SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT ON FORM 8-K
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report, March 10, 1999
Commission File Number: 0-20307
AVALON COMMUNITY SERVICES, INC.
(Exact name of Registrant as
specified in its corporate charter)
Nevada 13-3592263
(State of Incorporation) (I.R.S. Employer I.D. Number)
13401 Railway Drive, Oklahoma City, Oklahoma 73114
(Address of Principal executive offices)
(405) 752-8802
(Issuer's telephone number)
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ITEM 2. Acquisition of Assets
On February 25,1999, Avalon Community Services Inc. closed a senior credit
facility with the Fleet Capital Corporation. The new loan is a four year
revolving credit facility primarily utilized to finance the expansion of the
Company's business.
The credit facility provides for an $18 million senior revolving debt
facility secured by substantially all assets of the Company. The credit facility
is subject to a 1/2% unused line fee and interest on outstanding balances at
Prime + .25% - .50 % or LIBOR + 2.0 - 3.0%. The maturity date of the credit
facility is February 25, 2003.
Initially, no amounts were extended on the credit facility and the
Company utilized existing cash reserves to retire debt that was collateralized
by assets now pledged to Fleet Capital under the new agreement. The Company
expects amounts to be borrowed under the facility within 90 days to finance new
projects and acquisitions.
ITEM 7. Financial Statements and Exhibits
a. Loan and Security Agreement dated February 25, 1999, between Fleet Capital
Corporation,Avalon Community Services Inc. and Southern Corrections Systems Inc.
Page 1
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AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: March 10, 1999 AVALON COMMUNITY SERVICES, INC.
By: /S/ Jerry Sunderland
Jerry Sunderland, President
Page 2
LOAN AND SECURITY AGREEMENT
Dated: February 25, 1999
FLEET CAPITAL CORPORATION,
as Lender
to
AVALON COMMUNITY SERVICES, INC.
and
SOUTHERN CORRECTIONS SYSTEMS, INC.,
as Borrowers
and
CENTRAL OKLAHOMA PROPERTIES CORP.,
and
ELK CITY PROPERTIES, INC.,
as Guarantors
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TABLE OF CONTENTS
SECTION 1. CREDIT FACILITY...........................................1
1.1 Revolving Credit Loans...........................................1
1.1.1 Loans and Reserves.........................................1
1.1.2 Use of Proceeds............................................2
1.2 [RESERVED FOR FUTURE USE]........................................2
1.3 [RESERVED FOR FUTURE USE]........................................2
1.4 Joint and Several Liability; Rights of Contribution..............2
1.5 Structure of Credit Facility.....................................3
SECTION 2. INTEREST, FEES AND CHARGES..............................3
2.1 Interest.........................................................3
2.1.1 Rates of Interest..........................................3
2.1.2 Default Rate of Interest...................................5
2.1.3 Maximum Interest...........................................5
2.2 Computation of Interest and Fees.................................6
2.3 LIBOR Option.....................................................6
2.4 Closing Fee......................................................7
2.5 Unused Line Fee..................................................7
2.6 Audit and Appraisal Fees.........................................8
2.7 Reimbursement of Expenses........................................8
2.8 Bank Charges.....................................................8
SECTION 3. LOAN ADMINISTRATION.......................................8
3.1 Manner of Borrowing Revolving Credit Loans.......................8
3.1.1 Loan Requests..............................................8
3.1.2 Disbursement...............................................9
3.1.3 Authorization..............................................9
3.2 Payments........................................................10
3.2.1 Principal.................................................10
3.2.2 Interest..................................................10
3.2.3 Costs, Fees and Charges...................................10
3.2.4 Other Obligations.........................................10
3.3 Mandatory Prepayments...........................................10
3.3.1 Proceeds of Sale, Loss, Destruction or Condemnation of
Collateral.............................................. 11
3.4 Application of Payments and Collections.........................11
3.5 All Loans to Constitute One Obligation..........................12
3.6 Loan Account....................................................12
3.7 Statements of Account...........................................12
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SECTION 4. TERM AND TERMINATION....................................12
4.1 Term of Agreement...............................................12
4.2 Termination.....................................................12
4.2.1 Termination by Lender.....................................12
4.2.2 Termination by Borrower...................................12
4.2.3 Termination Charges.......................................12
4.2.4 Effect of Termination.....................................13
SECTION 5. SECURITY INTERESTS.......................................13
5.1 Security Interest in Collateral.................................13
5.2 Cross-Collateralization. ......................................14
5.3 Lien Perfection; Further Assurances.............................14
5.4 Lien on Realty..................................................14
SECTION 6. COLLATERAL ADMINISTRATION................................15
6.1 General.........................................................15
6.1.1 Location of Collateral....................................15
6.1.2 Insurance of Collateral...................................15
6.1.3 Protection of Collateral..................................15
6.2 Administration of Accounts......................................16
6.2.1 Records, Schedules and Assignments of Accounts............16
6.2.2 Discounts, Allowances, Disputes...........................16
6.2.3 Taxes.....................................................17
6.2.4 Account Verification......................................17
6.2.5 Maintenance of Dominion Account...........................17
6.2.6 Collection of Accounts, Proceeds of Collateral............17
6.3 [RESERVED FOR FUTURE USE].......................................17
6.4 Administration of Equipment.....................................17
6.4.1 Records and Schedules of Equipment........................17
6.4.2 Dispositions of Equipment.................................18
6.4.3 Condition of Equipment....................................18
6.5 Payment of Charges..............................................18
SECTION 7. REPRESENTATIONS AND WARRANTIES..........................18
7.1 General Representations and Warranties..........................18
7.1.1 Organization and Qualification............................18
7.1.2 Corporate Power and Authority.............................19
7.1.3 Legally Enforceable Agreement.............................19
7.1.4 Capital Structure.........................................19
7.1.5 Corporate Names...........................................19
7.1.6 Business Locations; Agent for Process.....................20
7.1.7 Title to Properties; Priority of Liens....................20
7.1.8 Accounts..................................................20
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7.1.9 Financial Statements; Fiscal Year.........................21
7.1.10Full Disclosure...........................................21
7.1.11Solvent Financial Condition...............................21
7.1.12Surety Obligations........................................21
7.1.13Taxes.....................................................21
7.1.14Brokers...................................................21
7.1.15Patents, Trademarks, Copyrights and Licenses..............22
7.1.16Governmental Consents.....................................22
7.1.17Compliance with Laws......................................22
7.1.18Restrictions..............................................22
7.1.19Litigation................................................22
7.1.20No Defaults...............................................22
7.1.21Leases....................................................23
7.1.22Pension Plans.............................................23
7.1.23Trade Relations...........................................23
7.1.24Labor Relations...........................................23
7.2 Continuous Nature of Representations and Warranties.............23
7.3 Survival of Representations and Warranties......................23
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS....................24
8.1 Affirmative Covenants...........................................24
8.1.1 Visits and Inspections....................................24
8.1.2 Notices...................................................24
8.1.3 Financial Statements......................................24
8.1.4 Borrowing Base Certificate................................26
8.1.5 Projections...............................................26
8.1.6 Taxes.....................................................26
8.1.7 Compliance with Laws......................................26
8.1.8 Certain Other Insurance...................................26
8.2 Negative Covenants..............................................27
8.2.1 Mergers; Consolidations; Acquisitions.....................27
8.2.2 Loans.....................................................27
8.2.3 Total Indebtedness........................................27
8.2.4 Affiliate Transactions....................................28
8.2.5 Limitation on Liens.......................................28
8.2.6 Subordinated Debt.........................................29
8.2.7 Distributions.............................................29
8.2.8 Capital Expenditures......................................29
8.2.9 Disposition of Assets.....................................29
8.2.10Stock of Subsidiaries.....................................29
8.2.11Restricted Investment.....................................30
8.2.12Operating Leases..........................................30
8.2.13Tax Consolidation.........................................30
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8.2.14Emerald Square............................................30
8.2.15Modification of Convertible Notes.........................30
8.2.16Construction or Acquisition of New Facilities.............30
8.3 Specific Financial Covenants....................................30
8.3.2 Funded Indebtedness to EBITDA.............................32
8.3.3 EBITDA....................................................33
SECTION 9. CONDITIONS PRECEDENT.....................................35
9.1 Documentation...................................................35
9.2 No Default......................................................35
9.3 Other Loan Documents............................................35
9.4 Articles of Incorporation.......................................35
9.5 Good Standing Certificates......................................35
9.6 Opinion Letters.................................................35
9.7 Insurance.......................................................36
9.8 Disbursement Letter.............................................36
9.9 Accounts........................................................36
9.10 No Litigation...................................................36
9.11 Evidence of Perfection and Priority of Liens in Collateral......36
9.12 Phase I Environmental Surveys...................................36
9.13 Subordination Agreements........................................36
9.14 Pro Forma Balance Sheet.........................................36
9.15 Carver Center Zoning............................................36
9.16 ODC Contract Renewals...........................................37
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
DEFAULT...................................................37
10.1 Events of Default...............................................37
10.1.1Payment of Obligations....................................37
10.1.2Misrepresentations........................................37
10.1.3Breach of Specific Covenants..............................37
10.1.4Breach of Other Covenants.................................37
10.1.5Default Under Security Documents/Other Agreements.........37
10.1.6Other Defaults............................................37
10.1.7Uninsured Losses..........................................38
10.1.8Insolvency and Related Proceedings........................38
10.1.9Business Disruption; Condemnation.........................38
10.1.10 Change of Control.......................................38
10.1.11 ERISA...................................................39
10.1.12 Challenge to Agreement..................................39
10.1.13 Repudiation of or Default Under Guaranty Agreement......39
10.1.14 Criminal Forfeiture.....................................39
10.1.15 Judgments...............................................39
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10.2 Acceleration of the Obligations.................................39
10.3 Other Remedies..................................................39
10.4 Remedies Cumulative; No Waiver..................................41
SECTION 11. MISCELLANEOUS.............................................41
11.1 Power of Attorney...............................................41
11.2 Indemnity.......................................................42
11.3 Modification of Agreement; Sale of Interest.....................43
11.4 Severability....................................................43
11.5 Successors and Assigns..........................................43
11.6 Cumulative Effect; Conflict of Terms............................44
11.7 Execution in Counterparts.......................................44
11.8 Notice..........................................................44
11.9 Lender's Consent................................................45
11.10 Credit Inquiries................................................45
11.11 Time of Essence.................................................45
11.12 Entire Agreement, Appendix A and Exhibits and Schedules.........45
11.13 Interpretation..................................................45
11.14 GOVERNING LAW; CONSENT TO FORUM.................................45
11.15 WAIVERS BY THE LOAN PARTIES...................................46
11.16 ORAL AGREEMENTS INEFFECTIVE...................................47
11.18 Nonapplicability of Chapter 346 et seq. of Texas Finance Code..47
11.19 Certain Matters of Construction.................................47
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT dated as of February 25, 1999, by and
among FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island corporation with an
office at 2711 North Haskell Avenue, Suite 2100, LB 21, Dallas, Texas 75204;
AVALON COMMUNITY SERVICES, INC. d/b/a Avalon Correctional Services, Inc.
("Avalon"), a Nevada corporation with its chief executive offices and principal
place of business at 13401 Railway Drive, Oklahoma City, Oklahoma 73114, and
SOUTHERN CORRECTIONS SYSTEMS, INC. ("Southern"), an Oklahoma corporation with
its chief executive offices and principal place of business at 13401 Railway
Drive, Oklahoma City, Oklahoma 73114 (Avalon and Southern being referred to
collectively, and jointly and severally, as "Borrowers" and individually as a
"Borrower"); and CENTRAL OKLAHOMA PROPERTIES CORP., ("Central"), an Oklahoma
corporation with its chief executive offices and principal place of business at
13401 Railway Drive, Oklahoma City, Oklahoma 73114 and ELK CITY PROPERTIES, INC.
("Elk City"), an Oklahoma corporation with its chief executive offices and
principal place of business at 13401 Railway Drive, Oklahoma City, Oklahoma
73114 (Central and Elk City being referred to collectively, and jointly and
severally, as "Guarantors" and individually as "Guarantor"). Unless otherwise
defined herein, capitalized terms used in this Agreement have the meanings
assigned to them in Appendix A, General Definitions. Accounting terms not
otherwise specifically defined herein shall be construed in accordance with GAAP
consistently applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to $18,000,000
available upon Borrowers' request therefor, as follows:
1.1 Revolving Credit Loans.
1.1.1 Loans and Reserves. Lender agrees, for so long as no Default
or Event of Default exists, to make Loans to Borrowers from time to time, as
requested by Borrowers in the manner set forth in Section 3.1.1, up to a maximum
principal amount at any time outstanding equal to the Borrowing Base at such
time. Lender shall have the right to establish reserves in such amounts, and
with respect to such matters, as Lender shall deem necessary or appropriate in
its reasonable discretion, against the amount of Loans which Borrowers may
otherwise request under this Section 1.1.1. Regardless of whether the unpaid
principal balance of the Loans should at any time exceed the amounts permitted
by this Section 1.1.1, all Loans shall constitute Obligations that are secured
by the Collateral and entitled to all the benefits thereof.
Avalon Community Services, Inc. - Loan and Security Agreement - Page 1
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1.1.2 Use of Proceeds. The Loans shall be used solely for Borrowers'
general operating capital needs and for Acquisitions in a manner consistent with
the provisions of this Agreement and all applicable laws. In no event shall any
proceeds of any Loans be used to purchase or to carry, reduce, retire or
refinance any Indebtedness incurred to purchase or carry any margin stock
(within the meaning of regulations relating to carrying margin stock as
promulgated of the Federal Reserve Board from time to time).
1.2 [RESERVED FOR FUTURE USE]
1.3 [RESERVED FOR FUTURE USE]
1.4 Joint and Several Liability; Rights of Contribution.
(A) Each Borrower states and acknowledges that: (i) pursuant
to this Agreement, Borrowers desire to utilize their borrowing potential on a
consolidated basis to the same extent possible if they were merged into a single
corporate entity and that this Agreement reflects the establishment of a credit
facility which would not otherwise be available to any Borrower if each Borrower
were not jointly and severally liable for payment of all of the Obligations;
(ii) it has determined that it will benefit specifically and materially from the
advances of credit contemplated by this Agreement; (iii) it is both a condition
precedent to the obligations of Lender hereunder and a desire of the Borrowers
that each Borrower execute and deliver to Lender this Agreement; and (iv)
Borrowers have requested and bargained for the structure and terms of and
security for the advances contemplated by this Agreement.
(B) Each Borrower hereby irrevocably and unconditionally: (i)
agrees that it is jointly and severally liable to Lender for the full and prompt
payment of the Obligations and the performance by each Borrower of its
obligations hereunder in accordance with the terms hereof; (ii) agrees to fully
and promptly perform all of its obligations hereunder with respect to each
advance of credit hereunder as if such advance had been made directly to it; and
(iii) agrees as a primary obligation to indemnify Lender on demand for and
against any loss incurred by Lender as a result of any of the Obligations of any
one or more of the Borrowers being or becoming void, voidable, unenforceable or
ineffective for any reason whatsoever, whether or not known to Lender or any
Person, the amount of such loss being the amount which Lender would otherwise
have been entitled to recover from any one or more of the Borrowers.
(C) It is the intent of each Borrower that the indebtedness,
Obligations and liability hereunder of neither of them be subject to challenge
on any basis, including, without limitation, pursuant to any applicable
fraudulent conveyance or fraudulent transfer laws. Accordingly, as of the date
hereof, the liability of each Borrower under this Section 1.4, together with all
of its other liabilities to all Persons as of the date hereof and as of any
other date on which a transfer or conveyance is deemed to occur by virtue of
this Agreement, calculated in amount sufficient to pay its probable net
liabilities on its existing Indebtedness as the same become absolute and matured
("Dated Liabilities") is, and is to be, less than the amount of the aggregate of
a fair valuation of its property as of such corresponding date ("Dated Assets").
To this end, each Borrower under this
Avalon Community Services, Inc. - Loan and Security Agreement - Page 2
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Section 1.4, (i) grants to and recognizes in each other Borrower, ratably,
rights of subrogation and contribution in the amount, if any, by which the Dated
Assets of such Borrower, but for the aggregate of subrogation and contribution
in its favor recognized herein, would exceed the Dated Liabilities of such
Borrower or, as the case may be, (ii) acknowledges receipt of and recognizes its
right to subrogation and contribution ratably from each of the other Borrowers
in the amount, if any, by which the Dated Liabilities of such Borrower, but for
the aggregate of subrogation and contribution in its favor recognized herein,
would exceed the Dated Assets of such Borrower under this Section 1.4. In
recognizing the value of the Dated Assets and the Dated Liabilities, it is
understood that Borrowers will recognize, to at least the same extent of their
aggregate recognition of liabilities hereunder, their rights to subrogation and
contribution hereunder. It is a material objective of this Section 1.4 that each
Borrower recognizes rights to subrogation and contribution rather than be deemed
to be insolvent (or in contemplation thereof) by reason of an arbitrary
interpretation of its joint and several obligations hereunder. In addition to
and not in limitation of the foregoing provisions of this Section 1.4, Borrowers
and Lender hereby agree and acknowledge that it is the intent of each Borrower
and of Lender that the obligations of each Borrower hereunder be in all respects
in compliance with, and not be voidable pursuant to, applicable fraudulent
conveyance and fraudulent transfer laws.
1.5 Structure of Credit Facility. Each Borrower agrees and acknowledges
that the present structure of the credit facilities detailed in this Agreement
is based in part upon the financial and other information presently known to
Lender regarding each Borrower, the corporate structure of Borrowers, and the
present financial condition of each Borrower. Upon or after the occurrence of an
Event of Default and so long as it is continuing, each Borrower hereby agrees
that Lender shall have the right, in its sole credit judgment, to require that
any or all of the following changes be made to these credit facilities: (i)
restrict loans and advances between Borrowers, (ii) establish separate lockbox
and Dominion Accounts for each Borrower, (iii) separate the Loans into separate
loans to each of the Borrowers as shall be determined by Lender, and (iv)
establish such other procedures as shall be reasonably deemed by Lender to be
useful in tracking where Loans are made under this Agreement and the source of
payments received by Lender on such Loans.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rates of Interest.
