall retain for the
Borrower such rights and interests as will permit it to perform its
obligations under this Agreement, and any assignee from the Borrower
shall assume the obligations of the Borrower hereunder to the extent
of the interest assigned.
(iii) The Borrower shall, within thirty (30) days after delivery
thereof, furnish or cause to be furnished to the Authority and the
Trustee a true and complete copy of every such assignment together
with an instrument of assumption.
(iv) The Borrower shall cause to be delivered to the Authority
and the Trustee an opinion of Bond Counsel to the effect that such
assignment will not, in and of itself, adversely affect the Tax-Exempt
status of interest on the Bonds.
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(c) If a merger, consolidation, sale or other transfer is effected, as
provided in this Section, the provisions of this Section shall continue in full
force and effect and no further merger, consolidation, sale or transfer shall be
effected except in accordance with the provisions of this Section.
SECTION 5.3. RECORDS AND FINANCIAL STATEMENTS OF BORROWER. The
Borrower shall, within 120 days after the close of each fiscal year, submit to
the Authority and to the Trustee audited financial statements with respect to
the Borrower or its parent company for such fiscal year. The Trustee shall have
no duty to review such financial statements. The Trustee shall be permitted (but
shall have no duty) at all reasonable times during the term of this Agreement to
examine the books and records of the Borrower with respect to the Project
Facilities, subject to the limitations expressed in Section 5.1.
SECTION 5.4. MAINTENANCE AND REPAIR; TAXES; UTILITY AND OTHER CHARGES;
INSURANCE. For so long as the Project is in operation, the Borrower agrees to
maintain, to the extent permitted by applicable law and regulation, the Project,
or cause the Project to be so maintained, during the term of this Agreement (i)
in as reasonably safe condition as its operations shall permit and (ii) in good
repair and in good operating condition, ordinary wear and tear excepted, making
from time to time all necessary repairs thereto and renewals and replacements
thereof; provided, however, that anything in the Credit Agreement to the
contrary shall control and supersede this section of the Agreement.
For so long as the Project is in operation, the Borrower agrees
that between the Authority and the Borrower, the Borrower agrees to pay or cause
to be paid during the term of this Agreement all taxes, governmental charges of
any kind lawfully assessed or levied upon the Project or any part thereof,
including any taxes levied against the Project, all utility and other charges
incurred in the operation, maintenance, use, occupancy and upkeep of the Project
and all assessments and charges lawfully made by any governmental body for
public improvements that may be secured by a lien on the Project, provided that
with respect to special assessments or other governmental charges that may
lawfully be paid in installments over a period of years, the Borrower, to the
extent described above, shall be obligated to pay only such installments as are
required to be paid during the term of this Agreement. The Borrower may, at the
Borrower's expense and in the Borrower's name, in good faith, contest any such
taxes, assessments and other charges and, in the event of any such contest, may
permit the taxes, assessments or other charges so contested to remain unpaid
during that period of such contest and any appeal therefrom unless by such
nonpayment the Project or any part thereof will be subject to loss or
forfeiture.
SECTION 5.5. QUALIFICATION IN CALIFORNIA. The Borrower agrees that
throughout the term of this Agreement it, or any successor or assignee as
permitted by Section 5.2, will be qualified to do business in the State.
SECTION 5.6. TAX-EXEMPT STATUS OF INTEREST ON BONDS.
(a) It is the intention of the parties hereto that interest on the
Bonds shall be and remain Tax-Exempt, and to that end the covenants and
agreements of the Authority and the Borrower
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in this Section and the Tax Certificate are for the benefit of the Trustee and
each and every person who at any time will be a holder of the Bonds.
(b) Each of the Borrower and the Authority covenants and agrees that
it will not directly or indirectly use or permit the use of any proceeds of the
Bonds or other funds, or take or omit to take any action that will cause any
Bond to be an "arbitrage bond" within the meaning of Section 148 of the Code.
Each of the Borrower and the Authority further covenants and agrees that it will
not direct the Trustee to invest any funds held by it under the Indenture or
this Agreement, in such manner as would, or enter into, or allow any related
person to enter into, any arrangement, formal or informal, that would cause any
Bond to be an "arbitrage bond" within the meaning of Section 148(a) of the Code.
To such ends with respect to the Bonds, the Authority and the Borrower will
comply with all requirements of Section 148 of the Code to the extent applicable
to the Bonds. In the event that at any time the Authority or the Borrower is of
the opinion that for purposes of this Section 5.6(b) it is necessary to restrict
or limit the yield on the investment of any moneys held by the Trustee under
this Agreement or the Indenture, the Authority or the Borrower shall so notify
the Trustee in writing.