(A) Interest shall accrue on the Base Rate Portion outstanding
at the end of each day (computed on the basis of a calendar year of 360
days and actual days elapsed) at a fluctuating rate per annum equal to the
sum of the Base Rate Margin applicable to the Base Rate Portion plus the
Base Rate. After the date hereof, the foregoing rates of interest shall be
increased or decreased, as the case may be, by an amount equal to any
increase or decrease in the Base Rate, with such adjustments to be
effective as of the opening of business on the day that any such change in
the Base Rate becomes effective. The Base Rate in effect on the date
hereof shall be the Base Rate effective on the opening of business on the
date hereof, but
Avalon Community Services, Inc. - Loan and Security Agreement - Page 3
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if this Agreement is executed on a day that is not a Business Day, the
Base Rate in effect on the date hereof shall be the Base Rate effective as
of the opening of business on the last Business Day immediately preceding
the date hereof.
(B) Interest shall accrue on each LIBOR Portion outstanding at
the end of each day (computed on the basis of a calendar year of 360 days
and actual days elapsed) at rates equal to the sum of the LIBOR Rate
applicable to each such LIBOR Portion plus the LIBOR Margin applicable to
the LIBOR Portion.
Base Rate Margin shall mean (i) with respect to the Base Rate
Portion, as of the Closing Date, .50% per annum, and (ii) thereafter, as
of January 1, April 1, July 1 and October 1 of each year (each, an
"Adjustment Date"), commencing on April 1, 2000, the Base Rate Margin
shall be adjusted, if necessary, to the applicable percent per annum set
forth in the pricing table below opposite the ratio of Senior Debt to
EBITDA calculated in the manner described in Section 8.3.4 for the
trailing twelve month period ending on the last day of the most recently
completed calendar quarter prior to the applicable Adjustment Date for
which Lender has received the Compliance Certificate required by Section
8.1.3 (each such period, a "Calculation Period").
LIBOR Margin shall mean shall mean (i) with respect to the
LIBOR Portion, as of the Closing Date, 3.00% per annum, and (ii)
thereafter, as of each Adjustment Date, commencing on April 1, 2000, the
LIBOR Margin shall be adjusted, if necessary, to the applicable percent
per annum set forth in the pricing table below opposite the ratio of
Senior Debt to EBITDA calculated for the applicable Calculation Period.
PRICING TABLE
Senior Debt to EBITDA Base Rate Margin LIBOR Margin
Equal to or greater than 2.50:1 .25% 2.75%
Greater than or equal to 2.25:1
but less than 2.50:1 .25% 2.50%
Less than 2.25:1 .25% 2.00%
=================================== ====================== =====================
If Borrowers shall fail to deliver a Compliance Certificate by the
date required pursuant to Section 8.1.3 with respect to any calendar quarter,
effective as of the first Business Day of the immediately succeeding calendar
month and continuing through the day preceding the earlier of (i) the next
succeeding Adjustment Date, or (ii) the subsequent delivery of the delinquent
Compliance Certificate, each applicable Base Rate Margin and each applicable
LIBOR Margin shall be conclusively presumed to equal the highest applicable Base
Rate Margin and the highest applicable LIBOR Margin specified in the pricing
table set forth above. Subject to Section 2.1.2, in the event a Default (other
than a Default arising as a result of the failure to deliver the Compliance
Certificate as required by Section 8.1.3) has occurred and is continuing as of
any Adjustment Date, any reduction in the Base Rate Margin or the LIBOR Margin,
as the case may be, which would have otherwise
Avalon Community Services, Inc. - Loan and Security Agreement - Page 4
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occurred shall be postponed until the time such Default has been cured to the
satisfaction of Lender or waived by Lender.
2.1.2 Default Rate of Interest. Upon and after the occurrence of an
Event of Default, and during the continuation thereof, the principal amount of
all Loans shall bear interest at a rate per annum equal to two percent (2%)
above the interest rate otherwise applicable thereto (the "Default Rate").
2.1.3 Maximum Interest. (A) Notwithstanding anything to the contrary
in this Agreement or otherwise, (i) if at any time the amounts deemed interest
hereunder would exceed the maximum rate of interest permitted by applicable
state or federal law in effect from time to time hereafter (the "Maximum Legal
Rate"), the interest payable under this Agreement shall be computed upon the
basis of the Maximum Legal Rate, but any subsequent reduction in the interest
payable under this Agreement shall not reduce the interest thereafter payable
hereunder below the amount computed on the basis of the Maximum Legal Rate until
the aggregate amount of such interest accrued if such interest had been at all
times computed solely on the basis set forth in this Agreement; and (ii) unless
preempted by federal law, the interest payable under this Agreement may not
exceed the "Weekly Ceiling" from time to time in effect under Sections 303.301,
303.304, 303.305 of the Texas Finance Code or the "Indicated Ceiling Rate" from
time to time in effect under Tex. Rev. Civ. Stat. Ann. art. 5069-1.04(c). If the
applicable state or federal law is amended in the future to allow a greater rate
of interest to be charged under this Agreement than is presently allowed by
applicable state or federal law, then the limitation of interest hereunder shall
be increased to the maximum rate of interest allowed by applicable state or
federal law as amended, which increase shall be effective hereunder on the
effective date of such amendment, and all interest charges owing to Lender by
reason thereof shall be payable in accordance with Section 3.2.2.
(B) No agreements, conditions, provisions or stipulations
contained in this Agreement or any other instrument, document or agreement
between any Borrower and Lender or Default of any Borrower, or the exercise by
Lender of the right to accelerate the payment of the maturity of principal and
interest, or to exercise any option whatsoever contained in this Agreement or
any other Loan Document, or the arising of any contingency whatsoever, shall
entitle Lender to contract for, charge, or receive, in any event, interest
exceeding the Maximum Legal Rate. In no event shall any Borrower be obligated to
pay interest exceeding such Maximum Legal Rate and all agreements, conditions or
stipulations, if any, which may in any event or contingency whatsoever operate
to bind, obligate or compel any Borrower to pay a rate of interest exceeding the
Maximum Legal Rate, shall be without binding force or effect, at law or in
equity, to the extent only of the excess of interest over such Maximum Legal
Rate. In the event any interest is contracted for, charged or received in excess
of the Maximum Legal Rate ("Excess Interest"), Borrowers acknowledge and
stipulate that any such contract, charge, or receipt shall be the result of an
accident and bona fide error, and that any Excess Interest received by Lender
shall be applied, first, to reduce the principal then unpaid hereunder; second,
to reduce the other Obligations; and third, returned to Borrowers, it being the
intention of the parties hereto not to enter at any time into a usurious or
otherwise illegal relationship. Borrowers recognize that, with fluctuations in
the Base Rate, the LIBOR Rate and the Maximum Legal Rate, such a result could
inadvertently occur. By the execution of this Agreement,
Avalon Community Services, Inc. - Loan and Security Agreement - Page 5
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Borrowers covenant that (i) the credit or return of any Excess Interest shall
constitute the acceptance by Borrowers of such Excess Interest, and (ii)
Borrowers shall not seek or pursue any other remedy, legal or equitable, against
Lender, based in whole or in part upon contracting for, charging or receiving of
any interest in excess of the maximum authorized by applicable law. For the
purpose of determining whether or not any Excess Interest has been contracted
for, charged or received by Lender, all interest at any time contracted for,
charged or received by Lender in connection with this Agreement shall be
amortized, prorated, allocated and spread in equal parts during the entire term
of this Agreement.
(C) Incorporation by this Reference. The provisions of Section
2.1.3(B) shall be deemed to be incorporated into every document or communication
relating to the Obligations which sets forth or prescribes any account, right or
claim or alleged account, right or claim of Lender with respect to Borrowers (or
any other obligor in respect of Obligations), whether or not any provision of
Section 2.1.3(B) is referred to therein. All such documents and communications
and all figures set forth therein shall, for the sole purpose of computing the
extent of the Obligations and obligations of Borrowers (or any other obligor)
asserted by Lender thereunder, be automatically recomputed by Borrowers or any
such obligor, and by any court considering the same, to give effect to the
adjustments or credits required by Section 2.1.3(B).
2.2 Computation of Interest and Fees. Interest and unused line fees
hereunder shall be calculated daily and shall be computed on the actual number
of days elapsed over a year of 360 days. For the purpose of computing interest
hereunder, all items of payment received by Lender shall be deemed applied by
Lender on account of the Obligations (subject to final payment of such items)
one (1) Business Day after receipt by Lender of such items in Lender's account
located in Dallas, Texas and Lender shall be deemed to have received such items
of payment on the date specified in Section 3.4 hereof.
2.3 LIBOR Option.
(A) Upon the conditions that: (i) Lender shall have received a
LIBOR Request from Borrowers at least two (2) Business Days prior to the first
day of the LIBOR Period requested, (ii) there shall have occurred no change in
Applicable Law which would make it unlawful for Lender to obtain deposits of
Dollars in the London interbank foreign currency deposits market, (iii) as of
the date of the LIBOR Request and the first day of the LIBOR Period, there shall
exist no Default or Event of Default, (iv) Lender is able to determine the LIBOR
Rate in respect of the requested LIBOR Period or Lender is able to obtain
deposits of Dollars in the London interbank foreign currency deposits market in
the applicable amounts and for the requested LIBOR Period, and (v) as of the
first date of the LIBOR Period, there are no more than three (3) outstanding
LIBOR Portions including the LIBOR Portion being requested, then interest on the
LIBOR Portion requested during the LIBOR Period requested will be based on the
applicable LIBOR Rate.
(B) Each LIBOR Request shall be irrevocable and binding on
Borrowers. Borrowers shall indemnify Lender for any loss, penalty or expense
incurred by Lender due to failure on the part of any Borrower to fulfill, on or
before the date specified in any LIBOR Request, the
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applicable conditions set forth in this Agreement or due to the prepayment of
the applicable LIBOR Portion prior to the last day of the applicable LIBOR
Period, including, without limitation, any loss (including loss of anticipated
profits) or expense incurred by reason of the liquidation or redeployment of
deposits or other funds acquired by Lender to fund or maintain the requested
LIBOR Portion.
(C) If any Legal Requirement shall (i) make it unlawful for
Lender to fund through the purchase of Dollar deposits any LIBOR Portion or
otherwise give effect to its obligations as contemplated under this Section 2.3,
or (ii) shall impose on Lender any costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of Lender which includes deposits by reference to which the LIBOR
Rate is determined as provided herein or a category of extensions of credit or
other assets of Lender which includes any LIBOR Portion, or (iii) shall impose
on Lender any restrictions (not already taken into account under any Statutory
Reserves) on the amount of such a category of liabilities or assets which Lender
may hold, then, in each such case, Lender may, by notice thereof to any
Borrower, terminate the LIBOR Option. Any LIBOR Portion subject thereto shall
immediately bear interest thereafter at the rate and in the manner provided for
Base Rate Portions pursuant to Section 2.1.1. Borrowers shall indemnify Lender
against any loss, penalty or expense incurred by Lender due to liquidation or
redeployment of deposits or other funds acquired by Lender to fund or maintain
any LIBOR Portion that is terminated under this Section 2.3.
(D) Lender shall receive payments of amounts of principal of
and interest with respect to the LIBOR Portions free and clear of, and without
deduction for, any Taxes. If (i) Lender shall be subject to any Tax in respect
of any LIBOR Portion or any part thereof or, (ii) any Borrower shall be required
to withhold or deduct any Tax from any such amount, the LIBOR Rate applicable to
such LIBOR Portion shall be adjusted by Lender to reflect all additional costs
incurred by Lender in connection with the payment by Lender or the withholding
by any Borrower of such Tax and such Borrower shall provide Lender with a
statement detailing the amount of any such Tax actually paid by such Borrower.
Determination by Lender of the amount of such costs shall, in the absence of
manifest error, be conclusive. If after any such adjustment any part of any Tax
paid by Lender is subsequently recovered by Lender, Lender shall reimburse such
Borrower to the extent of the amount so recovered. A certificate of an officer
of Lender setting forth the amount of such recovery and the basis therefor
shall, in the absence of manifest error, be conclusive.
2.4 Closing Fee. Borrowers shall pay to Lender a closing fee of $300,000,
which fee shall be fully earned and nonrefundable on the Closing Date and shall
be paid concurrently with the initial Loans hereunder.
2.5 Unused Line Fee. Borrowers shall pay to Lender a fee equal to one-half
percent (0.5%) per annum of the amount by which the sum of the Average Monthly
Loan Balance is less than the Total Credit Facility. The unused line fee shall
be payable monthly in arrears on the first day of each calendar month hereafter.
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2.6 Audit and Appraisal Fees. Borrowers shall, on demand, reimburse Lender
for all reasonable out-of-pocket expenses incurred by Lender in connection with
audits and appraisals of any Borrower's books and records and such other matters
as Lender shall deem appropriate.
2.7 Reimbursement of Expenses. If, at any time or times regardless of
whether or not an Event of Default then exists, Lender incurs reasonable legal
or accounting expenses or any other costs or out-of-pocket expenses in
connection with (i) the negotiation and preparation of this Agreement or any of
the other Loan Documents, any amendment of or modification of this Agreement or
any of the other Loan Documents, or any sale or attempted sale of any interest
herein to any other Person; (ii) the administration of this Agreement or any of
the other Loan Documents and the transactions contemplated hereby and thereby;
(iii) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Lender, any Borrower or Guarantor, or any other Person) in any way
relating to the Collateral, this Agreement or any of the other Loan Documents or
any Loan Party's affairs; (iv) any attempt to enforce any rights of Lender
against any Loan Party or any other Person which may be obligated to Lender by
virtue of this Agreement or any of the other Loan Documents, including, the
Account Debtors; or (v) any attempt to inspect, verify, protect, preserve,
restore, collect, sell, liquidate or otherwise dispose of or realize upon the
Collateral; then all such legal and accounting expenses, other costs and out of
pocket expenses of Lender shall be charged to Borrowers. All amounts chargeable
to Borrowers under this Section 2.7 shall be Obligations secured by all of the
Collateral, shall be payable on demand to Lender or to such Participant, as the
case may be, and shall bear interest from the date such demand is made until
paid in full at the rate applicable to Loans from time to time. Borrowers shall
also reimburse Lender for expenses incurred by Lender in its administration of
the Collateral to the extent and in the manner provided in Section 6.
2.8 Bank Charges. Borrowers shall pay to Lender, on demand, any and all
reasonable fees, costs or expenses which Lender or any Participant pays to a
bank or other similar institution (including any fees paid by Lender to any
Participant) arising out of or in connection with (i) the forwarding to any
Borrower or any other Person on behalf of any Borrower by Lender or any
Participant of proceeds of loans made by Lender to Borrowers pursuant to this
Agreement, and (ii) the depositing for collection, by Lender or any Participant
of any check or item of payment received or delivered to Lender or any
Participant on account of the Obligations.
SECTION 3. LOAN ADMINISTRATION.
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the
credit facility established pursuant to Section 1 shall be as follows:
3.1.1 Loan Requests. A request for a Loan shall be made, or shall be
deemed to be made, in the following manner: (i) an Authorized Officer shall give
Lender written notice of its intention to borrow, in which notice such
Authorized Officer shall specify the amount of the proposed borrowing and the
proposed borrowing date, no later than 11:00 a.m. (Dallas, Texas time) on the
proposed borrowing date (or in accordance with Section 2.3 hereof in the case of
a request for a LIBOR Portion), provided, however, that Lender shall have the
right to refuse to accept a request or refuse to make a Loan if at such time
there exists a Default or an Event of Default; and (ii) the
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becoming due of any amount required to be paid under this Agreement or under any
of the other Loan Documents, whether as principal, accrued interest, fees or
other charges, shall irrevocably be deemed a request by Borrowers to Lender for
a Loan on the due date of, and in an aggregate amount required to pay, such
principal, accrued interest, fees or other charges, and the proceeds of any such
Loan may be disbursed by Lender by way of direct payment of the relevant
Obligation (whether or not any Default, Event of Default or Out-of-Formula
Condition exists at the time of or would result from such Loan) and shall bear
interest at the rate of interest applicable to the Base Rate Portion. As an
accommodation to Borrowers, Lender may permit facsimile transmittal of requests
for Loans, instructions, authorizations, agreements or reports to Lender by an
Authorized Officer. Unless Borrowers specifically direct Lender in writing not
to accept or act on facsimile communications from an Authorized Officer, Lender
shall have no liability to any Borrower for any loss or damage suffered by any
Borrower as a result of Lender's honoring of any requests, execution of any
instructions, authorizations or agreements or reliance on any reports
communicated to Lender by facsimile and purporting to have been sent to Lender
by any Authorized Officer and Lender shall have no duty to verify the origin or
authenticity of any such communication.
3.1.2 Disbursement. Each Borrower hereby irrevocably authorizes
Lender to disburse the proceeds of each Loan requested, or deemed to be
requested, pursuant to this Section 3.1.2 as follows: (i) the proceeds of each
Loan requested under Section 3.1.1(i) shall be disbursed by Lender in Dollars
and in immediately available funds, in the case of the initial borrowing, in
accordance with the terms of the written disbursement letter from such Borrower,
and in the case of each subsequent borrowing, by wire transfer to such bank
account as may be agreed upon by such Borrower and Lender from time to time or
elsewhere if pursuant to a written direction from such Borrower; and (ii) the
proceeds of each Loan requested under Section 3.1.1(ii) shall be disbursed by
Lender by way of direct payment of the relevant interest or other Obligation.
3.1.3 Authorization. Each Borrower hereby irrevocably authorizes
Lender, in Lender's sole discretion, to advance to each Borrower, and to charge
to Borrowers' Loan Account hereunder as a Loan, a sum sufficient to pay all
interest accrued on the Obligations during the immediately preceding month and
to pay all reasonable costs, fees and expenses at any time owed by any Borrower
to Lender hereunder. Lender shall provide to Avalon a brief description of such
costs, fees and expenses and any documents, statements or invoices reasonably
related thereto. Any failure of Lender to provide any description of such fees,
costs or expenses or any documents, statements or invoices related thereto shall
not affect the liability of any Borrower with respect to the payment of such
fees, costs or expenses. All payments with respect to any of the Obligations
shall be made to Lender on the date when due, in Dollars and in immediately
available funds, without any offset or counterclaim.
3.2 Payments. Except where evidenced by notes or other instruments issued
or made by any Borrower to Lender specifically containing payment provisions
which are in conflict with this Section 3.2 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), the
Obligation shall be payable as follows:
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3.2.1 Principal. Principal payable on account of Loans shall be
payable by each Borrower, jointly and severally, to Lender immediately upon the
earliest of (i) the receipt by Lender or any Borrower of any proceeds of any of
the Collateral other than Equipment or real Property, to the extent of said
proceeds, except that, so long as no Default or Event of Default exists, if,
after application of the proceeds to Base Rate Portions, any remaining Loans
outstanding at the time of receipt by Borrower of any such proceeds are LIBOR
Portions, then the Borrower receiving such proceeds may at its option direct
that such proceeds be held by Lender in a non-interest bearing cash collateral
account maintained by Lender to be applied to the payment of principal on the
last day of the LIBOR Period applicable to each LIBOR Portion in the order of
maturity, (ii) the occurrence of an Event of Default in consequence of which
Lender elects to accelerate the maturity and payment of the Obligations, or
(iii) termination of this Agreement pursuant to Section 4; provided, however,
that if an Out-of-Formula Condition shall exist at any time, Borrowers shall, on
demand, repay the Obligations to the extent necessary to eliminate the
Out-of-Formula Condition.
3.2.2 Interest.
(A) Base Rate Portion. Interest accrued on the Loans shall be
due on the earliest of (i) the first calendar day of each month (for the
immediately preceding month), computed through the last calendar day of the
preceding month, (ii) the occurrence of an Event of Default in consequence of
which Lender elects to accelerate the maturity and payment of the Obligations,
or (iii) termination of this Agreement pursuant to Section 4.
(B) LIBOR Portion. Interest accrued on each LIBOR Portion
shall be due and payable on each LIBOR Interest Payment Date and on the earliest
of (i) the last day of the Interest Period applicable to such LIBOR Portion,
(ii) the occurrence of an Event of Default in consequence of which Lender elects
to accelerate the maturity and payment of the Obligations, or (iii) termination
of this Agreement pursuant to Section 4 hereof.
3.2.3 Costs, Fees and Charges. Costs, fees and charges payable
pursuant to this Agreement shall be payable by Borrowers as and when provided in
Section 2, to Lender or to any other Person designated by Lender in writing.
3.2.4 Other Obligations. The balance of the Obligations requiring
the payment of money, if any, shall be payable by Borrowers to Lender as and
when provided in this Agreement, the Other Agreements or the Security Documents,
or if no date of payment is otherwise specified in the Loan Documents, on
demand.
3.3 Mandatory Prepayments.
3.3.1 Proceeds of Sale, Loss, Destruction or Condemnation of
Collateral. Except for the replacements of Equipment that is substantially worn,
damaged or obsolete with Equipment of like kind, function and value as provided
in Section 6.4.2, if any Loan Party sells any of the Equipment or real Property,
or if any of the Collateral is lost or destroyed or taken by condemnation, such
Loan Party shall pay to Lender, unless otherwise agreed by Lender, as and when
received by
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such Loan Party a sum equal to the amount (including insurance payments)
received by such Loan Party from such sale, loss, destruction or condemnation.
Nothing in this Section 3.3 shall authorize Loan Party to sell any of the
Collateral without Lender's prior written consent except as otherwise expressly
provided elsewhere in this Agreement.
3.3.2 Prepayment From Issuance of Securities. Immediately upon the
receipt by any Loan Party of the proceeds of the issuance of equity securities
(other than (i) proceeds of the issuance of equity securities received on or
before the Closing Date, (ii) proceeds from the issuance of equity securities to
members of the management of any Loan Party, (iii) proceeds of the issuance of
equity securities to any Borrower or any Subsidiary of any Borrower, or (iv)
proceeds of the issuance of equity securities arising as a result of the
exercise of any warrants or options to purchase capital stock of Avalon
outstanding as of the Closing Date), Borrowers shall prepay the Loans in an
amount equal to such proceeds, net of underwriting discounts and commissions and
other reasonable costs associated therewith. The payments shall be applied in
accordance with Subsection 3.3.3.
3.3.3 Application of Proceeds. With respect to the prepayments
described in Subsections 3.3.1 and 3.3.2, such prepayments shall be applied to
reduce the outstanding principal balance of the Loans and as a permanent
reduction of the Total Credit Facility.
3.4 Application of Payments and Collections. All items of payment received
by Lender by 12:00 noon (Dallas, Texas time) on any Business Day shall be deemed
received on that Business Day. All items of payment received after 12:00 noon
(Dallas, Texas time) on any Business Day shall be deemed received on the
following Business Day. Upon receipt by Lender, the proceeds of items deposited
to the Dominion Account shall be applied to payment of the Obligations in
accordance with this Agreement. Each Borrower irrevocably waives the right to
direct the application of any and all payments and collections at any time or
times hereafter received by Lender from or on behalf of any Borrower and each
Borrower hereby irrevocably agree that Lender shall have the continuing
exclusive right to apply and reapply any and all such payments and collections
received at any time or times hereafter by Lender or its agent against the
Obligations, in such manner as Lender may deem advisable, notwithstanding any
entry by Lender upon any of its books and records. If as the result of
collections of Accounts as authorized by Section 6.2.6 a credit balance exists
in the Loan Account, such credit balance shall not accrue interest in favor of
any Borrower, but shall be available to Borrowers at any time or times for so
long as no Default or Event of Default exists. Lender may, at its option, offset
such credit balance against any of the Obligations upon and after the occurrence
of an Event of Default.
3.5 All Loans to Constitute One Obligation. All Loans shall constitute one
general Obligation of Borrowers, and shall be secured by Lender's security
interest and Lien upon all of the Collateral and by all other security interests
and Liens heretofore, now or at any time or times hereafter granted by any Loan
Party to Lender.
3.6 Loan Account. Lender shall establish an account on its books (the
"Loan Account") and enter all Loans as debits to the Loan Account and shall also
record in the Loan Account all
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payments made by any Loan Party on any Obligations and all proceeds of
Collateral which are finally paid to Lender, and may record therein, in
accordance with customary accounting practice, other debits and credits,
including interest and all charges and expenses properly chargeable to any Loan
Party.
3.7 Statements of Account. Lender will account to Borrowers monthly with a
statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Lender shall be deemed final, binding and conclusive
upon Borrowers unless Lender is notified by Borrowers in writing to the contrary
within thirty (30) days after the date each accounting is sent pursuant to
Section 11.8. Such notice shall only be deemed an objection to those items
specifically objected to therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Section 4.2 and Lender's right to cease
making Loans to any Borrower upon or after the occurrence of any Default or
Event of Default, this Agreement shall be in effect for a period of four (4)
years from the date hereof, through and including February 25, 2003 (the
"Term").
4.2 Termination.
4.2.1 Termination by Lender. Lender may terminate this Agreement and
at any time without notice upon or after the occurrence of an Event of Default.
4.2.2 Termination by Borrower. Upon at least forty-five (45) days
prior written notice to Lender, Borrowers may, at their option, terminate this
Agreement; provided, however, no such termination shall be effective until
Borrowers have paid all of the Obligations in immediately available funds. Any
notice of termination given by any Borrower shall be deemed given by all
Borrowers and shall be irrevocable unless Lender otherwise agrees in writing,
and Lender shall have no obligation to make any Loans. Borrowers may elect to
terminate this Agreement in its entirety only. No section of this Agreement may
be terminated singly.
4.2.3 Termination Charges. On the effective date of termination of
this Agreement for any reason, Borrowers, jointly and severally, shall pay to
Lender (in addition to the then outstanding principal, accrued interest and
other charges owing under the terms of this Agreement and any of the other Loan
Documents) as liquidated damages for the loss of the bargain (unless termination
is made as the result of and all prepayments of the Loans are made with the
proceeds of a Qualified Secondary Public Offering) and not as a penalty, an
amount equal to three percent (3%) of the Total Credit Facility if termination
occurs during the first twelve-month period of the Term (February 25, 1999
through February 24, 2000); two percent (2%) of the Total Credit Facility if
termination occurs during the second 12-month period of the Term (February 25,
2000 through February 24, 2001); one percent (1%) of the Total Credit Facility
if termination occurs during the third 12-month period of the Term (February 25,
2001 through February 24, 2002). If termination
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occurs after February 25, 2002, or occurs at any time as a result of a Qualified
Secondary Public Offering, no termination charge shall be payable.
4.2.4 Effect of Termination. All of the Obligations shall be
immediately due and payable upon the termination date stated in any notice of
termination of this Agreement. All undertakings, agreements, covenants,
warranties and representations of any Loan Party contained in the Loan Documents
shall survive any such termination and Lender shall retain its Liens in the
Collateral and all of its rights and remedies under the Loan Documents
notwithstanding such termination until Borrowers have paid the Obligations to
Lender, in full, in immediately available funds, together with the applicable
termination charge, if any. Notwithstanding the payment in full of the
Obligations, Lender shall not be required to terminate its security interests in
the Collateral unless, with respect to any loss or damage Lender may incur as a
result of dishonored checks or other items of payment received by Lender from
any Loan Party or any Account Debtor and applied to the Obligations, Lender
shall (i) have received a written agreement, executed by Borrowers and by any
Person reasonably acceptable to Lender whose loans or other advances to
Borrowers are used in whole or in part to satisfy the Obligations, indemnifying
Lender from any such loss or damage; or (ii) have retained such monetary
reserves and Liens on the Collateral for such period of time as Lender, in its
sole credit judgment, may deem necessary to protect Lender from any such loss or
damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment and
performance to Lender of all of the Obligations, each Loan Party hereby grants
to Lender a continuing security interest and Lien upon all of each Loan Party's
assets, including all of the following Property and interests in Property of
each Loan Party, whether now owned or existing or hereafter created, acquired or
arising and wheresoever located:
(A) All Accounts;
(B) All Equipment (except the Excluded Property);
(C) All General Intangibles;
(D) All investment property (as defined in Section 9.115 of
the Code);
(E) All Instruments;
(F) All real Property (except the El Paso Property);
(G) All monies and other Property of any kind now or at any time or
times hereafter in the possession or under the control of Lender or a bailee or
Affiliate of Lender;
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(H) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (A) through (G) above, including
proceeds of and unearned premiums with respect to insurance policies insuring
any of the Collateral; and
(I) All books and records (including customer lists, credit files,
computer programs, print-outs, and other computer materials and records) of each
Loan Party pertaining to any of (A) through (H) above.
5.2 Cross-Collateralization. Each Loan Party agrees that the Collateral
pledged by such Loan Party hereunder shall secure all of the Obligations. Upon
and after an Event of Default by any Borrower, Lender may pursue all rights and
remedies that Lender may have against all or any part of the Collateral
regardless of which Loan Party has legal title to such Collateral. Each Loan
Party hereby acknowledges that this cross-collateralization of the Collateral
owned by such Loan Party is in consideration of Lender extending the credit
hereunder and is mutually beneficial to each Borrower.
5.3 Lien Perfection; Further Assurances. Each Loan Party shall execute
such UCC-1 financing statements as are required by the Code and such other
instruments, assignments or documents as are necessary to perfect Lender's Lien
upon any of the Collateral and shall take such other action as may be required
to perfect or to continue the perfection of Lender's Lien upon the Collateral,
including the delivery to Lender of all Collateral the possession of which is
necessary to perfect the security interest therein. Unless prohibited by
Applicable Law, each Loan Party hereby authorizes Lender to execute and file any
such financing statement on such Loan Party's behalf. The parties agree that a
carbon, photographic or other reproduction of this Agreement shall be sufficient
as a financing statement and may be filed in any appropriate office in lieu
thereof. At Lender's request, each Loan Party shall also promptly execute or
cause to be executed and shall deliver to Lender any and all documents,
instruments and agreements deemed necessary by Lender to give effect to or carry
out the terms or intent of the Loan Documents.
5.4 Lien on Realty. The due and punctual payment and performance of the
Obligations shall also be secured by the Lien created by each Mortgage upon all
real Property of each Loan Party described therein; provided, that Borrowers
shall not be required to secure the Obligations by a Mortgage on the El Paso
Property, except as otherwise provided in Section 8.1.9. Each Mortgage shall be
executed by such Loan Party in favor of Lender and shall be duly recorded, at
such Loan Party's expense (to the extent permitted by Applicable Law), in each
office where such recording is required to constitute a fully perfected Lien on
the real Property covered thereby. Each Loan Party shall deliver to Lender, at
such Loan Party's expense, mortgagee title insurance policies issued by a title
insurance company satisfactory to Lender, which policies shall be in form and
substance satisfactory to Lender and shall insure a valid Lien in favor of
Lender on the Property covered thereby, subject only to those exceptions
acceptable to Lender and its counsel. Each Loan Party shall deliver to Lender
such other documents, including as-built survey prints of the real Property, as
Lender and its counsel may request relating to the real Property subject to the
Mortgage. Until such time as Borrowers have caused the Obligations to be secured
by a first priority lien on the El Paso Property or a first priority lien on the
El Paso Notes, in each case on terms and conditions acceptable
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to Lender, Borrowers acknowledge that Lender shall, at its sole discretion,
maintain a reserve against the amount of Loans which Borrowers might otherwise
request in the amount of $2,400,000.00.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
6.1.1 Location of Collateral. All tangible items of Collateral,
other than motor vehicles, Instruments and investment property held in an
account with a securities intermediary, shall at all times be kept by each Loan
Party and its Subsidiaries at one or more of the business locations of such Loan
Party set forth on Exhibit B and shall not, without the prior written approval
of Lender, be moved therefrom except, prior to an Event of Default and Lender's
acceleration of the maturity of the Obligations in consequence thereof, for
removals in connection with dispositions of Equipment that are authorized by
Section 6.4.2.
6.1.2 Insurance of Collateral. Each Loan Party shall maintain and
pay for insurance upon all Collateral wherever located and with respect to such
Loan Party's business, covering casualty, hazard, public liability and such
other risks in such amounts and with such insurance companies as are reasonably
satisfactory to Lender. Each Loan Party shall deliver the originals or certified
copies of such policies to Lender with satisfactory lender's loss payable
endorsements, which policies shall name Lender as loss payee, assignee or
additional insured, as appropriate. Each policy of insurance or endorsement
shall contain a clause requiring the insurer to give not less than fifteen (15)
days prior written notice to Lender in the event of cancellation of the policy
for any reason whatsoever and a clause specifying that the interest of Lender
shall not be impaired or invalidated by any act or neglect of any Loan Party or
the owner of the Property or by the occupation of the premises for purposes more
hazardous than are permitted by said policy. If any Loan Party fails to provide
and pay for such insurance, Lender may, at its option, but shall not be required
to, procure the same and charge Borrowers therefor. Each Loan Party agrees to
deliver to Lender, promptly as rendered, true copies of all reports made in any
reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of protecting,
insuring, and maintaining the Collateral, any and all excise, property, sales,
and use taxes imposed by Applicable Law on any of the Collateral or in respect
of the "sale" thereof, and all other payments required to be made by Lender to
any Person to realize upon any Collateral shall be borne and paid by Borrowers.
If any Loan Party fails to promptly pay any portion thereof when due, Lender
may, at its option, but shall not be required to, pay the same and charge
Borrowers therefor. Lender shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto (except
for reasonable care in the custody thereof while any Collateral is in Lender's
actual possession) or for any diminution in the value thereof, or for any act or
default of any warehouseman, carrier, forwarding agency, or other Person
whomsoever, but the same shall be at the sole risk of each Loan Party.
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6.2 Administration of Accounts.
6.2.1 Records, Schedules and Assignments of Accounts. Each Loan
Party shall keep accurate and complete records of its Accounts and all payments
and collections thereon. Each Loan Party shall submit to Lender, as soon as
available and in no event later than the fifteenth (15th) day of each month from
and after the date hereof, and at any time on request of Lender within five (5)
days of any such request, a receivables and collections report for the preceding
month or the period specified in such request, as the case may be, each in form
satisfactory to Lender. As soon as available and in no event later than the
fifteenth (15th) day of each month from and after the date hereof, each Loan
Party shall deliver to Lender, in form acceptable to Lender, detailed aged trial
balance of all Accounts existing as of the last day of the preceding month,
specifying the names, addresses, face value, dates of invoices and due dates for
each Account Debtor obligated on an Account so listed ("Schedule of Accounts"),
and, upon Lender's request therefor, copies of any reports to Account Debtors
relating to the delivery of services or head counts of facility populations,
including payment histories and present status reports relating to the Accounts
so scheduled and such other matters and information relating to the status of
then existing Accounts as Lender shall reasonably request. If requested by
Lender at any time after the occurrence and during the continuation of a Default
or an Event of Default, each Loan Party shall execute and deliver to Lender
agings and formal written assignments of all of its Accounts weekly or daily,
which shall include all Accounts that have been created since the date of the
last assignment, together with copies of invoices or invoice registers related
thereto.
6.2.2 Discounts, Allowances, Disputes. If any Loan Party grants any
discounts, allowances or credits that are not shown on the face of the invoice
for the Account involved, such Loan Party shall report such discounts,
allowances or credits, as the case may be, to Lender as part of the next
required Schedule of Accounts. If any amounts due and owing in excess of
$100,000.00 are in dispute between any Loan Party and any Account Debtor, such
Loan Party shall provide Lender with written notice thereof at the time of
submission of the next Schedule of Accounts, explaining in detail the reason for
the dispute, all claims related thereto and the amount in controversy. Upon and
after the occurrence of an Event of Default and so long as it is continuing,
Lender shall have the right to settle or adjust all disputes and claims directly
with the Account Debtor and to compromise the amount or extend the time for
payment of the Accounts upon such terms and conditions as Lender may deem
advisable, and to charge the deficiencies, costs and expenses thereof, including
attorney's fees, to such Loan Party.
6.2.3 Taxes. If an Account includes a charge for any tax payable to
any governmental taxing authority, Lender is authorized, in its sole discretion,
to pay the amount thereof to the proper taxing authority for the account of
Borrowers and to charge Borrowers therefor, provided, however that Lender shall
not be liable for any such taxes to any governmental taxing authority that may
be due by any Loan Party.
6.2.4 Account Verification. Upon or after the occurrence of a
Default or an Event of Default and so long as it is continuing, any of Lender's
officers, employees or agents shall have the right, at any time or times
hereafter, in the name of Lender, any designee of Lender or any Loan
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Party, to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, facsimile transmission or otherwise. Each Loan
Party shall cooperate fully with Lender in an effort to facilitate and promptly
conclude any such verification process.
6.2.5 Maintenance of Dominion Account. Each Loan Party shall
maintain a Dominion Account with such banks as may be selected by such Loan
Party and be acceptable to Lender. All funds deposited in the Dominion Account
shall immediately become the property of Lender and such Loan Party shall obtain
the agreement by such banks in favor of Lender to waive any offset rights
against the funds so deposited. Lender assumes no responsibility for deposits to
the Dominion Accounts, including any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder.