Without limiting the generality of the foregoing, the Borrower and the
Authority agree that there shall be paid from time to time all amounts required
to be rebated to the United States pursuant to Section 148(f) of the Code and
any applicable Treasury Regulations. This covenant shall survive payment in full
or defeasance of the Bonds. The Borrower specifically covenants to pay or cause
to be paid for and on behalf of the Authority to the United States at the times
and in the amounts determined under Section 6.06 of the Indenture the Rebate
Requirement as described in the Tax Certificate.
(c) The Authority certifies and represents that it has not taken, and
the Authority covenants and agrees that it will not take, any action which will
cause interest paid on the Bonds to become includable in gross income of the
holders of the Bonds for federal income tax purposes pursuant to Sections 103
and 141 through 150 of the Code; and the Borrower certifies and represents that
it has not taken or, to the extent within its control, permitted to be taken,
and the Borrower covenants and agrees that it will not take or, to the extent
within its control, permit to be taken any action which will cause the interest
on the Bonds to become includable in gross income of the holders of the Bonds
for federal income tax purposes pursuant to the provisions of Article XIII of
the Tax Reform Act of 1986; provided that neither the Borrower nor the Authority
shall have violated these covenants if the interest on any of the Bonds becomes
taxable to a person solely because such person is a "substantial user" of the
financed facilities or a "related person" within the meaning of Section
103(b)(13) of the Code; and provided, further, that none of the covenants and
agreements herein contained shall require either the Borrower or the Authority
to enter an appearance or intervene in any administrative, legislative or
judicial proceeding in connection with any changes in applicable laws, rules or
regulations or in connection with any decisions of any court or administrative
agency or other governmental body affecting the taxation of interest on the
Bonds. The Borrower acknowledges having read Section 6.06 of the Indenture and
agrees to perform all duties imposed on it by such Section, by this Section and
by the Tax Certificate. Insofar as Section 6.06 of the Indenture and the Tax
Certificate impose duties and responsibilities on the Borrower, they are
specifically incorporated herein by reference.
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(d) Notwithstanding any provision of this Section 5.6 and Section 6.06
of the Indenture, if the Borrower shall provide to the Authority and the Trustee
an opinion of Bond Counsel that any specified action required under this Section
5.6 and Section 6.06 of the Indenture is no longer required or that some further
or different action is required to maintain the Tax-Exempt status of interest on
the Bonds, the Borrower, the Trustee and the Authority may conclusively rely on
such opinion in complying with the requirements of this Section, and the
covenants hereunder shall be deemed to be modified to that extent.
SECTION 5.7. NOTICE OF RATE PERIODS. The Borrower shall designate and
give timely written notice to the Trustee as required by the Indenture prior to
any change in Rate Periods for the Bonds. In addition, if the Borrower shall
elect to change Rate Periods in accordance with the Indenture under
circumstances requiring the delivery of an opinion of Bond Counsel, the Borrower
shall deliver such opinion to the Trustee concurrently with the giving of notice
with respect thereto.
SECTION 5.8. REMARKETING OF THE BONDS. The Borrower agrees to perform
all obligations and duties required of it by the Indenture and the Remarketing
Agreement with respect to any remarketing of the Bonds.
SECTION 5.9. PURCHASE OF BONDS. The Borrower agrees that it shall not
purchase, and it shall cause any Guarantor or affiliate of the Borrower to not
purchase, Bonds from the Remarketing Agent or otherwise.
SECTION 5.10. CONTINUING DISCLOSURE. The Borrower hereby covenants and
agrees, whenever a Term Rate Period of more than nine months is in effect, to
comply with the continuing disclosure requirements for the Bonds as promulgated
under Rule 15c2-12, as it may from time to time hereafter be amended or
supplemented. Notwithstanding any other provision of this Agreement, failure of
the Borrower to comply with the requirements of Rule 15c2-12 applicable to the
Bonds, as it may from time to time hereafter be amended or supplemented, shall
not be considered an Event of Default hereunder or under the Indenture; however,
the Trustee may (and, at the written request of the Remarketing Agent or the
holders of at least 25% aggregate principal amount of Outstanding Bonds and upon
receipt of indemnity satisfactory to the Trustee, shall) or any Bondholder or
"Beneficial Owner" of any Bonds may take such actions as may be necessary and
appropriate, including seeking mandate or specific performance by court order,
to cause the Borrower to comply with its obligations pursuant to this Section
5.10. For purposes of this Section, "Beneficial Owner" means any person who has
or shares the power, directly or indirectly, to make investment decisions
concerning ownership of any Bonds (including persons holding Bonds through
nominees, depositories or other intermediaries).