6.2.6 Collection of Accounts, Proceeds of Collateral. To expedite
collection, each Loan Party shall endeavor in the first instance to make
collection of its Accounts for Lender. All remittances received by any Loan
Party in respect of Accounts, together with the proceeds of any other
Collateral, shall be held as Lender's property by such Loan Party as trustee of
an express trust for Lender's benefit and such Loan Party shall immediately
deposit same in kind in the Dominion Account. Lender retains the right at all
times after the occurrence of an Event of Default and so long as it is
continuing to notify Account Debtors that Accounts have been assigned to Lender
and to collect Accounts directly in its own name and to charge the collection
costs and expenses, including attorneys' fees to Borrowers. At Lender's request,
each Loan Party shall establish a lockbox arrangement acceptable to Lender with
such banks as may be selected by a Loan Party and be acceptable to Lender and
shall issue to any such banks an irrevocable letter of instruction directing
such banks to deposit all payments or other remittances received in the lockbox
to the Dominion Account for application on account of the Obligations.
6.3 [RESERVED FOR FUTURE USE]
6.4 Administration of Equipment.
6.4.1 Records and Schedules of Equipment. Each Loan Party shall keep
accurate records itemizing and describing the kind, type, quality, quantity and
value of its Equipment and all dispositions made in accordance with Section
6.4.2, and shall furnish Lender with a current schedule containing the foregoing
information on at least an annual basis and more often if requested by Lender.
Immediately on request therefor by Lender, each Loan Party shall deliver to
Lender any and all evidence of ownership, if any, of any of the Equipment (other
than the Excluded Property).
6.4.2 Dispositions of Equipment. No Loan Party will sell, lease or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lender; provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (i) dispositions of Equipment which, in the aggregate during
any consecutive twelve-month period, has a fair market value or book value,
whichever is less, of $200,000.00 or less,(ii) replacements of Equipment that is
substantially worn, damaged or obsolete with Equipment of like kind, function
and value, provided that the replacement Equipment shall be acquired prior to
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or concurrently with any disposition of the Equipment that is to be replaced,
the replacement Equipment shall be free and clear of Liens other than Permitted
Liens that are not Purchase Money Liens, and such Loan Party shall have given
Lender at least five (5) days prior written notice of such disposition, or (iii)
the Excluded Property.
6.4.3 Condition of Equipment. Each Loan Party represents and
warrants to Lender that the Equipment is in good operating condition and repair,
and all necessary replacements of and repairs thereto shall be made so that the
value and operating efficiency of the Equipment shall be maintained and
preserved, reasonable wear and tear excepted. No Loan Party will permit any of
the Equipment to become affixed to any real Property leased to a Loan Party so
that an interest arises therein under the real estate laws of the applicable
jurisdiction unless the landlord of such real Property has executed a landlord
waiver or leasehold mortgage in favor of and in form acceptable to Lender, and
no Loan Party will permit any of the Equipment to become an accession to any
personal Property that is subject to a Lien unless the Lien is a Permitted Lien
(other than a Purchase Money Lien).
6.5 Payment of Charges. All amounts chargeable to any Loan Party under
Section 6 shall be Obligations secured by all of the Collateral, shall be
payable each Borrower, jointly and severally, on demand and shall bear interest
from the date such advance was made until paid in full at the rate applicable to
the Base Rate Portion from time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to enter into
this Agreement and to make advances hereunder, the Loan Parties, jointly and
severally, warrant and represent to Lender and covenant with Lender that:
7.1.1 Organization and Qualification. Each Loan Party is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. Each Loan Party is duly qualified and
is authorized to do business and is in good standing as a foreign corporation in
each state or jurisdiction listed on Exhibit C hereto and in all other states
and jurisdictions where the character of its Properties or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified would not have a Material Adverse Effect.
7.1.2 Corporate Power and Authority. Each Loan Party is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other Loan
Documents have been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval of the shareholders of any Loan
Party; (ii) contravene any Loan Parties' charter, articles or certificate of
incorporation or by-laws; (iii) violate, or cause any Loan Party to be in
default under, any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award in effect having
applicability to such Loan Party; (iv) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which any Loan Party is a party or by which
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it or its Properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any Lien (other than Permitted Liens) upon or with
respect to any of the Properties now owned or hereafter acquired by any Loan
Party.
7.1.3 Legally Enforceable Agreement. This Agreement is, and each of
the other Loan Documents when delivered under this Agreement will be, a legal,
valid and binding obligation of each Loan Party enforceable against them in
accordance with its respective terms, except to the extent that such enforcement
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or by principles of equity pertaining to the
availability of equitable remedies.
7.1.4 Capital Structure. Exhibit D hereto states (i) the correct
name of each Loan Party, its jurisdiction of incorporation and the percentage of
its Voting Stock owned by a Loan Party, as the case may be, (ii) the name of
each corporate or joint venture Affiliate of each Loan Party and the nature of
the affiliation, (iii) the number, nature and holder of all outstanding
Securities of each Loan Party, and (iv) the number of authorized, issued and
treasury shares of each Loan Party. Avalon has good title to all of the shares
it purports to own of the stock of Southern, Central, and Elk City, free and
clear in each case of any Lien other than Permitted Liens. Each Loan Party has
good title to all of the shares it purports to own of the stock of each of its
Subsidiaries, free and clear in each case of any Lien other than Permitted
Liens. All such shares have been duly issued and are fully paid and
non-assessable. Except as set forth on Exhibit D, there are no outstanding
options to purchase, or any rights or warrants to subscribe for, or any
commitments or agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares of the capital
stock of any Loan Party. Except as described on Exhibit D, there are no
outstanding agreements or instruments binding upon any shareholders of any Loan
Party relating to the ownership of its shares of capital stock.
7.1.5 Corporate Names. No Loan Party has been known as or used any
corporate, fictitious or trade names except those listed on Exhibit E hereto.
Except as set forth on Exhibit E, no Loan Party has been the surviving
corporation of a merger or consolidation or acquired all or substantially all of
the assets of any Person.
7.1.6 Business Locations; Agent for Process. The chief executive
office and other places of business of each Loan Party are as listed on Exhibit
B hereto. During the preceding five-year period, no Loan Party has had an
office, place of business or agent for service of process other than as listed
on Exhibit B.
7.1.7 Title to Properties; Priority of Liens. Each Loan Party has
good and indefeasible title to and fee simple ownership of, or valid and
subsisting leasehold interests in, all of its real Property, and good title to
all of the Collateral and all of its other Property, in each case, free and
clear of all Liens except Permitted Liens. No Loan Party has acquired any of the
Collateral from any Person (other than purchases of Equipment in the ordinary
course of business of the seller thereof) within the five-year period
immediately preceding the Closing Date except as set forth on Exhibit Q. Each
Loan Party has paid or discharged all lawful claims which, if unpaid, might
become
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a Lien against any of such Loan Party's Properties that is not a Permitted Lien.
The Liens granted to Lender under Section 5 are first priority Liens, subject
only to Permitted Liens.
7.1.8 Accounts. Unless otherwise indicated in writing to Lender,
with respect to each Account:
(A) It is genuine and in all respects what it purports to be,
and it is not evidenced by a judgment;
(B) It arises out of a completed, bona fide rendition of
services by a Loan Party in the ordinary course of its business and in
accordance with the terms and conditions of all contracts or other documents
relating thereto and forming a part of the contract between such Loan Party and
the Account Debtor;
(C) It is for a liquidated amount maturing as stated in the
duplicate invoice covering such rendition of services, a copy of which has been
furnished or is available to Lender;
(D) Such Account, and Lender's security interest therein, is
not subject to any offset, Lien, deduction, defense, dispute, counterclaim or
any other adverse condition except for Permitted Liens and each such Account is
absolutely owing to a Loan Party and is not contingent in any respect or for any
reason;
(E) No Loan Party has made any agreement with any Account
Debtor thereunder for any extension, compromise, settlement or modification of
any such Account or any deduction therefrom;
(F) To the best knowledge of each Loan Party after due
inquiry, there are no facts, events or occurrences which in any way impair the
validity or enforceability of any Accounts or tend to reduce the amount payable
thereunder from the face amount of the invoice and statements delivered to
Lender with respect thereto; and
(G) To the best of such Loan Party's knowledge, the Account
Debtor thereunder had the capacity to contract at the time any contract or other
document giving rise to the Account was executed.
7.1.9 Financial Statements; Fiscal Year. The Consolidated balance
sheets of Avalon and its Subsidiaries as of December 31, 1998, and the related
statements of income, changes in stockholder's equity, and changes in financial
position for the periods ended on such dates, have been prepared in accordance
with GAAP, and present fairly the Consolidated financial position of Avalon and
its Subsidiaries at such dates and the results of the operations of Avalon and
its Subsidiaries for such periods. Since December 31, 1998, there has been no
material change in the condition, financial or otherwise, of Avalon and its
Subsidiaries and no change in the aggregate value of Equipment and real Property
owned by Avalon and its Subsidiaries, except changes in the ordinary course of
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business, none of which could reasonably be expected to have a Material Adverse
Effect. The fiscal year of Avalon and each of its Subsidiaries ends on December
31 of each year.
7.1.10 Full Disclosure. The financial statements referred to in Section
7.1.9 do not, nor does this Agreement or any other written statement of any Loan
Party to Lender, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein or herein not
misleading. There is no fact or circumstances which any Loan Party has failed to
disclose to Lender in writing which could reasonably be expected to have a
Material Adverse Effect.
7.1.11 Solvent Financial Condition. Each Loan Party is now and, after
giving effect to the Loans to be made hereunder, at all times will be, Solvent.
7.1.12 Surety Obligations. No Loan Party is obligated as surety or
indemnitor under any surety or similar bond or other contract issued or entered
into any agreement to assure payment, performance or completion of performance
of any undertaking or obligation of any Person.
7.1.13 Taxes. The federal tax identification number of each Loan Party is
shown on Exhibit F. Each Loan Party has filed all federal, state and local tax
returns and other reports it is required by law to file and has paid, or made
provision for the payment of, all Taxes upon it, its income and Properties as
and when such Taxes are due and payable, except to the extent any such Taxes are
being Properly Contested. The provision for Taxes on the books of the Loan
Parties are adequate for all years not closed by applicable statutes, and for
its current fiscal year.
7.1.14 Brokers. There are no claims for brokerage commissions, finder's
fees or investment banking fees in connection with the transactions contemplated
by this Agreement except for fees owing by Avalon to Cooley & Co. and Legg Mason
Wood Walker, Incorporated, which in the aggregate do not exceed $180,000.00.
7.1.15 Patents, Trademarks, Copyrights and Licenses. Each Borrower and its
Subsidiaries owns or possesses all the patents, trademarks, service marks, trade
names, copyrights and licenses necessary for the present and planned future
conduct of its business without any known conflict with the rights of others.
All such patents, trademarks, service marks, trade names, copyrights, licenses
and other similar rights are listed on Exhibit G hereto.
7.1.16 Governmental Consents. Each Loan Party is in good standing with
respect to, all governmental consents, approvals, licenses, authorizations,
permits, certificates, inspections and franchises necessary to continue to
conduct its business as heretofore or proposed to be conducted by it and to own
or lease and operate its Properties as now owned or leased by it except for such
consents, approvals, licenses, authorizations, permits, certificates,
inspections and franchises the absence of which could not reasonably be expected
to have a Material Adverse Effect.
7.1.17 Compliance with Laws. Each Loan Party has duly complied in all
materialrespects with, and its Properties, business operations and leaseholds
are in compliance in all material
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respects with, the provisions of all Applicable Laws and there have been no
citations, notices or orders of noncompliance issued to any Loan Party under
such law, rule or regulation.
7.1.18 Restrictions. No Loan Party is a party or subject to any contract,
agreement, or charter or other corporate restriction, which has or could
reasonably be expected to have a Material Adverse Effect. Except as set forth on
Exhibit H , no Loan Party is a party or subject to any contract or agreement
which restricts the right or ability of any Loan Party to incur Indebtedness. No
contracts or agreements to which any Loan Party is a party or by which any of
their respective properties are bound prohibits the execution of or compliance
with this Agreement or the other Loan Documents by any Loan Party.
7.1.19 Litigation. Except as set forth on Exhibit I, there are no actions,
suits, proceedings or investigations pending, or to the knowledge of any Loan
Party, threatened, against or affecting any Loan Party, or the business,
operations, Properties, prospects, profits or condition of any Loan Party. None
of the actions, suits or proceedings listed on Exhibit I, if determined
adversely to any Loan Party, could reasonably be expected to have a Material
Adverse Effect. No Loan Party is in default with respect to any order, writ,
injunction, judgment, decree or rule of any court, governmental authority or
arbitration board or tribunal.
7.1.20 No Defaults. No event has occurred and no condition exists which
would, upon or after the execution and delivery of this Agreement or the
performance by any Loan Party hereunder, constitute a Default or an Event of
Default. No Loan Party is in default, and no event has occurred and no condition
exists which constitutes, or which with the passage of time or the giving of
notice or both would constitute, a default in the payment of any Indebtedness to
any Person for Money Borrowed the amount of which, together with the amount of
any other such Indebtedness for Money Borrowed with respect to which there has
been a default in payment, exceeds $250,000.00.
7.1.21 Leases. Exhibit J is a complete listing of all capitalized leases of
each Borrower and its Subsidiaries and Exhibit K sets forth a complete listing
of all operating leases of each Borrower and its Subsidiaries. Each Borrower and
its Subsidiaries is in full compliance with all of the terms of each of their
respective capitalized and operating leases.
7.1.22 Pension Plans. Except as disclosed on Exhibit L, no Loan Party has
any Plan. Each Loan Party is in full compliance with the requirements of ERISA
and the regulations promulgated thereunder with respect to each Plan. No fact or
situation that could reasonably be expected to have a Material Adverse Effect on
any Loan Party exists in connection with any Plan. No Loan Party has any
withdrawal liability in connection with a Multiemployer Plan.
7.1.23 Trade Relations. There exists no actual or, to the best knowledge of
Borrowers, threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship between any Borrower or its
Subsidiaries and any customer or any group of customers whose contractual
relationship for the provision of services individually or in the aggre gate are
material to the business of any Borrower or its Subsidiaries, and there exists
no condition or state of facts or circumstances which could reasonably be
expected to have a Material Adverse
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Effect or prevent any Loan Party from conducting such business after the
consummation of the transaction contemplated by this Agreement in substantially
the same manner in which it has heretofore been conducted by such Loan Party.
7.1.24 Labor Relations. Except as described on Exhibit M, no Borrower nor
any Subsidiary of any Borrower is a party to any collective bargaining
agreement. There are no material grievances, disputes or controversies with any
union or any other organization of employees of any Borrower or its
Subsidiaries, or threats of strikes, work stoppages or any asserted pending
demands for collective bargaining by any union or organization.
7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate, complete and
not misleading at all times during the term of this Agreement, except for (i)
such representations and warranties that by their nature are limited only to a
specific date in time and (ii) changes in the nature of the business or
operations of any Loan Party that would render the information in any Exhibit or
Schedule either inaccurate, incomplete or misleading; provided that Lender has
consented to such changes or such changes are expressly permitted by this
Agreement.
7.3 Survival of Representations and Warranties. Except for such
representations and warranties that by their nature are limited only to a
specific date in time, all representations and warranties of each Loan Party
contained in this Agreement or any of the other Loan Documents shall survive the
execution, delivery and acceptance thereof by Lender and the parties thereto and
the closing of the transactions described therein or related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, each Loan Party,
jointly and severally, covenant that, unless otherwise consented to by Lender in
writing, they shall:
8.1.1 Visits and Inspections. Permit representatives of Lender, from
time to time, as often as may be reasonably requested, but only during normal
business hours, to (i) visit and inspect its Properties and the Properties of
each of their respective Subsidiaries, and (ii) inspect, audit and make extracts
from its books and records, and discuss with its officers, its employees and its
independent accountants, any Loan Party's business, assets, liabilities,
financial condition, business prospects and results of operations.
8.1.2 Notices. Notify Lender in writing (i) of the occurrence of any
event or the existence of any fact which renders any representation or warranty
in this Agreement or any of the other Loan Documents inaccurate, incomplete or
misleading, and (ii) promptly after any Loan Party learning thereof, of the
commencement of any litigation affecting any Loan Party or any of their
respective Properties, whether or not the claim is considered by such Loan Party
to be covered by insurance, and of the institution of any administrative
proceeding which if determined adversely to
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any Loan Party, would have a Material Adverse Effect; (iii) at least thirty (30)
days prior thereto, of any Loan Party's opening of any new office or place of
business or any Loan Party's closing of any existing office or place of business
if the value of any Collateral to be located or located at such office or place
of business exceeds $100,000.00; (iv) promptly after any Loan Party's learning
thereof, of any labor dispute to which such Loan Party or any of its
Subsidiaries may become a party, any strikes or walkouts relating to any of
their respective plants or other facilities, and the expiration of any labor
contract to which any of them is a party or by which any of them is bound; (v)
promptly after any Loan Party's learning thereof, of any material default by any
Loan Party under any note, indenture, loan agreement, mortgage, lease, deed,
guaranty or other similar agreement relating to any Indebtedness exceeding
$100,000.00; (vi) promptly after the occurrence thereof, of any Default or Event
of Default; (vii) promptly after the occurrence thereof, of any default by any
obligor under any note or other evidence of Indebtedness payable to any Loan
Party or its Subsidiaries exceeding $100,000.00; (viii) promptly after the
rendition thereof, of any judgment rendered against any Loan Party in an amount
exceeding $100,000.00; (ix) on the date required under the RSTW Loan Agreement,
a copy of any notice required under Section 6.5 or Section 6.14 of such
agreement, (x) promptly following receipt thereof by any Loan Party, a copy of
any demand for payment under the RSTW Loan Agreement, and (xi) at least five (5)
Business Days prior thereto, notice of any proposed payment by any Loan Party
under Section 2.2 or Section 2.3 of the RSTW Loan Agreement.
8.1.3 Financial Statements. Keep, and cause each Subsidiary to keep,
adequate records and books of account with respect to its business activities in
which proper entries are made in accordance with GAAP reflecting all its
financial transactions; and cause to be prepared and furnished to Lender the
following (all to be prepared in accordance with GAAP applied on a consistent
basis, unless Avalon's certified public accountants concur in any change therein
and such change is disclosed to Lender and is consistent with GAAP):
(A) as soon as available but not later than ninety (90) days
after the close of each fiscal year of Avalon, unqualified audited financial
statements of Avalon and its Subsidiaries as of the end of such year, on a
Consolidated basis, certified by a firm of independent certified public
accountants of recognized standing selected by Avalon but acceptable to Lender
(except for a qualification for a change in accounting principles with which the
accountant concurs);
(B) as soon as available but not later than thirty (30) days
after the end of each month hereafter, including the last month of Avalon's
fiscal year, unaudited interim financial statements of each Loan Party and its
Subsidiaries as of the end of such month and of the portion of Avalon's
financial year then elapsed, on a Consolidated and consolidating basis,
certified by the principal financial officer of such Loan Party as prepared in
accordance with GAAP and fairly presenting the Consolidated financial position
and results of operations of such Loan Party and its Subsidiaries for such month
and period subject only to changes from audit and year-end adjustments and
except that such statements need not contain notes;
(C) promptly after the sending or filing thereof, as the case
may be, copies of any proxy statements, financial statements or reports which
Avalon has made available to its
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shareholders and copies of any regular, periodic and special reports or
registration statements which Avalon files with the Securities and Exchange
Commission or any governmental authority which may be substituted therefor, or
any national securities exchange;
(D) promptly after the filing thereof, copies of any annual
report to be filed with ERISA in connection with each Plan;
(E) on the date required under the RSTW Loan Agreement, a copy
of any financial report or other document required under Section 6.1 or Section
6.2 of such agreement; and
(F) such other data and information (financial and otherwise)
as Lender, from time to time, may reasonably request, bearing upon or related to
the Collateral or financial condition or results of operations of any Loan
Party.
As soon as available, and in any event not later than five (5) days after
the receipt thereof, Avalon shall forward to Lender a copy of the accountants'
letter to Avalon's management that is prepared in connection with the financial
statements described in clause (A) of this Section 8.1.3. Concurrently with the
delivery of the financial statements described in clauses (A) and (B) of this
Section 8.1.3, or more frequently if requested by Lender, Avalon shall cause to
be prepared and furnished to Lender a Compliance Certificate in the form of
Exhibit N hereto executed by the chief financial officer of Avalon.
8.1.4 Borrowing Base Certificate. Together with each delivery of
financial statements of Avalon and its Subsidiaries pursuant to Section 8.1.3
above, and from time to time upon request of Lender, Borrowers will deliver to
Lender a Borrowing Base Certificate (in substantially the form as Exhibit P) as
of the last day of the immediately preceding month, prepared on a consolidated
basis and otherwise in form and substance reasonably satisfactory to Lender.
8.1.5 Projections. No later than thirty (30) days prior to the end
of each fiscal year of Avalon, deliver to Lender projections of Avalon
(consisting of Consolidated and consolidating balance sheets, income statements
and cash flow statements, together with appropriate supporting details and
underlying assumptions) for the forthcoming fiscal year, month by month.
8.1.6 Taxes. Pay and discharge, and cause each Subsidiary to pay and
discharge, all Taxes prior to the date on which such Taxes become delinquent or
penalties attach thereto, except and only to the extent that such Taxes are
being Properly Contested.
8.1.7 Compliance with Laws. Comply and cause each Subsidiary to
comply, with all Applicable Laws, including all laws, statutes, regulations and
ordinances regarding the collection, payment and deposit of all Taxes, and all
ERISA and Environmental Laws, and obtain and keep in force any and all licenses,
permits, franchises, or other governmental authorizations necessary to the
ownership of its Properties or to the conduct of its business, which violation
or failure to obtain could reasonably be expected to have a Material Adverse
Effect.
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8.1.8 Certain Other Insurance. In addition to the insurance required
herein with respect to the Collateral, each Loan Party shall maintain, with
financially sound and reputable insurers, insurance with respect to its
Properties and business against such casualties and contingencies of such type
(including product liability, business interruption, larceny, embezzlement, or
other criminal misappropriation insurance) as is customary in its business and
in such amounts as is acceptable to Lender.
8.1.9 El Paso Property. Borrowers shall use their best efforts to
cause the holders of the El Paso Notes to accept prepayment in full of the El
Paso Notes or transfer and assign the El Paso Notes to Avalon on or before May
1, 1999. Upon the prepayment or purchase of the El Paso Notes (regardless of
when such prepayment or purchase may occur), Avalon shall (a) in the case of a
purchase of the El Paso Notes, assign and deliver the El Paso Notes to Lender as
Collateral for the Obligations on terms and conditions acceptable to Lender, or
(b) in case of a prepayment of the El Paso Notes, execute or cause to be
executed a Mortgage in favor of Lender upon the El Paso Property by the owner of
the El Paso Property in accordance with Section 5.4 and deliver to Lender the
title insurance policies, surveys, and other items required by Section 5.4 with
respect to real Property of Loan Parties subject to a Mortgage. In the event
Borrowers are unable to cause the prepayment or purchase of the El Paso Notes on
or before May 1, 1999, unless Borrowers have caused the holders of the El Paso
Notes to consent to the filing of a Mortgage on the El Paso Property subject
only to the prior Lien of the holders of the El Paso Notes and caused such
Mortgage to be filed of record and the other items required by Section 5.4 to be
delivered to Lender, all Cash Flow from the El Paso Property shall be excluded
from the calculation of the Borrowing Base and the reserve described in Section
5.4 shall be reduced to an amount equal to the greater of (1) zero and (2)(i)
$2,400,000 minus (ii)(a) El Paso EBITDA, multiplied by (b) three (3).
Notwithstanding anything to the contrary set forth herein, Borrowers shall cause
the El Paso Note described in clause (a) of the definition thereof to be prepaid
in full on or before August 1, 2000, and shall cause the El Paso Note described
in clause (b) of the definition thereof to be prepaid in full on or before
October 1, 2000.
8.2 Negative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, the Loan Parties, jointly
and severally, covenant that, unless Lender has first consented thereto in
writing, no Loan Party will:
8.2.1 Mergers; Consolidations; Acquisitions. Merge or consolidate,
or permit any of its Subsidiaries to merge or consolidate, with any Person; nor
acquire, nor permit any of its Subsidiaries to acquire, all or any substantial
part of the Properties of any Person.
8.2.2 Loans. Make, or permit any of its Subsidiaries to make, any
loans or other advances of money (other than for salary, travel advances,
advances against commissions and other similar advances in the ordinary course
of business) to any Person.
8.2.3 Total Indebtedness. Create, incur, assume, or suffer to exist,
or permit any of their respective Subsidiaries to create, incur or suffer to
exist, any Indebtedness, except:
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(A) Obligations owing to Lender;
(B) Obligations with respect to the RSTW Debt;
(C) Indebtedness with respect to the Convertible Notes;
(D) Indebtedness of any Subsidiaries of a Borrower to such
Borrower;
(E) accounts payable to trade creditors and current operating
expenses (other than for Money Borrowed) which are not aged more than thirty
(30) days from the due date specified in the original invoice or for more than
sixty (60) days if no due date is specified, in each case incurred in the
ordinary course of business and paid within such time period, unless the same
are being Properly Contested;
(F) Obligations to pay Rentals permitted by Section 8.2.12;
(G) Permitted Purchase Money Indebtedness;
(H) contingent liabilities arising out of endorsements of
checks and other negotiable instruments for deposit or collection in the
ordinary course of business;
(I) Indebtedness existing on the date hereof (including, but
not limited to, Indebtedness for the Excluded Property) and described on Exhibit
O hereto; and
(J) Indebtedness not included in paragraphs (A) through (I)
above which does not exceed at any time, in the aggregate, the sum of
$250,000.00.
8.2.4 Affiliate Transactions. Enter into, or be a party to, or
permit any of their respective Subsidiaries to enter into or be a party to, any
transaction with any Affiliate or stockholder, except for transactions in the
ordinary course of and pursuant to the reasonable requirements of the business
of any Borrower or its Subsidiary and upon fair and reasonable terms which are
fully disclosed to Lender and are no less favorable than would be obtained in a
comparable arm's length transaction with a Person not an Affiliate or
stockholder of such Borrower or its Subsidiary.
8.2.5 Limitation on Liens. Create or suffer to exist, or permit any
of their respective Subsidiaries to create or suffer to exist, any Lien upon any
of its Property, income or profits, whether now owned or hereafter acquired,
except:
(A) Liens at any time granted in favor of Lender;
(B) Liens for Taxes (excluding any Lien imposed pursuant to
any of the provisions of ERISA) not yet due, or being Properly Contested;
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(C) Liens of landlords, carriers, warehousemen, mechanics,
materialmen and other similar liens arising in the ordinary course of its
business by operation of law or regulation, but only if (i) payment in respect
of any such Lien is not at the time required, (ii) such Lien does not materially
detract from the value of the Property or materially impair the use thereof in
the operation of its business, or (iii) is being Properly Contested;
(D) Purchase Money Liens securing Permitted Purchase Money
Indebtedness;
(E) Liens securing Indebtedness of one of any Borrower's
Subsidiary to a Borrower or any Subsidiary of a Borrower;
(F) Such other Liens as appear on Exhibit O hereto;
(G) such other Liens as Lender may hereafter approve in
writing; and
(H) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety, stay, customs and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of borrowed
money).
8.2.6 Subordinated Debt. (i) Make, or permit any Loan Party to make,
any payment of any part or all of any Subordinated Debt or take any other action
or omit to take any other action in respect of any Subordinated Debt, except in
accordance with the Subordination Agreement applicable thereto or the
subordination provisions of such Subordinated Debt, as the case may be, (ii)
agree to any amendment, modification or supplement to the RSTW Debt Documents
except as permitted in the RSTW Subordination Agreement, (iii) without the prior
written consent of Lender, agree to any amendment, modification or supplement to
any of the documents evidencing the Other Subordinated Debt, including, without
limitation, any amendment, modification or supplement the effect of which is to
increase the maximum principal amount of such Other Subordinated Debt or rate of
interest on any of such Other Subordinated Debt, (iv) change the dates upon
which payments of principal or interest on the Other Subordinated Debt are due,
(v) change, or add any event of default or any covenant with respect to the
Other Subordinated Debt, (vi) change the redemption or prepayment provisions of
the Other Subordinated Debt, (vii) alter the subordination provisions with
respect to any Subordinated Debt, including, without limitation, subordinating
such Subordinated Debt to any other debt (except that the Convertible Notes may
be subordinated to the RSTW Debt), (viii) change the maturity date of any Other
Subordinated Debt or otherwise to alter the repayment terms of the Other
Subordinated Debt, (ix) grant any Liens or security interests in any assets of
any Loan Party or any other assets securing the Obligations to secure the
Subordinated Debt, or (x) change or amend any other term of the documents
evidencing the Subordinated Debt if such change or amendment would increase the
obligations of any Loan Party or confer additional material rights on holder of
the Subordinated Debt in a manner adverse to any Loan Party or Lender.
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8.2.7 Distributions. Declare or make, or permit any of their
respective Subsidiaries to declare or make, any Distributions, except
distributions of a Subsidiary of Avalon to its direct parent or to Avalon.
8.2.8 Capital Expenditures. The Loan Parties will not make any
Capital Expenditure if, as a result thereof, the Capital Expenditures of the
Loan Parties would, in the aggregate, exceed (i) $650,000 during the period from
January 1, 1999 through December 31, 1999, (ii) $700,000 during the fiscal year
ending December 31, 2000, (iii) $750,000.00 during the fiscal year ending
December 31, 2001, and (iv) $800,000 during the fiscal year ending December 31,
2002.
8.2.9 Disposition of Assets. Sell, lease or otherwise dispose of any
of, or permit any of their respective Subsidiaries to sell, lease or otherwise
dispose any of, its Properties, including any disposition of Property (other
than Excluded Property) as part of a sale and leaseback transaction, to or in
favor of any Person, except for dispositions expressly authorized by this
Agreement.
8.2.10 Stock of Subsidiaries. Permit any of their respective
Subsidiaries to issue any additional shares of its capital stock.
8.2.11 Restricted Investment. Make or have, or permit any of their
respective Subsidiaries to make or have, any Restricted Investment.
8.2.12 Operating Leases. Become, or permit any of their respective
Subsidiaries to become, a lessee under any operating lease (other than a lease
for the Excluded Property or a lease under which Borrower or any of their
respective Subsidiaries is lessor) of Property if the aggregate Rentals payable
during any current or future period of twelve (12) consecutive months under the
lease in question and all other leases under which Borrower or any of their
respective Subsidiaries is then lessee would exceed $250,000.00. The term
"Rentals" means, as of the date of determination, all payments which the lessee
is required to make by the terms of any lease.
8.2.13 Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than their respective
Subsidiaries or Avalon.
8.2.14 Emerald Square. Make any loan, advance, or capital
contribution to Emerald Square, make any payment, transfer or assignment of cash
or any Property by or on behalf of Emerald Square, or guaranty any Indebtedness
of Emerald Square other than the guaranty of Indebtedness in the principal
amount of $1,990,000.00 existing on the Closing Date; provided that in any
fiscal year of Avalon, Avalon may make loans or capital contributions to Emerald
Square not to exceed, in the aggregate, $100,000.00.
8.2.15 Modification of Convertible Notes. Agree to any
modification, amendment or waiver of any of the terms or provisions of the
Convertible Notes.
8.2.16 Construction or Acquisition of New Facilities. Begin the
construction of or acquire any community correctional or juvenile facility
without first obtaining (i) a written contract regarding the construction of
such community correctional or juvenile facility from the Person
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intending to utilize such facility (including, but not limited to, any proper
governmental or quasi-governmental body or authority, whether national, federal,
state, county, municipality, local or otherwise, and any instrumentality,
division agency, body or department thereof), and (ii) the prior written consent
of Lender.
8.3 Specific Financial Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, the Loan Parties,
jointly and severally, covenant that, unless otherwise consented to by Lender in
writing, Avalon, on a Consolidated basis, shall:
8.3.1 Fixed Charge Ratio. Maintain as of the end of each period set
forth below, for the cumulative period ending on such date, a Fixed Charge
Coverage Ratio of not less than the ratio set forth below for the period
indicated below:
Period Ratio
(i) Six calendar month (i) .70 to 1.0
period ending on
June 30, 1999
(ii) Nine calendar month (ii) .95 to 1.0
period ending on
September 30, 1999
(iii) Twelve calendar month (iii) 1.10 to 1.0
period ending on
December 31, 1999
(iv) Twelve calendar month (iv) 1.10 to 1.0
period ending on
March 31, 2000
(v) Twelve calendar month (v) 1.10 to 1.0
period ending on
June 30, 2000
(vi) Twelve calendar month (vi) 1.10 to 1.0
period ending
on September 30, 2000
(vii) Twelve calendar month (vii) 1.25 to 1.0
period ending on
December 31, 2000
(viii) Twelve calendar month (viii) 1.25 to 1.0
period ending
respectively on the
last day of each
thereafter occurring
fiscal quarter
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8.3.2 Funded Indebtedness to EBITDA. Maintain a ratio of Funded
Indebtedness as of the end of each period set forth below, to EBITDA for the
cumulative period ending on such date, equal to or greater than the ratio set
forth below for the period corresponding thereto:
Period Ratio
(i) Twelve calendar month (i) 8.50 to 1.0
period ending on
September 30, 1999
(ii) Twelve calendar month (ii) 8.00 to 1.0
period ending on December
31, 1999
(iii) Twelve calendar month (iii) 7.00 to 1.0
period ending on
March 31, 2000
(iv) Twelve calendar month (iv) 6.00 to 1.0
period ending on June 30,
2000
(v) Twelve calendar month (v) 5.50 to 1.0
period ending on
September 30, 2000
(vi) Twelve calendar month (vi) 5.00 to 1.0
period ending on
December 31, 2000
(vii) Twelve calendar month (vii) 4.50 to 1.0
period ending respectively
on the last day of each
thereafter occuring fiscal
quarter
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8.3.3 EBITDA. Maintain, as of the last day of the cumulative period
indicated below, EBITDA of not less than the amount shown below as of the date
shown below:
Period Amount
(i) Six calendar month (i) $1,100,000.00
period ending on
June 30, 1999
(ii) Nine calendar month (ii) $2,100,000.00
period ending on
September 30, 1999
(iii) Twelve calendar month (iii) $3,100,000.00
period ending on
December 31, 1999
(iv) Twelve calendar month (iv) $3,500,000.00
period ending on March
31, 2000
(v) Twelve calendar month (v) $4,000,000.00
period ending on
June 30, 2000
(vi) Twelve calendar month (vi) $4,500,000.00
period ending on
September 30, 2000
(vii) Twelve calendar month (vii) $5,000,000.00
period ending on
December 31, 2000
(viii)Twelve calendar month (viii) $5,500,000.00
period ending on
March 31, 2001
(ix) Twelve calendar month (ix) $6,000,000.00
period ending on June 30,
2001
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(x) Twelve calendar month (x) $6,500,000.00
period ending on
September 30, 2001
(xi) Twelve calendar month (xi) $7,000,000.00
period ending on December
31, 2001
(xii) Twelve calendar month (xii) $7,000,000.00
period ending
respectively on the last
day of each thereafter
occurring fiscal quarter
8.3.4. Senior Debt to EBITDA. Maintain a ratio of Senior Debt
as of the end of each period set forth below, to EBITDA for the cumulative
period ending on such date, equal to or greater than the ratio set forth below
for the period corresponding thereto:
Period Ratio
(i) Twelve calendar month (i) 4.50 to 1.0
period ending on
June 30, 1999
(ii) Twelve calendar month (ii) 4.25 to 1.0
period ending on September
30, 1999
(iii) Twelve calendar month (iii) 4.25 to 1.0
period ending on December
31, 1999
(iv) Twelve calendar month (iv) 4.00 to 1.0
period ending on March 31,
2000
(v) Twelve calendar month (v) 3.25 to 1.0
period ending on
June 30, 2000
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(ix) Twelve calendar month (ix) 3.25 to 1.0
period ending respectively
on the last day of each
thereafter occurring fiscal
quarter
SECTION 9. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the other
Loan Documents, and without affecting in any manner the rights of Lender under
the other sections of this Agreement, Lender shall not be required to make any
Loan under this Agreement unless and until each of the following conditions has
been and continues to be satisfied (unless otherwise waived in writing by
Lender):
9.1 Documentation. Lender shall have received, in form and substance
satisfactory to Lender and its counsel, a duly executed copy of this Agreement
and the other Loan Documents, together with such additional documents,
instruments and certificates as Lender and its counsel shall require in
connection therewith from time to time, all in form and substance satisfactory
to Lender and its counsel.
9.2 No Default. No Default or Event of Default shall exist.
9.3 Other Loan Documents. Each of the conditions precedent set forth in
the other Loan Documents shall have been satisfied.
9.4 Articles of Incorporation. Lender shall have received a copy of the
Articles or Certificate of Incorporation of each Loan Party, and all amendments
thereto, certified by the Secretary of State or other appropriate official of
the jurisdiction of incorporation of such Loan Party.
9.5 Good Standing Certificates. Lender shall have received good standing
certificates for each Loan Party, issued by the Secretary of State or other
appropriate official of the jurisdiction of incorporation of such Loan Party and
each jurisdiction where the conduct of the business activities or ownership of
Property of such Loan Party necessitates qualification.