ARTICLE VI
DAMAGE, DESTRUCTION AND CONDEMNATION; CONTINUATION OF PAYMENT
SECTION 6.1. OBLIGATION TO CONTINUE PAYMENTS. If prior to full payment
of the Bonds (or provision for payment thereof in accordance with the provisions
of the Indenture) (i) the Project or any portion thereof is destroyed (in whole
or in part) or is damaged by
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fire or other casualty, or (ii) the temporary use of the Project or any portion
thereof shall be taken under the exercise of the power of eminent domain by any
governmental body or by any person, firm or corporation acting under
governmental authority, the Borrower shall nevertheless be obligated to continue
to pay the amounts specified in Article IV hereof, to the extent not prepaid in
accordance with Article VIII hereof.
SECTION 6.2. DAMAGE TO OR CONDEMNATION OF OTHER PROPERTY. As between
the Authority and the Borrower, the Borrower shall be entitled to the Net
Proceeds of any insurance or condemnation award or portion thereof made for
damages to or takings of its property not included in the Project.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.1. EVENTS OF DEFAULT. Any one of the following which occurs
and continues shall constitute an Event of Default pursuant to this Agreement:
(a) failure by the Borrower to pay or cause to be paid any amounts
required to be paid under Section 4.2(a) or (b) hereof when due, which failure
causes an Event of Default under the Indenture; or
(b) failure of the Borrower to observe and perform any covenant,
condition or agreement on its part required to be observed or performed under
this Agreement, other than making the payments referred to in (a) above, which
continues for a period of thirty (30) days after written notice from the Trustee
or the Authority, which notice shall specify such failure and request that it be
remedied, unless the Authority and the Trustee shall agree in writing to an
extension of such time period; provided, however, that if the failure stated in
the notice cannot be corrected within such period, the Authority and the Trustee
will not unreasonably withhold their consent to an extension of such time period
if corrective action is instituted within such period and diligently pursued
until the default is corrected; or
(c) an Act of Bankruptcy of the Borrower, but solely in the event that
no Credit Facility is in effect for the Bonds;
(d) the occurrence of an Event of Default under the Indenture.
The provisions of subsection (b) of the preceding paragraph are
subject to the limitation that the Borrower shall not be deemed in default if
and so long as the Borrower is unable to carry out its agreements hereunder by
reason of strikes, lockouts or other industrial disturbances; acts of public
enemies; orders of any kind of the government of the United States or of the
State or any of their departments, agencies, or officials, or any civil or
military authority; insurrections; riots; epidemics; landslides; lightning;
earthquake; fire; hurricanes; storms; floods; washouts; droughts; arrests;
restraint of government and people; civil disturbances; explosions; breakage or
accident to machinery, transmission pipes or canals; partial or entire failure
of utilities; or any other cause or event not reasonably within the control of
the Borrower; it being agreed that the settlement of strikes,
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lockouts and other industrial disturbances shall be entirely within the
discretion of the Borrower, and the Borrower shall not be required to make
settlement of strikes, lockouts and other industrial disturbances by acceding to
the demands of the opposing party or parties when such course is, in the
judgment of the Borrower, unfavorable to the Borrower. This limitation shall not
apply to any default under subsections (a), (c) or (d) of this Section.
SECTION 7.2. REMEDIES ON DEFAULT. Whenever any Event of Default shall
have occurred and shall continue,
(a) The Trustee, by notice in writing delivered to the Borrower (with
copies of such notice being sent to the Authority and the Credit Provider, if
any) and with the prior consent of the Credit Provider, if any, may declare the
unpaid balance of the loan payable under Section 4.2(a) of this Agreement with
respect to which an Event of Default has occurred, in an amount equal to the
Outstanding principal amount of the Bonds, together with the interest accrued
thereon, to be immediately due and payable, and shall do so if the Bonds have
been accelerated as provided in the Indenture. After any such declaration of
acceleration of the Bonds, the Trustee shall immediately take such actions as
necessary to realize moneys under the Credit Facility, if any, then in effect.
(b) The Trustee may have access to and may inspect, examine and make
copies of the books and records and any and all accounts, data and federal
income tax and other tax returns of the Borrower.