9.6 Opinion Letters. Lender shall have received a favorable, written
opinion of counsel to the Loan Parties, as to the transactions contemplated by
this Agreement, to be in form and substance satisfactory to Lender and Lender's
counsel, in their sole discretion addressed to Lender
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or accompanied by a written authorization from the Person delivering such legal
opinion stating that Lender may rely on such opinion as though it was addressed
to it.
9.7 Insurance. Lender shall have received copies of the casualty insurance
policies of each Loan Party, together with loss payable endorsements on Lender's
standard form of loss payee endorsement naming Lender as loss payee and copies
of the liability insurance policies of each Loan Party, together with
endorsements naming Lender as a co-insured.
9.8 Disbursement Letter. Lender shall have received written instructions
from Borrowers directing application of proceeds of the Loans made pursuant to
this Agreement and a Borrowing Base Certificate from Borrowers, each in form
satisfactory to Lender.
9.9 Accounts. Lender shall have received the duly executed agreement
establishing a Dominion Account for each Borrower with a financial institution
acceptable to Lender for the collection or servicing of the Accounts and a duly
executed Dominion Account Agreement with a financial institution acceptable to
Lender covering the bank accounts of each Borrower designated by Lender.
9.10 No Litigation. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement, the Prior Acquisitions or the consummation of the transactions
contemplated hereby.
9.11 Evidence of Perfection and Priority of Liens in Collateral. Lender
shall have received copies of all filing receipts or acknowledgments issued by
any governmental authority to evidence any filing or recordation necessary to
perfect the Liens of Lender in the Collateral and evidence in form satisfactory
to Lender that such Liens constitute valid and perfected security interests and
Liens, and that there are no other Liens upon any Collateral except for
Permitted Liens.
9.12 Phase I Environmental Surveys. Loan Parties shall have provided
Lender with Phase I Environmental Surveys for the real Property of the Loan
Parties, the form and content of which shall be deemed satisfactory by Lender in
its sole discretion.
9.13 Subordination Agreements. Lender and RSTW shall have entered into the
RSTW Subordination Agreement and Lender and the holders of the Consolidated
Notes shall have entered into a Subordination Agreement satisfactory to Lender,
in its sole and absolute discretion.
9.14 Pro Forma Balance Sheet. Borrowers shall have delivered to Lender a
Pro Forma Balance Sheet in form and substance acceptable to Lender, in its sole
and absolute discretion.
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9.15 Carver Center Zoning. Lender shall have obtained a legal review by
Lender's counsel of the zoning restrictions applicable to the Carver Center and
Lender shall have been satisfied as to the results of such review.
9.16 ODC Contract Renewals. Lender shall have received evidence
satisfactory to Lender, in its sole and absolute discretion, that the Oklahoma
Department of Corrections contracts have been renewed for a term satisfactory to
Lender, in its sole and absolute discretion.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
DEFAULT
10.1 Events of Default. The occurrence of one or more of the following
events shall constitute an "Event of Default".
10.1.1 Payment of Obligations. Borrowers shall fail to pay any of the
Obligations on the due date thereof (whether due at stated maturity, on demand,
upon acceleration or otherwise).
10.1.2 Misrepresentations. Any representation, warranty or other
statement made or furnished to Lender by or on behalf of any Loan Party in this
Agreement, any of the other Loan Documents or any instrument, certificate or
financial statement furnished in compliance with or in reference thereto proves
to have been false or misleading in any material respect when made or furnished
or when reaffirmed pursuant to Section 7.2.
10.1.3 Breach of Specific Covenants. Any Loan Party shall fail or
neglect to perform, keep or observe any covenant contained in Sections 5.3,
6.1.1, 6.2, 8.1.1, 8.1.3, 8.2 or 8.3 on the date that any Loan Party is required
to perform, keep or observe such covenant.
10.1.4 Breach of Other Covenants. Any Loan Party shall fail or
neglect to perform, keep or observe any covenant contained in this Agreement
(other than a covenant which is dealt with specifically elsewhere in Section
10.1) and the breach of such other covenant is not cured to Lender's
satisfaction within fifteen (15) days after the sooner to occur of any Loan
Party's receipt of notice of such breach from Lender or the date on which such
failure or neglect first becomes known to any officer of such Loan Party.
10.1.5 Default Under Security Documents/Other Agreements. Any event
of default shall occur under, or any Loan Party shall default in the performance
or observance of any term, covenant, condition or agreement contained in, any of
the Security Documents, or the Other Agreements and such default shall continue
beyond any applicable grace period.
10.1.6 Other Defaults. There shall occur any default or event of
default on the part of any Loan Party under any agreement, document or
instrument to which such Loan Party is a party or by which such Loan Party or
any of their respective Property is bound, creating or relating to any
Indebtedness (other than the Obligations) if the payment or maturity of such
Indebtedness is or may be accelerated in consequence of such default or demand
for payment of such Indebtedness is made,
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including the Subordinated Debt and the amount of such Indebtedness together
with any other such Indebtedness with respect to which there is a default or
demand for payment and the payment or maturity of such Indebtedness is or may be
accelerated in consequence of such default or demand for payment of such
Indebtedness is made, exceeds in the aggregate $250,000.00.
10.1.7 Uninsured Losses. Any material loss, theft, damage or
destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance.
10.1.8 Insolvency and Related Proceedings. Any Loan Party shall cease
to be Solvent or shall suffer the appointment of a receiver, trustee, custodian
or similar fiduciary, or shall make an assignment for the benefit of creditors,
or any petition for an order for relief shall be filed by or against a Loan
Party under the Bankruptcy Code (and if, with respect to any petition filed
against any Loan Party, such proceeding shall continue for more than thirty (30)
days), or any Loan Party shall make any offer of settlement, extension or
compromise to such Loan Party's unsecured creditors generally.
10.1.9 Business Disruption; Condemnation. There shall occur a
cessation of a substantial part of the business of any Loan Party for a period
which significantly affects the capacity of such Loan Party to continue its
business, on a profitable basis; or any Loan Party shall suffer the loss or
revocation of any contract, license or permit now held or hereafter acquired by
such Loan Party which is necessary to the continued or lawful operation of its
business and which loss or revocation could reasonably be expected to have a
Material Adverse Effect; or any Loan Party shall be enjoined, restrained or in
any way prevented by court, governmental or administrative order from conducting
all or any material part of its business affairs; or any material lease or
agreement pursuant to which any Loan Party leases, uses or occupies any Property
shall be canceled or terminated prior to the expiration of its stated term and
such cancellation could reasonably be expected to have a Material Adverse
Effect; or any part of the Collateral shall be taken through condemnation or the
value of such Property shall be impaired through condemnation and such
condemnation or impairment of value could reasonably be expected to have a
Material Adverse Effect.
10.1.10 Change of Control. (i) Avalon shall cease to own and
control, beneficially and or record, all of the issued and outstanding capital
stock of any other Loan Party, (ii) any Loan Party shall cease to own and
control, beneficially and of record, all of the issued and outstanding capital
stock of each of their respective Subsidiaries, (iii) any Person, or two or more
Persons acting in concert (other than RSTW and its Affiliates and Donald E.
Smith) directly or indirectly acquire beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 25% or more of the outstanding shares or securities of
Avalon or any Subsidiary (excluding any acquisitions of securities arising from
the conversion of the Convertible Notes or the issuance or exercise of options,
warrants or securities constituting Permitted Stock [as defined in the RSTW Loan
Agreement]), (iv) Donald E. Smith shall cease to directly own and control any
capital stock of Avalon owed by him on September 16, 1998 (other than any shares
of capital stock he is permitted to transfer pursuant to Section 5.01(i), (ii),
(iii) or (v) of
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the Shareholder Agreement [as defined in the RSTW Loan Agreement]), or (v)
Donald E. Smith ceases to be employed as Chief Executive Officer of Avalon.
10.1.11 ERISA. A Reportable Event shall occur which Lender, in its
sole discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States District Court of a Trustee for any
Plan, or if any Plan shall be terminated or any such trustee shall be requested
or appointed, or if any Loan Party is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting
from the complete or partial withdrawal of such Loan Party from such Plan.
10.1.12 Challenge to Agreement. Any Loan Party, or any Affiliate of
any Loan Party, shall challenge or contest in any action, suit or proceeding the
validity or enforceability of this Agreement, or any of the other Loan
Documents, the legality or enforceability of any of the Obligations or the
perfection or priority of any Lien granted to Lender.
10.1.13 Repudiation of or Default Under Guaranty Agreement. Any
Guarantor shall revoke or attempt to revoke the Guaranty Agreement signed by
such Guarantor, or shall repudiate such Guarantor's liability thereunder or
shall be in default under the terms thereof.
10.1.14 Criminal Forfeiture. Any Loan Party shall be criminally
indicted or convicted under any law that could lead to a forfeiture of any
Property of such Loan Party.
10.1.15 Judgments. Any (i) one or more money judgments, is entered
against any Loan Party or any Property of any Loan Party which exceeds, in the
aggregate, $250,000, and such judgment or judgments shall remain unpaid,
unsatisfied by insurance, and unstayed for more than thirty (30) days, whether
or not consecutive, or (ii) writ of attachment or similar process is filed
against any Loan Party, or any Property of any Loan Party, and such writ of
attachment or similar process is not bonded or secured in an amount and manner
reasonably satisfactory to Lender.
10.1.16 Emerald Square. Any demand shall be made upon Avalon for
payment of the Indebtedness of Emerald Square under Avalon's guaranty of such
Indebtedness.
10.2 Acceleration of the Obligations. Without in any way limiting the
right of Lender to demand payment of any portion of the Obligations payable on
demand in accordance with Section 3.2, upon or at any time after the occurrence
of an Event of Default, all or any portion of the Obligations shall, at the
option of Lender and without presentment, demand protest or further notice by
Lender, become at once due and payable and Borrowers shall forthwith pay to
Lender, the full amount of such Obligations, provided, that upon the occurrence
of an Event of Default specified in Section 10.1.8, all of the Obligations shall
become automatically due and payable without declaration, notice or demand by
Lender.
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10.3 Other Remedies. Upon and after the occurrence of an Event of Default
and so long as it is continuing, Lender shall have and may exercise from time to
time the following rights and remedies:
(A) All of the rights and remedies of a secured party under the Code
or under other Applicable Law, and all other legal and equitable rights to which
Lender may be entitled, all of which rights and remedies shall be cumulative and
shall be in addition to any other rights or remedies contained in this Agreement
or any of the other Loan Documents, and none of which shall be exclusive.
(B) The right to take immediate possession of the Collateral, and to
(i) require the Loan Parties to assemble the Collateral, at Borrowers' expense,
and make it available to Lender at a place designated by Lender which is
reasonably convenient to both parties, and (ii) enter any premises where any of
the Collateral shall be located and to keep and store the Collateral on said
premises until sold (and if said premises be the Property of any Loan Party,
such Loan Party agrees not to charge Lender for storage thereof).
(C) The right to sell or otherwise dispose of all or any Collateral
in its then condition, or after any further manufacturing or processing thereof,
at public or private sale or sales, with such notice as may be required by law,
in lots or in bulk, for cash or on credit, all as Lender, in its sole
discretion, may deem advisable. The Loan Parties agree that any requirement of
notice to the Loan Parties of any public or private sale or other disposition of
Collateral by Lender shall be deemed reasonable notice thereof, if given at
least ten (10) days prior thereto, and any such sale may be held at such
locations as Lender may designate in said notice. Lender shall have the right to
conduct such sales on any Loan Party's premises, without charge therefor, and
such sales may be adjourned from time to time in accordance with Applicable Law.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied, after allowing
two (2) Business Days for collection, first to the costs, expenses and
attorneys' fees incurred by Lender in collecting the Obligations, in enforcing
the rights of Lender under the Loan Documents and in collecting, retaking,
completing, protecting, removing, storing, advertising for sale, selling and
delivering any Collateral, second to the interest due upon any of the
Obligations; and third, to the principal of the Obligations. If any deficiency
shall arise, each Borrower and each Guarantor shall remain jointly and severally
liable to Lender therefor.
(D) The right to exercise all of Lender's rights and remedies under
any Mortgage with respect to any real Property forming a part of the Collateral.
(E) Lender is hereby granted a license or other right to use,
without charge, all labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks and advertising matter, or any Property
of a similar nature of any Loan Party, as it pertains to the
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Collateral, in advertising for sale and selling any Collateral and any Loan
Party's rights under all licenses and all franchise agreements shall inure to
Lender's benefit.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of any
Loan Party contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule or in any Guaranty Agreement given to Lender or contained in
any other agreement between or among Lender and any Loan Party, heretofore,
concurrently, or hereafter entered into, shall be deemed cumulative to and not
in derogation or substitution of any of the terms, covenants, conditions, or
agreements of any Loan Party herein contained. The failure or delay of Lender to
require strict performance by any Loan Party of any provision of this Agreement
or to exercise or enforce any rights, Liens, powers, or remedies hereunder or
under any of the aforesaid agreements or other documents or security or
Collateral shall not operate as a waiver of such performance, Liens, rights,
powers and remedies, but all such requirements, Liens, rights, powers, and
remedies shall continue in full force and effect until all Loans and all other
Obligations owing or to become owing from any Loan Party to Lender shall have
been fully satisfied. None of the undertakings, agreements, warranties,
covenants and representations of any Loan Party contained in this Agreement or
any of the other Loan Documents and no Event of Default by any Loan Party under
this Agreement or any other Loan Documents shall be deemed to have been
suspended or waived by Lender, unless such suspension or waiver is by an
instrument in writing specifying such suspension or waiver and is signed by a
duly authorized representative of Lender and directed to such Loan Party.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Each Loan Party hereby irrevocably designates,
makes, constitutes and appoints Lender (and all Persons designated by Lender) as
such Loan Party's true and lawful attorney (and agent-in-fact) and Lender, or
Lender's agent, may, without notice to any Loan Party and in any Loan Party's or
Lender's name, but at the cost and expense of such Loan Party:
(A) At such time or times as Lender or said agent, in its sole
discretion, may determine, endorse any Loan Party's name on any checks, notes,
acceptances, drafts, money orders or any other evidence of payment or proceeds
of the Collateral which come into the possession of Lender or under Lender's
control.
(B) At such time or times upon or after the occurrence of an Event
of Default and so long as it is continuing as Lender or its agent in its sole
discretion may determine: (i) demand payment of the Accounts from the Account
Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and
generally exercise all of any Loan Party's rights and remedies with respect to
the collection of the Accounts; (ii) settle, adjust, compromise, discharge or
release any of the Accounts or other Collateral or any legal proceedings brought
to collect any of the Accounts or other Collateral; (iii) sell or assign any of
the Accounts and other Collateral upon such terms, for such amounts and at such
time or times as Lender deems advisable; (iv) take control, in any manner, of
any item of payment or proceeds relating to any Collateral; (v) prepare, file
and sign any Loan Party's
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name to a proof of claim in bankruptcy or similar document against any Account
Debtor or to any notice of lien, assignment or satisfaction of lien or similar
document in connection with any of the Collateral; (vi) receive, open and
dispose of all mail addressed to any Loan Party and to notify postal authorities
to change the address for delivery thereof to such address as Lender may
designate; (vii) endorse the name of any Loan Party upon any of the items of
payment or proceeds relating to any Collateral and deposit the same to the
account of Lender on account of the Obligations; (viii) endorse the name of any
Loan Party upon any chattel paper, document, instrument, invoice, freight bill,
bill of lading or similar document or agreement relating to the Accounts, and
any other Collateral; (ix) use any Loan Party's stationery and sign the name of
any Loan Party to verifications of the Accounts and notices thereof to Account
Debtors; (x) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Accounts, Equipment
and any other Collateral; (xi) make and adjust claims under policies of
insurance; and (xii) do all other acts and things necessary, in Lender's
determination, to fulfill any Loan Party's obligations under this Agreement.
11.2 Indemnity. EACH LOAN PARTY HEREBY INDEMNIFIES, HOLDS HARMLESS AND
SHALL DEFEND LENDER AND ITS DIRECTORS, OFFICERS, AGENTS, COUNSEL AND EMPLOYEES
("INDEMNIFIED PERSONS") FROM AND AGAINST ANY AND ALL LOSSES, LIABILITIES,
DAMAGES, COSTS, EXPENSES, SUITS, ACTIONS AND PROCEEDINGS ("LOSSES") EVER
SUFFERED OR INCURRED BY ANY INDEMNIFIED PERSON ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER TRANSACTION CONTEMPLATED HEREBY, INCLUDING ANY
LOSSES CAUSED BY THE NEGLIGENCE OF ANY SUCH INDEMNIFIED PERSON, BUT NOT
INCLUDING ANY LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY
SUCH INDEMNIFIED PERSON, AND EACH LOAN PARTY SHALL REIMBURSE LENDER AND EACH
OTHER INDEMNIFIED PERSON FOR ANY REASONABLE EXPENSES (INCLUDING IN CONNECTION
WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR
THREATENED CLAIM, ACTION OR PROCEEDING ARISING THEREFROM, INCLUDING ANY SUCH
COSTS OF RESPONDING TO DISCOVERY REQUESTS OR SUBPOENAS, REGARDLESS OF WHETHER
LENDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO). WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, THIS INDEMNITY SHALL EXTEND TO ANY CLAIMS
ASSERTED AGAINST LENDER OR ANY OTHER INDEMNIFIED PERSON BY ANY PERSON UNDER ANY
ENVIRONMENTAL LAWS OR SIMILAR LAWS BY REASON OF ANY LOAN PARTY'S OR ANY OTHER
PERSON'S FAILURE TO COMPLY WITH LAWS APPLICABLE TO SOLID OR HAZARDOUS WASTE
MATERIALS OR OTHER TOXIC SUBSTANCES. EACH LOAN PARTY MAY SELECT COUNSEL WITH
RESPECT TO ANY LOSSES; PROVIDED HOWEVER, EACH INDEMNIFIED PERSON SHALL HAVE THE
RIGHT TO MONITOR THE PROGRESS OF ANY CLAIMS, SUITS AND ADMINISTRATIVE
PROCEEDINGS DEFENDED BY EACH LOAN PARTY HEREUNDER WITH COUNSEL OF SUCH
INDEMNIFIED PERSON'S CHOICE, OR CONDUCT ITS DEFENSE THROUGH COUNSEL OF SUCH
INDEMNIFIED PERSON'S CHOICE, IN THE EVENT THAT (I) SUCH INDEMNIFIED PERSON
DETERMINES IN GOOD FAITH THAT THE CONDUCT OF ITS DEFENSE BY EACH LOAN PARTY
COULD BE MATERIALLY PREJUDICIAL TO SUCH
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INDEMNIFIED PERSON'S INTERESTS OR THAT OTHER REASONABLE GROUNDS EXIST WHICH
DEMONSTRATE A LACK OF EFFECTIVENESS OR HIGH LEVEL OF QUALITY IN THE CONDUCT OF
SUCH DEFENSE BY EACH LOAN PARTY, AND (II) PRIOR TO RETAINING SUCH COUNSEL FOR
SUCH PURPOSE, SUCH INDEMNIFIED PERSON SHALL CONSULT WITH SUCH LOAN PARTY AND
SHALL ATTEMPT IN GOOD FAITH TO AGREE UPON COUNSEL TO CONDUCT THE DEFENSE ON
BEHALF OF EACH LOAN PARTY AND SUCH INDEMNIFIED PERSON, AND IN EACH CASE THE FEES
AND DISBURSEMENTS OF SUCH COUNSEL SHALL BE PAID BY SUCH LOAN PARTY; PROVIDED,
HOWEVER, THAT IF SUCH MUTUAL AGREEMENT IS NOT REACHED WITHIN A REASONABLE TIME
ON SELECTING COUNSEL, THEN SUCH INDEMNIFIED PERSON MAY RETAIN ITS OWN COUNSEL AT
SUCH LOAN PARTY'S EXPENSE. NOTWITHSTANDING ANY CONTRARY PROVISION OF THIS
AGREEMENT, THE OBLIGATION OF EACH LOAN PARTY UNDER THIS SECTION 11.2 SHALL
SURVIVE THE PAYMENT IN FULL OF THE OBLIGATIONS AND THE TERMINATION OF THIS
AGREEMENT.
11.3 Modification of Agreement; Sale of Interest. This Agreement may not
be modified, altered or amended, except by an agreement in writing signed by
each Loan Party and Lender. No Loan Party may sell, assign or transfer any
interest in this Agreement, any of the other Loan Documents, or any of the
Obligations, or any portion thereof, including any Loan Party's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. The Loan
Parties hereby consent to Lender's participation, sale, assignment, transfer or
other disposition, at any time or times hereafter, to one or more commercial
banks, financial institutions or other Persons which do not directly compete
with Borrowers, of this Agreement and any of the other Loan Documents, or of any
portion hereof or thereof, including Lender's rights, title, interests,
remedies, powers, and duties hereunder or thereunder. In the case of an
assignment, the assignee shall have, to the extent of such assignment, the same
rights, benefits and obligations as it would if it were "Lender" hereunder and
Lender shall be relieved of all obligations hereunder upon any such assignment.
The Loan Parties agree that they will use their best efforts to assist and
cooperate with Lender in any manner reasonably requested by Lender to effect the
sale of participations in or assignments of any of the Loan Documents or any
portion thereof or interest therein, including assisting in the preparation of
appropriate disclosure documents. The Loan Parties further agree that Lender may
disclose credit information regarding the Loan Parties to any potential
Participant or assignee.
11.4 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
Applicable Law, but if any provision of this Agreement shall be prohibited by or
invalid under Applicable Law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
11.5 Successors and Assigns. This Agreement, the Other Agreements and the
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of the Loan Parties and Lender permitted under Section
11.3.
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11.6 Cumulative Effect; Conflict of Terms. The provisions of the Other
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 and
except as otherwise provided in any of the other Loan Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the other Loan Documents, the provision contained in
this Agreement shall govern and control.
11.7 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
11.8 Notice. All notices, requests and demands to or upon a party hereto,
shall be in writing and shall be sent by certified or registered mail, return
receipt requested, by personal delivery against receipt, by overnight courier or
by facsimile transmissions and shall be deemed to have been validly served,
given or delivered immediately when delivered against receipt on three (3)
Business Days after deposit in the mail, postage prepaid, or with an overnight
courier or, in the case of facsimile transmission, when sent, answerback
received, in each case addressed as follows:
If to Lender: Fleet Capital Corporation
2711 North Haskell
Suite 2100, LB21
Dallas, Texas 75204
Attention: Loan Administration Manager
Facsimile No.: (214) 828-6530
With a copy to: Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Attention: Gary B. Clark, Esq.
Facsimile No.: (214) 999-4667
If to the Loan Parties: Avalon Community Services, Inc.
13401 Railway Drive
Oklahoma City, Oklahoma 73114
Attention: Jerry M. Sunderland - President
Facsimile No.: (405) 752-8852
With a copy to: Robertson & Williams
3033 NW 63rd Street, Suite 160E
Oklahoma City, OK 73116-3067
Attention: Mark A. Robertson, Esq.
Facsimile No.: (405) 843-6707
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or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request or demand to or upon Lender pursuant to Section 3.1.1 or 4.2.2 shall not
be effective until received by Lender. Any written notice or demand that is not
sent in conformity with the provisions hereof shall nevertheless be effective on
the date that such notice is actually received by the noticed party.
11.9 Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion.
11.10 Credit Inquiries. The Loan Parties hereby authorize and permit
Lender (but Lender shall have no obligation) to respond to usual and customary
credit inquiries from third parties concerning any Loan Party.
11.11 Time of Essence. Time is of the essence of this Agreement, the Other
Agreements and the Security Documents.
11.12 Entire Agreement, Appendix A and Exhibits and Schedules. This
Agreement and the other Loan Documents, together with all other instruments,
agreements and certificates executed by the parties in connection therewith or
with reference thereto, embody the entire understanding and agreement between
the parties hereto and thereto with respect to the subject matter hereof and
thereof and supersede all prior agreements, understandings and inducements,
whether express or implied, oral or written. Appendix A and each of the Exhibits
and Schedules attached hereto are incorporated into this Agreement and by this
reference made a part hereof.
11.13 Interpretation. No provision of this Agreement or any of the other
Loan Documents shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or dictated such
provision.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED,
EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN DALLAS,
TEXAS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS: PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL
SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN TEXAS, THE LAWS OF SUCH
JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF
LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER
REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF TEXAS. AS PART
OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR
FUTURE
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DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF THE LOAN PARTIES OR LENDER, THE LOAN
PARTIES EACH HEREBY CONSENT AND AGREE THAT THE DISTRICT COURT OF DALLAS COUNTY,
TEXAS, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS, DALLAS DIVISION, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE LOAN PARTIES AND LENDER
PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT. THE LOAN PARTIES EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE LOAN
PARTIES HEREBY WAIVE ANY OBJECTION WHICH THE LOAN PARTIES MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. THE LOAN PARTIES EACH HEREBY WAIVE PERSONAL SERVICE
OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT
AND AGREE THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE
BY REGISTERED OR CERTIFIED MAIL, RESTRICTED DELIVERY, ADDRESSED TO THE LOAN
PARTIES AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH LOAN PARTY'S ACTUAL RECEIPT
THEREOF OR THE RETURN OF MAIL AS DELIVERY REFUSED. NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER
OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
11.15 WAIVERS BY THE LOAN PARTIES. EACH LOAN PARTY WAIVES (I) THE RIGHT TO
TRIAL BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING
OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL: (II) PRESENTMENT, DEMAND AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, NON PAYMENT, MATURITY, RELEASE,
COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER,
ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES
AT ANY TIME HELD BY LENDER ON WHICH EACH LOAN PARTY MAY IN ANY WAY BE LIABLE;
(III) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND
OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO
EXERCISE ANY OF LENDER'S REMEDIES; (IV) THE BENEFIT OF ALL VALUATION,
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APPRAISEMENT AND EXEMPTION LAWS; AND (V) NOTICE OF ACCEPTANCE HEREOF.
EACH LOAN PARTY ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS
RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH EACH
LOAN PARTY. EACH LOAN PARTY WARRANTS AND REPRESENT THAT IT HAS
REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS
KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
11.16 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE SAME MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
11.18 Nonapplicability of Chapter 346 et seq. of Texas Finance Code.
Each Loan Partyand Lender hereby agree that, except for Section 346.004 of the
Texas Finance Code, the provisionsof Chapter 346 of the Texas Finance Code and
except for Section 15.10(b) thereof, the provisionsof Tex. Rev. Civ. Stat. Ann.
art. 5069-15.01 et seq. (Vernon 1987) (each regulating certain revolving credit
loans and revolving tri-party accounts) shall not apply to this Agreement or any
of the otherLoan Documents.
11.19 Certain Matters of Construction. All references to statutes and
related regulations in this Agreement, the Other Agreements and the Security
Agreements shall include any amendments of same and any successor statutes and
regulations. All references in this Agreement, the Other Agreements and the
Security Agreements to any of the Loan Documents shall include any and all
modifications thereto and any and all extensions or renewals thereof.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, this Agreement has been duly executed in Dallas,
Texas, on the day and year specified at the beginning of this Agreement.
BORROWER:
AVALON COMMUNITY SERVICES, INC.
By:
Name: Paul Voss
Title:Vice President
SOUTHERN CORRECTIONS SYSTEMS, INC.
By:
Name: Paul Voss
Title:Vice President
Avalon Community Services, Inc. Loan and Security Agreement - Signature Page
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GUARANTORS:
CENTRAL OKLAHOMA PROPERTIES CORP.
By:
Name: Jerry Sunderland
Title: President
ELK CITY PROPERTIES
By:
Name: Donald E. Smith
Title: Chief Executive Officer
Avalon Community Services, Inc. Loan and Security Agreement - Signature Page
652845
<PAGE>
LENDER:
FLEET CAPITAL CORPORATION
By:
Name: Michael T. Norvet
Title:Senior Vice President
Avalon Community Services, Inc. Loan and Security Agreement - Signature Page
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APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated February 25, 1999, by
and among Fleet Capital Corporation, Avalon Community Services, Inc. Southern
Corrections Systems, Inc. Central Oklahoma Properties Corp. and Elk City
Properties, Inc., the following terms shall have the following meanings (terms
defined in the singular to have the same meaning when used in the plural and
vice versa):
Account Debtor - any Person who is or may become obligated under or on
account of an Account.
Accounts - all accounts, contract rights, chattel paper, instruments and
documents, whether now owned or hereafter created or acquired by any Loan Party
or in which any Loan Party now has or hereafter acquires any interest.
Acquisition - means the acquisition by Borrower or any of its Subsidiaries
(by merger, consolidation or otherwise) on or subsequent to the Closing Date of
(i) all, or substantially all of the Equity Interests of a Person, or (ii) all,
or substantially all, of the operating assets or property of any Person, or
assets or property which constitute all, or substantially all, of the assets of
a division or a separate (or separable) line of business of a Person; provided,
that (i) such acquisition is approved by Lender, in its sole and absolute
discretion, prior to the consummation thereof, and (ii) such acquisition is an
acquisition of Equity Interest in which the Person acquired is operated as a
separate Subsidiary of a Borrower or the operating assets and properties
acquired or operated by a newly-formed separate Subsidiary of a Borrower.
Acquisition Target - the Person, operating assets, or line of business to
be acquired in an Acquisition.
Adjusted Net Earnings From Operations - with respect to any fiscal period,
means the net earnings (or loss) after provision for income taxes for such
fiscal period of Avalon, on a Consolidated basis, as reflected on the financial
statement of Avalon supplied to Lender pursuant to Section 8.1.3 of the
Agreement, but excluding:
(i) any gain or loss arising from the sale of capital assets;
(ii) any gain arising from any write-up of assets;
(iii) earnings of any Subsidiary of Avalon accrued prior to the date
it becomes a Subsidiary;
Appendix A - Page 1
<PAGE>
(iv) earnings of any corporation, substantially all the assets of
which have been acquired in any manner by Avalon or any Subsidiary of Avalon,
realized by such corporation prior to the date of such acquisition;
(v) net earnings of any business entity (other than a Subsidiary of
Avalon or any Borrower) in which Avalon or such Borrower has an ownership
interest, unless such net earnings shall have actually been received by Avalon
or such Borrower, as the case may be, in the form of cash contributions;
(vi) any portion of the net earnings of any Subsidiary of a Borrower
which for any reason is unavailable for payment of dividends to such Borrower;
(vii) the earnings of any Person to which any assets of Avalon or
any Borrower shall have been sold, transferred or disposed of, or into which
Avalon or such Borrower shall have merged, or been a party to any consolidation
or other form of reorganization, prior to the date of such transactions;
(viii)any gain arising from the acquisition of any Securities of
Avalon or any Borrower;
(ix) any gain arising from extraordinary or non-recurring items
(including the application of reserves to income);
(x) any loss resulting from the prepayment of Funded Indebtedness of
any Borrower on the Closing Date;
(xi) any charge to earnings recorded to reflect the cumulative
effect of a change to accounting principles.
Affiliate - a Person (other than a Subsidiary): (i) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, a Person; (ii) which beneficially owns or holds 5%
or more of any class of the Voting Stock of a Person; or (iii) 5% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 5% or more
of the equity interest) of which is beneficially owned or held by a Person or a
Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in the first
sentence of this Appendix A, all Exhibits and Schedules thereto and this
Appendix A as amended, renewed, extended and restated from time to time.
Applicable Law - all laws, rules and regulations applicable to the Person,
conduct, transaction, covenant or Loan Documents in question, including all
applicable common law and equitable principles; all provisions of all applicable
state and federal constitutions, statutes, rules, regulations and orders of
government bodies; and orders, judgments and decrees of all courts and
arbitrators.
Appendix A - Page 2
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Authorized Officer - any President, Vice President or Chief Financial
Officer of any Borrower or any other Person from time to time designated by any
Borrower as an Authorized Officer.
Average Monthly Loan Balance - the amount equal to the aggregate unpaid
principal amount of the Loans at the end of each day during the month in
question and by dividing such sum by the number of days in such month.
Bank - Fleet National Bank, and to successors and assigns.
Base Rate - the rate of interest announced or quoted by Bank from time to
time as its prime rate for commercial loans, whether or not such rate is the
lowest rate charged by Bank to its most preferred borrowers; and, if such prime
rate for commercial loans is discontinued by Bank as a standard, a comparable
reference rate designated by Bank as a substitute therefor shall be the Base
Rate.
Base Rate Margin - as defined in Section 2.1.1.
Base Rate Portion - that portion of the Loans that is not subject to a
LIBOR Option.
Borrowing Base - as at any date of determination thereof, an amount equal
to the lesser of:
(A) the Total Credit Facility, or
(B) (i) with respect to any date of determination on or before August 31,
1999, a sum equal to (a)Cash Flow for the three month period ending on the last
day of the calendar month immediately preceding such date of determination for
which Lender has received the financial information required by Section 8.1.3 of
the Agreement, (b) multiplied by four (4), and (c) multiplied by four (4);
(ii) with respect to any date of determination after August 31, 1999
and on or before December 31, 1999, a sum equal to (a) Cash Flow for the three
month period ending on the last day of the calendar month immediately preceding
such date of determination for which Lender has received the financial
information required by Section 8.1.3 of the Agreement, (b) multiplied by four
(4), and (c) multiplied by three (3);
(iii) with respect to any date of determination after December 31,
1999, a sum equal to (a) Cash Flow for the twelve month period ending on the
last day of the calendar month immediately preceding such date of determination
for which Lender has received the financial information required by Section
8.1.3 of the Agreement, (b) multiplied by three (3).
Business Day - any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of Texas or the State of Oklahoma or
is a day on which banking institutions located in any of such states are closed.
Appendix A - Page 3
<PAGE>
Capital Expenditures - expenditures made and liabilities incurred for the
acquisition of any fixed assets or improvements, replacements, substitutions or
additions thereto which have a useful life of more than one (1) year, including,
but not limited to, the direct or indirect acquisition of such assets or
incurrence of such expenses by way of increased product or service charges,
offset items or otherwise and payments with respect to any Capitalized Lease
Obligation (excluding, however, any expenditure made and liabilities incurred by
Avalon in connection with the construction, reconstruction and/or expansion of
community correctional and juvenile facilities, to the extent permitted by
Section 8.2.16).
Capitalized Lease Obligation - any Indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP.
Cash Flow - for any fiscal period of any Person, an amount equal to (i)
the sum of (a) Adjusted Net Earnings From Operations for such period, plus (b)
accrued Taxes for such period, plus (c) Interest Expense for such period, plus
(d) depreciation and amortization for such period, plus, (e) with regard to the
calculation of Cash Flow for Avalon, on a Consolidated basis, to the extent that
such fiscal period includes any period prior to the date any Acquisition Target
was acquired, Pro Forma Target Cash Flow for each such Acquisition Target for
that portion of the period prior to the date such Acquisition Target was
acquired included in such fiscal period, minus (ii) Capital Expenditures
incurred during such period.
Central - as defined in the preamble of this Agreement.
Closing Date - the date on which all of the conditions precedent in
Section 9 are satisfied and the initial Loan is made under the Agreement.
Code - the Uniform Commercial Code as adopted and in force in the State of
Texas as from time to time in effect.
Collateral - all of the Property and interests in Property described in
Section 5, and all other Property and interests in Property that now or
hereafter secure the payment and performance of any of the Obligations.
Consolidated - the consolidation in accordance with GAAP of the accounts
or other items as to which such term applies.
Convertible Notes - Avalon's 7.5% Convertible Debentures due August 26,
2007 and September 2, 2007, respectively, in the aggregate principal amount of
$3,850,000, issued pursuant to the Debenture Purchase Agreement.
Current Assets - at any date means the amount at which all of the current
assets of a Person would be properly classified as current assets shown on a
balance sheet at such date in accordance with GAAP except that amounts due from
Affiliates of such Persons and investments in Affiliates of such Persons shall
be excluded therefrom.
Appendix A - Page 4
<PAGE>
Debenture Purchase Agreement - that certain Debenture Purchase Agreement
dated as of August 27, 1997, by and between Avalon and the purchasers of the
Convertible Notes listed on Schedule A of such agreement, as amended by those
certain Amendment(s) to Debenture Purchase Agreement dated on or about September
10, 1998.
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in Section 2.1.2.
Distribution - in respect of any corporation means and includes: (i) the
payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock), and (ii) the redemption or
acquisition of Securities unless made contemporaneously from the net proceeds of
the sale of Securities.
Dollars and the sign "$" - lawful money of the United States of America.
Dominion Account - a special account of Lender established by each Loan
Party pursuant to the Agreement at a bank selected by such Loan Party, but
acceptable to Lender in its sole discretion, and over which Lender shall have
sole and exclusive access and control for withdrawal purposes.