(c) The Authority or the Trustee may take whatever action at law or in
equity as may be necessary or desirable to collect the payments and other
amounts then due and thereafter to become due or to enforce performance and
observance of any obligation, agreement or covenant of the Borrower under this
Agreement.
The provisions of subsection (a) of the preceding paragraph, however,
are subject to the condition that if, at any time after any portion of the loan
shall have been so declared due and payable, and before any judgment or decree
for the payment of the moneys due shall have been obtained or entered as
hereinafter provided, there shall have been deposited with the Trustee a sum
sufficient to pay all the principal of the Bonds matured prior to such
declaration and all matured installments of interest (if any) upon all such
Bonds, with interest on such overdue installments of principal as provided
herein, and the reasonable fees and expenses of the Trustee, and any and all
other defaults actually known to the Trustee (other than in the payment of
principal of and interest on such Bonds due and payable solely by reason of such
declaration) shall have been made good or cured to the satisfaction of the
Trustee or provision deemed by the Trustee to be adequate shall have been made
therefor, then, and in every such case, the holders of at least a majority in
aggregate principal amount of the Bonds then Outstanding, by written notice to
the Authority and to the Trustee accompanied by the written consent of the
Credit Provider, if any, may, on behalf of the holders of all the Bonds, rescind
and annul such declaration and its consequences and waive such default; provided
that no such rescission and annulment shall extend to or shall affect any
subsequent default, or shall impair or exhaust any right or power consequent
thereon.
In case the Trustee or the Authority shall have proceeded to enforce
its rights under this Agreement and such proceedings shall have been
discontinued or abandoned for any reason or
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shall have been determined adversely to the Trustee or the Authority, then, and
in every such case, the Borrower, the Trustee and the Authority shall be
restored respectively to their several positions and rights hereunder, and all
rights, remedies and powers of the Borrower, the Trustee and the Authority shall
continue as though no such action had been taken (provided, however, that any
settlement of such proceedings duly entered into by the Authority, the Trustee
or the Borrower shall not be disturbed by reason of this provision).
The Borrower covenants that, in case an Event of Default shall occur
with respect to the payment of any Repayment Installment payable under Section
4.2(a) hereof, then, upon demand of the Trustee, the Borrower will pay to the
Trustee the whole amount that then shall have become due and payable under said
Section.
In case the Borrower shall fail forthwith to pay such amounts upon
such demand, the Trustee shall be entitled and empowered to institute any action
or proceeding at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the Borrower
and collect in the manner provided by law the moneys adjudged or decreed to be
payable.
Upon the occurrence of an Event of Default described in Section 7.1(c)
hereof, the Trustee shall be entitled and empowered, by intervention in such
proceedings or otherwise, to file and prove a claim or claims for the whole
amount owing and unpaid pursuant to this Agreement and, in case of any judicial
proceedings, to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee allowed in
such judicial proceedings relative to the Borrower, its creditors or its
property, and to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute such amounts as provided in
the Indenture after the deduction of its charges and expenses. Any receiver,
assignee or trustee in bankruptcy or reorganization is hereby authorized to make
such payments to the Trustee, and to pay to the Trustee any amount due it for
compensation and expenses, including expenses and fees of counsel incurred by it
up to the date of such distribution.
Notwithstanding anything else in this Section 7.2 to the contrary, the
failure of the Borrower to observe any covenant, agreement or representation
herein which results in a Determination of Taxability, shall not constitute an
Event of Default hereunder, if the Bonds are redeemed pursuant to Section
4.01(b)(1) of the Indenture. Payment of the redemption price for such Bonds
shall constitute the full and complete payment and satisfaction to the holders
of the Bonds for any claims, damages, costs or expenses arising out any failure
on the part of the Borrower described above in this paragraph.
SECTION 7.3. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In the
event the Borrower should default under any of the provisions of this Agreement
and the Authority or the Trustee should employ attorneys or incur other expenses
for the collection of the payments due under this Agreement or the enforcement
of performance or observance of any obligation or agreement on the part of the
Borrower herein contained, the Borrower agrees to pay to the Authority or the
Trustee the reasonable fees and expenses of such attorneys, such other
reasonable expenses so incurred by the Trustee and such other expenses so
incurred by the Authority.
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SECTION 7.4. NO REMEDY EXCLUSIVE. No remedy herein conferred upon or
reserved to the Authority or the Trustee is intended to be exclusive of any
other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity or by statute. No
delay or omission to exercise any right or power accruing upon any default shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised from time to time and as often as may
be deemed expedient. In order to entitle the Authority or the Trustee to
exercise any remedy reserved to it in this Article, it shall not be necessary to
give any notice, other than such notice as may be herein expressly required.
Such rights and remedies as are given the Authority hereunder shall also extend
to the Trustee, and the Trustee and the holders of the Bonds shall be deemed
third party beneficiaries of all covenants and agreements herein contained. To
the extent that any covenants and agreements in this Agreement expressly grant
rights to any Credit Provider, if any, the Credit Provider, if any, shall be
deemed a third party beneficiary of such covenants and agreements.
SECTION 7.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the event
any agreement or covenant contained in this Agreement should be breached by the
Borrower and thereafter waived by the Authority or the Trustee, such waiver
shall be limited to the particular breach so waived and shall not be deemed to
waive any other breach hereunder.
ARTICLE VIII
PREPAYMENT
SECTION 8.1. REDEMPTION OF BONDS WITH PREPAYMENT MONEYS. By virtue of
the assignment of the rights of the Authority under this Agreement to the
Trustee as is provided in Section 4.4 hereof, the Borrower agrees to and shall
pay (or cause to be paid) directly to the Trustee any amount permitted or
required to be paid by it under this Article VIII. The Trustee shall use the
moneys so paid to it by the Borrower to effect redemption of the Bonds in
accordance with Article IV of the Indenture on the date specified for such
redemption pursuant to Section 8.5 hereof.
SECTION 8.2. OPTIONS TO PREPAY INSTALLMENTS. The Borrower shall have
the option to prepay the amounts payable under Section 4.2(a) hereof by paying
to the Trustee, for deposit in the Bond Fund, the amount set forth in Section
8.4 hereof, under the circumstances set forth in Section 4.01(a) of the
Indenture.
SECTION 8.3. MANDATORY PREPAYMENT. The Borrower shall have and hereby
accepts the obligation to prepay Repayment Installments to the extent mandatory
redemption of any of the Bonds is required pursuant to Section 4.01(b) of the
Indenture or to the extent the maturity of any of the Bonds shall have been
accelerated pursuant to Section 7.01 of the Indenture. The Borrower shall
satisfy its obligation hereunder by prepaying such Repayment Installments (a)
within one hundred eighty (180) days after the occurrence of any event set forth
in paragraph (1) of said Section 4.01(b), (b) subject to any notice requirements
contained in the Indenture with respect to the mandatory redemption of the
Bonds, immediately upon the occurrence of any event set forth in paragraphs (2)
or (3) of said Section 4.01(b) giving rise to such required prepayment, (c) on
or before
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the redemption date specified in paragraph (4) of said Section 4.01(b) as to any
mandatory partial redemption of Bonds under that paragraph, and (d) immediately
upon receipt of notice from the Trustee of any acceleration of the maturity of
the Bonds pursuant to Section 7.01 of the Indenture. The amount payable by the
Borrower in the event of a prepayment required by this Section shall be
determined as set forth in Section 8.4 hereof and shall be deposited in the Bond
Fund.
SECTION 8.4. AMOUNT OF PREPAYMENT. In the case of a prepayment of the
entire amount due hereunder pursuant to Section 8.2 or 8.3 hereof, the amount to
be paid shall be a sum sufficient, together with other funds and the yield on
any securities then on deposit with the Trustee and available for such purpose,
to pay (1) the principal of all Outstanding Bonds on the redemption date
specified in the notice of redemption, plus interest accrued and to accrue to
the payment or redemption date of the Bonds, plus premium, if any, pursuant to
the Indenture, (2) all reasonable and necessary fees and expenses of the
Authority, the Trustee, the Tender Agent, the Registrar, the Remarketing Agent
and any Paying Agent accrued and to accrue through final payment of the Bonds,
and (3) all other liabilities of the Borrower accrued and to accrue under this
Agreement with respect to the Bonds.
In the case of partial prepayment of the Repayment Installments with
respect to the Bonds, including pursuant to Section 4.01(b)(4) of the Indenture,
the amount payable shall be a sum sufficient, together with other funds
deposited with the Trustee and available for such purpose, to pay the principal
amount of and premium, if any, and accrued interest on the Bonds to be redeemed,
as provided in the Indenture, and to pay expenses of redemption of such Bonds.
SECTION 8.5. NOTICE AND DATE OF PREPAYMENT. In the event of a
prepayment pursuant to Article VIII, the Borrower shall give, at least fifteen
(15) days prior to the last day by which the Trustee is permitted to give notice
of redemption pursuant to Section 4.03 of the Indenture, written notice to the
Authority and the Trustee specifying the date upon which any prepayment will be
made, provided that the Authority and the Trustee may agree to waive their
respective rights to receive such notice or may agree to a shorter notice
period. If in the case of a mandatory prepayment pursuant to Section 8.3 hereof,
the Borrower fails to give such notice of a prepayment required by this Section
8.5, such notice may be given by the Authority, by the Trustee, by the Credit
Provider, if any, or any holder or holders of 10% or more in aggregate principal
amount of the Outstanding Bonds. The Authority and the Trustee, at the request
of the Borrower, the Credit Provider, if any, or Bondholders, shall forthwith
take all steps necessary under the Indenture (except that the Authority shall
not be required to make payment of any money required for such redemption other
than from Revenues) to effect redemption of all or part of the then Outstanding
Bonds, as the case may be, (a) in the case of redemption upon optional
prepayment, on the date specified in such notice or if no such date is specified
on the earliest practicable date thereafter on which such redemption may be made
under applicable provisions of the Indenture and (b) in the case of redemption
upon mandatory prepayment, on the earliest practicable date thereafter on which
such redemption may be made under the applicable provisions of the Indenture.
Notwithstanding anything to the contrary in this Agreement, each
notice contemplated in this Section 8.5 that is given with respect to an
optional prepayment pursuant to Section 8.2 hereof shall state that it is
subject to and conditional upon receipt by the Trustee on or prior to the
proposed prepayment date of Available Amounts in an amount sufficient to effect
such prepayment and such
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notice shall be of no force and effect and the prepayment need not be made and
the Repayment Installments will not become due and payable on the proposed
prepayment date unless such Available Amounts are so received on or prior to the
proposed prepayment date.
ARTICLE IX
NONLIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION
SECTION 9.1. NONLIABILITY OF AUTHORITY. The Authority shall not be
obligated to pay the principal of, or premium, if any, or interest on the Bonds,
except from Revenues. The Borrower hereby acknowledges that the Authority's sole
source of moneys to repay the Bonds will be provided by the payments made by the
Borrower pursuant to this Agreement, together with other Revenues with respect
to the Bonds, including amounts received by the Trustee under the Credit
Facility and investment income on certain funds and accounts held by the Trustee
under the Indenture, and hereby agrees that if the payments to be made hereunder
shall ever prove insufficient to pay all principal of, and premium, if any, and
interest on the Bonds as the same shall become due (whether by maturity,
redemption, acceleration or otherwise), then upon notice from the Trustee, the
Borrower shall pay such amounts as are required from time to time to prevent any
deficiency or default in the payment of such principal, premium or interest,
including, but not limited to, any deficiency caused by acts, omissions,
nonfeasance or malfeasance on the part of the Trustee, the Borrower, the
Authority, the Credit Provider, if any, or any third party.
SECTION 9.2. EXPENSES. The Borrower covenants and agrees to indemnify
the Authority and the Trustee against all reasonable costs and charges,
including fees and disbursements of attorneys, accountants, consultants and
other experts, incurred in good faith in connection with this Agreement, any
Series of Bonds or the Indenture.
SECTION 9.3. INDEMNIFICATION. The Borrower releases the Authority and
the Trustee from, and covenants and agrees that neither the Authority, the
Trustee, the Tender Agent, the Paying Agent nor the Registrar shall be liable
for, and covenants and agrees, to the extent permitted by law, to indemnify and
hold harmless the Authority, the Trustee, the Tender Agent, the Paying Agent and
the Registrar and their directors, officers, employees and agents from and
against, any and all losses, claims, damages, liabilities or expenses, of every
conceivable kind, character and nature whatsoever arising out of, resulting from
or in any way connected with (1) the Project Facilities, or the conditions,
occupancy, use, possession, conduct or management of, or work done in or about,
or from the planning, design, installation or construction of the Project
Facilities or any part thereof; (2) the issuance of the Bonds or any
certifications, covenants or representations made in connection therewith and
the carrying out of any of the transactions contemplated by the Bonds and this
Agreement; (3) the Trustee's acceptance or administration of the trusts under
the Indenture, or the exercise or performance of any of its powers or duties
under the Indenture; (4) any untrue statement or alleged untrue statement of any
material fact or omission or alleged omission to state a material fact necessary
to make the statements made, in light of the circumstances under which they were
made, not misleading, in any official statement or other offering circular
utilized by the Authority or any Underwriter in connection with the sale of the
Bonds, other than information in any such official statement or offering
circular supplied by the Authority; or (5) the cleanup of any hazardous
materials or toxic wastes from the Project, or the authorization of payment of
costs thereof; provided that the
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foregoing release and indemnity in this Section 9.3 shall not be required for
damages that result from negligence or willful misconduct on the part of the
party seeking such release or indemnity. The indemnity required by this Section
shall be only to the extent that any loss sustained by the Authority or the
Trustee exceeds the net proceeds the Authority or the Trustee receives from any
insurance carried with respect to the loss sustained. The Borrower further
covenants and agrees, to the extent permitted by law, to pay or to reimburse the
Authority, the Trustee, the Tender Agent, the Paying Agent and the Registrar and
their officers, employees and agents for any and all costs, reasonable
attorneys' fees, liabilities or expenses incurred in connection with
investigating, defending against or otherwise in connection with any such
losses, claims, damages, liabilities, expenses or actions, except to the extent
that the same arise out of the negligence or willful misconduct of the party
claiming such payment or reimbursement or such cost, attorneys' fees or expenses
are paid by any carried insurance. The provisions of this Section shall survive
the discharge of the Indenture and the retirement of the Bonds.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. NOTICES. All notices, certificates or other
communications shall be deemed sufficiently given upon actual receipt thereof
when the same have been mailed by first class mail or by overnight mail, postage
prepaid, addressed to the Authority, the Borrower, the Trustee, the Registrar,
the Paying Agent, the Tender Agent, the Remarketing Agent, the Credit Provider,
if any, or the Rating Agencies, as the case may be, at the addresses set forth
in Section 11.05 of the Indenture. A duplicate copy of each notice, certificate
or other communication given hereunder by either the Authority or the Borrower
to the other shall also be given to the Trustee. Unless otherwise requested by
the Authority, the Trustee, the Borrower, the Registrar, the Paying Agent, the
Tender Agent, the Remarketing Agent or the Credit Provider, if any, any notice
required to be given hereunder in writing may be given by any form of telephonic
or electronic transmission capable of making a written record. Each such party
shall file with the Trustee information appropriate to receiving such form of
telephonic or electronic transmission. The Authority, the Borrower, the Trustee
and the Credit Provider, if any, may, by notice given hereunder, designate any
different addresses to which subsequent notices, certificates or other
communications shall be sent.
SECTION 10.2. SEVERABILITY. If any provision of this Agreement shall
be held or deemed to be, or shall in fact be, illegal, inoperative or
unenforceable, the same shall not affect any other provision or provisions
herein contained or render the same invalid, inoperative, or unenforceable to
any extent whatever.
SECTION 10.3. EXECUTION OF COUNTERPARTS. This Agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument;
provided, however, that for purposes of perfecting a security interest in this
Agreement under Article 9 of the California Uniform Commercial Code, only the
counterpart delivered, pledged, and assigned to the Trustee shall be deemed the
original.
SECTION 10.4. AMENDMENTS, CHANGES AND MODIFICATIONS. Except as
otherwise provided in this Agreement or the Indenture, this Agreement may not be
effectively
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<PAGE> 27
amended, changed, modified, altered or terminated except in accordance with
Article IX of the Indenture.
SECTION 10.5. GOVERNING LAW; VENUE. This Agreement shall be construed
in accordance with and governed by the Constitution and laws of the State
applicable to contracts made and performed in the State. This Agreement shall be
enforceable in the State, and any action arising out of this Agreement shall be
filed and maintained in a court in Sacramento County, California, unless the
Authority waives this requirement.
SECTION 10.6. AUTHORIZED BORROWER REPRESENTATIVE. Whenever under the
provisions of this Agreement the approval of the Borrower is required or the
Authority is required to take some action under the Indenture at the request of
the Borrower, such approval or such request shall be given on behalf of the
Borrower by the Authorized Borrower Representative, and the Authority and the
Trustee shall be authorized to act on any such approval or request and neither
party hereto shall have any complaint against the other or against the Trustee
as a result of any such action taken.
SECTION 10.7. TERM OF THE AGREEMENT. This Agreement shall be in full
force and effect with respect to the Bonds from the date hereof and shall
continue in effect as long as any of the Bonds are Outstanding or the Trustee
holds any moneys under the Indenture, whichever is later. All representations
and certifications by the Borrower as to all matters affecting the Tax Exempt
status of interest on the Bonds shall survive the termination of this Agreement.
SECTION 10.8. BINDING EFFECT. This Agreement shall inure to the
benefit of and shall be binding upon the Authority, the Borrower and their
respective successors and assigns; subject, however, to the limitations
contained in Section 5.2 hereof. Borrower acknowledges and agrees to Section
12.13 of the Indenture.
SECTION 10.9. CREDIT PROVIDER. All provisions hereof regarding
consents, approvals, directions, appointments or requests by the Credit
Provider, if any, shall be deemed not to require or permit such consents,
approvals, directions, appointments or requests by such Credit Provider, during
any time in which no Credit Facility has been delivered, or the Credit Provider,
has failed to honor a draft presented to it in strict conformance with the
applicable provisions of the Credit Facility, or after the Credit Facility shall
at any time for any reason cease to be valid and binding on the Credit Provider,
if any, or while such Credit Provider, is denying further liability or
obligation under the Credit Facility (unless such Credit Facility has been fully
drawn or to the extent that the conditions to making a demand for payment
thereunder have not been strictly satisfied) or after the Credit Provider, has
rescinded, repudiated or terminated the Credit Facility.
All provisions herein relating to the Credit Provider, if any, shall
be of no force and effect with respect to the Credit Provider if the Credit
Facility and Credit Agreement are not in effect, there are no related Credit
Provider Bonds and all amounts owing to such Credit Provider under the Credit
Agreement have been paid.
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<PAGE> 28
IN WITNESS WHEREOF, the Authority has caused this Loan Agreement to be
executed in its name and attested by its duly authorized officers, and the
Borrower has caused this Agreement to be executed in its name and its seal to be
hereunto affixed and attested by its duly authorized officers, all as of the
date first above written.
CALIFORNIA ECONOMIC DEVELOPMENT
FINANCING AUTHORITY
By___________________________________
Chair
Attest:
By___________________________________
Secretary
MERCURY AIR GROUP, INC.
By___________________________________
Its__________________________________
[SEAL]
__________________________________
Attest:
By_________________________________
Its________________________________
24
<PAGE> 29
EXHIBIT A
Description of the Project Facilities
THE LOS ANGELES INTERNATIONAL AIRPORT ("LAX")
Leasing, construction, rehabilitation, installation and conversion of
an existing aircraft hangar into an approximately 171,400 square foot warehouse,
with approximately 43,000 square feet of attached office space. This portion of
the Project will include truck ramps, loading docks, overhead doors for ramp
access to cargo planes, aircraft ramp and other site work. The facility will be
used to handle cargo for airline customers, including cargo storage, bonded
warehousing, break-down and build-up of pallets and containers, cargo inspection
and receipt and related customer service functions. On a short term basis, a
small portion of the facility may be leased to an airline or government entity
to conduct its own cargo operations. The warehouse is located at 6040 Avion
Drive, Los Angeles, California 90045.
THE BURBANK-GLENDALE-PASADENA AIRPORT (THE "BURBANK AIRPORT")
Leasing, development, construction, installation and completion of an
approximately 17 acre site to include an approximately 9,000 square foot
terminal building, five hangar buildings with related office space totaling
approximately 72,100 total square feet, 260,000 square feet of aircraft ramp,
parking areas and related site improvements. The facilities will be used to
conduct fixed base operations including retail fuel sales; refueling of
corporate, private and some commercial aircraft; rental of aircraft hangar,
related office and aircraft tie-down space; and flight support services for
commercial and general aviation. The terminal building will include an office
and a kitchen, restrooms, lobby, pilots lounge and conference room for use by
the Borrower's customers. The address of the Burbank Airport portion of the
Project is 10700 Sherman Way, Burbank, California 91505.
A-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF MARCH 31, 1998 AND THE CONSOLIDATED STATEMENTS OF
INCOME FOR THE NINE MONTHS ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,753
<SECURITIES> 0
<RECEIVABLES> 42,745
<ALLOWANCES> 2,571
<INVENTORY> 2,034
<CURRENT-ASSETS> 48,223
<PP&E> 59,184
<DEPRECIATION> 28,044
<TOTAL-ASSETS> 92,840
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 25,456
<TOTAL-LIABILITY-AND-EQUITY> 92,840
<SALES> 146,385
<TOTAL-REVENUES> 190,540
<CGS> 128,352
<TOTAL-COSTS> 169,568
<OTHER-EXPENSES> 18,908
<LOSS-PROVISION> 1,520
<INTEREST-EXPENSE> 2,648
<INCOME-PRETAX> 2,064
<INCOME-TAX> 816
<INCOME-CONTINUING> 1,248
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,248
<EPS-PRIMARY> .17<F1>
<EPS-DILUTED> .16
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