EBITDA - for any fiscal period for any Person, an amount equal to, (a)
Adjusted Net Earnings From Operations; plus, (b) in each case, to the extent
deducted in determining Adjusted Net Earnings From Operations for such period
(i) Interest Expense, (ii) Taxes, (iii) depreciation and amortization and
similar non-cash charges; plus, (c) with regard to the calculation of EBITDA for
Avalon, on a Consolidated basis, for all purposes other than the calculation of
the Borrowers' compliance with Section 8.3.1 and Section 8.3.3, to the extent
such fiscal period includes any period prior to the date any Acquisition Target
was acquired, Pro Forma Target EBITDA for each such Acquisition Target for that
portion of the period prior to the date such Acquisition Target was acquired
included in such fiscal period; provided, that for purposes of calculating
Borrowers' compliance with (a) Section 8.3.4 for the twelve calendar month
period ending June 30, 1998, EBITDA shall be EBITDA for the period from January
1, 1999 through June 30, 1999 divided by .50, (b) Section 8.3.2 and Section
8.3.4 for the twelve calendar month period ending September 30, 1999, EBITDA
shall be EBITDA for the period from January 1, 1999 through September 30, 1999
divided by .75.
El Paso EBITDA - for any fiscal period, actual EBITDA of the facility
operated on the El Paso Property for such period.
El Paso Notes - collectively (a) that certain promissory note dated as of
December 23, 1991, in the original principal amount of $2,300,577.98 payable to
the order of Chicorp Financial Services, Inc. and executed by Secure
Corrections, Inc., and (b) that certain promissory note dated as of November 30,
1995, in the original principal amount of $1,000,000 payable to the order of
Chicorp
Appendix A - Page 5
<PAGE>
Financial Services, Inc. and executed by Secure Corrections, Inc.; each
promissory note described in the foregoing clauses (a) and (b) being secured by
that certain Deed of Trust dated as of December 23, 1991, upon the El Paso
Property.
El Paso Property - that certain tract of real Property located in El Paso
County, Texas described as Lot 2, Block 8, Horizon Hills, an addition to El Paso
County, Texas, according to a map thereof on file in Book 41, Page 26 and 26A
Plat Records, El Paso County, Texas being 7.317 acres, more or less.
Elk City - as defined in the preamble of this Agreement.
Emerald Square - Emerald Square, L.L.C., an Oklahoma limited liability
company.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety or environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
Fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in the operations of any Loan
Party or owned by any Loan Party or in which any Loan Party has an interest,
whether now owned or hereafter acquired by any Loan Party and wherever located,
and all parts, accessories and special tools and all increases and accessions
thereto and substitutions and replacements therefor.
Equity Interest - (i) with respect to a corporation, any and all capital
stock or warrants, options or other rights to acquire capital stock, and (ii)
with respect to a partnership, limited liability company or similar Person, any
and all units, interests, rights to purchase, warrants, options or other
equivalents of, or other ownership interests in any such Person.
ERISA - the Employee Retirement Income Security Act of 1974, as amended,
and all rules and regulations from time to time promulgated thereunder.
Event of Default - as defined in Section 10.1.
Excess Interest - as defined in Section 2.1.3(B).
Excluded Property - the Property set forth on Exhibit R as the same may be
amended from time to time with the consent of Lender.
Fixed Charge Coverage Ratio - for any period of determination, the ratio
of (a) EBITDA for such period, to (b) Fixed Charges for such period.
Fixed Charges - for any period of determination, the sum of (a) all
scheduled principal payments due in respect of Funded Indebtedness during such
period, (b) all interest expenses paid
Appendix A - Page 6
<PAGE>
in cash during such period, (c) all Capital Expenditures incurred during such
period, and (d) all Taxes not included in the determination of EBITDA that are
paid in cash during such period.
Fixtures - all "Fixtures" as defined in the Code now owned or hereafter
acquired by any Loan Party including, without limitation, all plant Fixtures,
business Fixtures, other Fixtures, and storage office facilities, wherever
located; and all additions and accession thereto and replacements therefore.
Funded Indebtedness - as applied to any Person means, (a) all
Indebtedness, (whether or not represented by bonds, debentures, notes,
securities, or other evidences of Indebtedness, for the repayment of money
borrowed), (b) all Indebtedness representing deferred payment of the purchase
price of property or assets, (c) all Indebtedness under any lease which, in
conformity with GAAP, is required to be capitalized for balance sheet purposes
and leases of property or assets made as a part of sale and lease-back
transaction if required to be capitalized, (d) all Indebtedness under guaranties
(excluding, Avalon's guaranty of any Indebtedness of Emerald Square),
endorsements, assumptions, or other contractual obligations, including any
letters of credit, or the obligations in respect of, or to purchase or otherwise
acquire, indebtedness of others, (e) all Indebtedness secured by a Lien existing
on Property owned, subject to such Lien, whether or not the Indebtedness secured
thereby shall have been assumed by the owner thereof, and (f) all amendments,
renewals, extensions, modifications and refundings of any Indebtedness or
obligations referred to in the foregoing clauses (a) through (e).
GAAP - generally accepted account principles in the United States of
America in effect from time to time.
General Intangibles - all general intangibles of any Loan Party whether
now owned or hereafter created or acquired by any Loan Party, including all
choses in action, causes of action, corporate or other business records, deposit
accounts, inventions, blueprints, designs, patents, patent applications,
trademarks, trademark applications, trade names, trade secrets, service marks,
goodwill, brand names, copyrights, registrations, licenses, franchises, customer
lists, tax refund claims, computer programs, operational manuals, all claims
under guaranties, security interests or other security held by or granted to any
Loan Party to secure payment of any of the Accounts by an Account Debtor, all
rights to indemnification and all other intangible property of every kind and
nature (other than Accounts).
Guarantors - Central, Elk City and any other Person who now or may
hereafter guarantee payment or performance of the whole or any part of the
Obligations.
Guaranty Agreements - the unconditional Guaranty which is to be executed
by each Guarantor in form and substance satisfactory to Lender.
Indebtedness - as applied to a Person means, without duplication
(i) all items which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
of such Person as at the date as of which Indebtedness is to be determined,
including, without limitation, Capitalized Lease Obligations,
Appendix A - Page 7
<PAGE>
(ii) all obligations of other Persons which such Person has
guaranteed,
(iii) all reimbursement obligations in connection with letters of
credit or letter of credit guaranties issued for the account of such Person, and
(iv) in the case of any Borrower (without duplication), the
Obligations.
Instruments - all "instruments", "chattel paper" or "letters of credit"
(each as defined in the Code) including, but not limited to, promissory notes,
drafts, bills of exchange and trade acceptances, now owned or hereafter acquired
by any Loan Party.
Interest Expense - with respect to any fiscal period, the interest expense
incurred for such period as determined in accordance with GAAP.
Investment Property - all investment property of any Loan Party, whether
now owned or hereafter acquired, including, but not limited to, all securities
(certificated or uncertificated), securities accounts, securities entitlements,
commodity accounts and commodity contracts.
Legal Requirement - any requirement imposed upon Lender by any law of the
United States of America or the United Kingdom or by any regulation, order,
interpretation, ruling or official directive (whether or not having the force of
law) of the Federal Reserve Board, the Bank of England or any other board,
central bank or governmental or administrative agency, institution or authority
of the United States of America, the United Kingdom or any political subdivision
of either thereof.
LIBOR Interest Payment Date - with respect to any LIBOR Portion, the last
day of each calendar month during the applicable LIBOR Period.
LIBOR Margin - As defined in Section 2.1.1.
LIBOR Option - the option granted pursuant to Section 2.3 of the Agreement
to have the interest on all or any portion of the principal amount of the Loans
based on a LIBOR Rate.
LIBOR Period - any period of one (1) month, two (2) months, three (3)
months, or six (6) months commencing on a Business Day, selected as provided in
Section 2.3(i); provided, however that no LIBOR Period shall extend beyond the
last day of the Term, unless Borrowers and Lender have agreed to an extension of
the Term beyond the expiration of the LIBOR Period in question. If any LIBOR
Period so selected shall end on a date that is not a Business Day, such LIBOR
Period shall instead end on the next preceding or succeeding Business Day as
determined by Lender in accordance with the then current banking practice in
London; provided, that Borrower shall not be required to pay double interest,
even though the preceding LIBOR Period ends and the new LIBOR Period begins on
the same day. Each determination by Lender of the LIBOR Period shall, in the
absence of manifest error, be conclusive.
Appendix A - Page 8
<PAGE>
LIBOR Portion - that portion of the Loans specified in a LIBOR Request
(including any portion of Loans which is being borrowed by Borrowers
concurrently with such LIBOR Request) which is not less than $1,000,000 and is
an integral multiple of $100,000, which does not exceed the outstanding balance
of Loans not already subject to a LIBOR Option and, which, as of the date of the
LIBOR Request specifying such LIBOR Portion, has met the conditions for basing
interest on the LIBOR Rate in Section 2.3 of the Agreement and the LIBOR Period
of which was commenced and not terminated.
LIBOR Rate - with respect to any LIBOR Portion for the related LIBOR
Period, an interest rate per annum (rounded upwards, if necessary, to the next
higher 1/8 of 1% equal to the product of (i) the Base LIBOR Rate (as hereinafter
defined) multiplied by (ii) Statutory Reserves. For purposes of this definition,
the term "Base LIBOR Rate" shall mean the rate (rounded to the nearest 1/8 of 1%
or, if there is no nearest 1/8 of 1%, the next higher of 1/8 of 1%) at which
deposits of U.S. dollars approximately equal in principal amount to the LIBOR
Portion specified in the applicable LIBOR Request are offered to Lender by prime
banks in the London interbank foreign currency deposits market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
LIBOR Period, for delivery on the first day of such LIBOR Period. Each
determination by Lender of any LIBOR Rate shall, in the absence of manifest
error, be conclusive.
LIBOR Request - a notice in writing (or by telephone confirmed by telex,
telecopy or other facsimile transmission on the same day as the telephone
request) from an Authorized Officer to Lender requesting that interest on a Loan
be based on the LIBOR Rate, specifying: (i) the first day of the LIBOR Period;
(ii) the length of the LIBOR Period consistent with the definition of that term;
and (iii) the dollar amount of the LIBOR Portion consistent with the definition
of such terms.
Lien - any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on common law, statute or contract. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purpose of the Agreement, each Loan Party shall be
deemed to be the owner of any Property which it has acquired or holds subject to
a conditional sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.
Loan Account - the loan account established on the books of Lender
pursuant to Section 3.6.
Loan Documents - the Agreement, the Other Agreements and the Security
Documents.
Loan Parties - collectively, each Borrower, each Guarantor and each other
Person (other than Lender) which is at any time a party to any Loan Document or
individually, a Loan Party.
Loans - all loans and advances of any kind made by Lender pursuant to the
Agreement.
Appendix A - Page 9
<PAGE>
Material Adverse Effect - the effect of any event or condition which,
alone or when taken together with other events or conditions occurring or
existing concurrently therewith, (i) has a material adverse effect upon the
business, operations, Properties, condition (financial or otherwise) or business
prospects of any Loan Party, taken as a whole; (ii) has any material adverse
effect whatsoever upon the validity or enforceability of the Agreement or any of
the other Loan Documents; (iii) has or may be reasonably expected to have any
material adverse effect upon the value of the whole or any material part of the
Collateral, the Liens or Lender with respect to the Collateral or any material
part thereof or the priority of such Liens; (iv) materially impairs the ability
of any Loan Party, taken as a whole to perform their obligations under this
Agreement or any of the other Loan Documents, including repayment of the
Obligations or realize upon any of the Collateral in accordance with the Loan
Documents and Applicable Law.
Maximum Legal Rate - as defined in Section 2.1.3(A).
Money Borrowed - means (i) Indebtedness arising from the lending of money
by any Person to any Loan Party; (ii) Indebtedness, whether or not in any such
case arising from the lending by any Person of money to any Loan Party, (a)
which is represented by notes payable or drafts accepted that evidence
extensions of credit, (b) which constitutes obligations evidenced by bonds,
debentures, notes or similar instruments, or (c) upon which interest charges are
customarily paid (other than accounts payable) or that was issued or assumed as
full or partial payment for Property; (iii) Indebtedness that constitutes a
Capitalized Lease Obligation; (iv) reimbursement obligations with respect to
letters of credit or guaranties of letters of credit; and (v) Indebtedness of
any Loan Party under any guaranty of obligations that would constitute
Indebtedness for Money Borrowed under clauses (i) through (iii) hereof, if owed
directly by any Loan Party.
Mortgages - collectively, any mortgage, deed of trust or security deed to
be executed by any Loan Party on or about the Closing Date or any date
thereafter in favor of Lender and by which any Loan Party shall grant and convey
to Lender, as security for the Obligations, a Lien upon the real Property of
such Loan Party.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of
ERISA.
Net Worth - at any date of determination thereof, (i) the aggregate amount
of all assets of a Person and its Subsidiaries on a Consolidated basis as may be
properly classified as such, less (ii) the aggregate amount of all liabilities
of a Person and its Subsidiaries on a Consolidated basis, all as determined in
accordance with GAAP.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees and other
charges thereon, owing, arising, due or payable from Borrowers to Lender of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under the Agreement or any of the
other Loan Documents or otherwise whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising and however acquired.
Appendix A - Page 10
<PAGE>
Other Agreements - any and all agreements, instruments and documents
(other than the Agreement and the Security Documents), heretofore, now or
hereafter executed by any Loan Party Borrower or any other third party and
delivered to Lender in respect of the transactions contemplated by the
Agreement, including the Subordination Agreements.
Other Subordinated Debt - all Subordinated Debt other than the RSTW Debt.
Out-of-Formula Condition - at any date of determination thereof, a
condition such that the outstanding principal amount of Loans on such date
exceeds the Borrowing Base on such date.
Participant - each Person who shall be granted the right by Lender to
participate in any of the Loans described in the Agreement and who shall have
entered into a participation agreement in form and substance satisfactory to
Lender.
Permitted Liens - any Lien of a kind specified in Section 8.2.5.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of any
Loan Party incurred after the date hereof which is secured by a Purchase Money
Lien and (a) which, when aggregated with the principal amount of all other such
Indebtedness and Capitalized Lease Obligations of the Loan Parties at the time
outstanding, does not exceed, in the aggregate, $250,000.00, (b) is incurred
solely in connection with the purchase of replacements for the Excluded
Property; provided such Purchase Money Lien attaches only to such replacement of
Excluded Property, or (c) is incurred solely in connection with the purchase of
passenger vans used in connection with correctional facilities; provided such
Purchase Money Lien attaches only to such passenger vans. For the purposes of
this definition, the principal amount of any Purchase Money Indebtedness
consisting of capitalized leases shall be computed as a Capitalized Lease
Obligation.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for employees
of any Loan Party that is covered by Title IV of ERISA.
Pro Forma Balance Sheet - the unaudited Consolidated balance sheet of
Avalon and its Subsidiaries as of the Closing Date after giving effect to the
execution and delivery of the Loan Documents and the funding of any Loans made
by Lender to Borrowers on the Closing Date and the payment of all fees, costs
and expenses associated with the foregoing.
Pro Forma Target Cash Flow - with respect to any Acquisition Target, the
Cash Flow of such Acquisition Target, on a pro forma basis (calculated in a
manner and using amounts approved by Lender), for the twelve month period ending
on the last day of the calendar month immediately preceding the date on which
the Acquisition is consummated for which financial information prepared in a
manner consistent with the financial statements required by Section 8.1.3 is
available.
Appendix A - Page 11
<PAGE>
Pro Forma Target EBITDA - with respect to any Acquisition Target, the
EBITDA of such Acquisition Target, on a pro forma basis (calculated in a manner
and using amounts approved by Lender), for the twelve month period ending on the
last day of the calendar month immediately preceding the date on which the
Acquisition is consummated for which financial information prepared in a manner
consistent with the financial statements required by Section 8.1.3 is available.
Projections - Avalon's forecasted Consolidated and consolidating (i)
balance sheets, (ii) profit and loss statements, (iii) cash flow statements, and
(iv) capitalization statements, all prepared on a consistent basis with the
historical financial statements of Avalon and its Subsidiaries, together with
appropriate supporting details and a statement of underlying assumptions.
Properly Contested - in the case of any Indebtedness of a Loan Party
(including any Taxes) that is not paid as and when due or payable by reason of
such Loan Party's bona fide dispute concerning its liability to pay same or
concerning the amount thereof, that (i) such Indebtedness and any Liens securing
same are being property contested in good faith by appropriate proceedings
promptly instituted and diligently conducted, (ii) such Loan Party has
established appropriate reserves as shall be required in conformity with GAAP,
(iii) the non-payment of such Indebtedness will not have a Material Adverse
Effect and will not result in a forfeiture of any assets of such Loan Party;
(iv) no Lien is imposed upon any of such Loan Party's assets with respect to
such Indebtedness unless such Lien is at all times junior and subordinate in
priority to the Liens in favor of Lender (except only with respect to property
Taxes that have priority as a matter of applicable state law); (v) if the
Indebtedness results from the entry, rendition or issuance against a Loan Party
or any of its assets of a judgment, writ, order or decree, such judgment, writ,
order or decree is stayed or bonded pending a timely appeal or other judicial
review; and (vi) if such contest is abandoned, settled or determined adversely
to such Loan Party, such Loan Party forthwith pays such Indebtedness and all
penalties and interest in connection therewith.
Property - any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
Purchase Money Indebtedness - means and includes (i) Indebtedness (other
than the Obligations and the Subordinated Debt) for the payment of all or any
part of the purchase price of any fixed assets, or passenger vans used in
connection with correctional facilities, (ii) any Indebtedness (other than the
Obligations or the Subordinated Debt) incurred at the time of or within ten (10)
days prior to or after the acquisition of any fixed assets for the purpose of
financing all or any part of the purchase price thereof, and (iii) any renewals,
extensions or refinancings thereof, but not any increases in the principal
amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined solely
to the fixed assets the purchase price of which was financed through the
incurrence of the Purchase Money Indebtedness secured by such Lien.
Appendix A - Page 12
<PAGE>
Qualified Secondary Public Offering - a firm commitment, underwritten
public offering of Avalon's common stock to the general public pursuant to one
or more registration statements declared effective by the United States
Securities and Exchange Commission which results in gross cash proceeds of at
least $25,000,000.00.
Rentals - as defined in Section 8.2.12.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Restricted Investment - any investment made in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following:
(i) investments of any Borrower in any of its Subsidiaries to the
extent existing on the Closing Date;
(ii) Property to be used in the ordinary course of business;
(iii) Current Assets arising from the sale of goods and services in
the ordinary course of business of any Borrower and its Subsidiaries;
(iv) investments in direct obligations of the United States of
America, or any agency thereof or obligations guaranteed by the United States of
America, provided that such obligations mature within one year from the date of
acquisition thereof;
(v) investments in certificates of deposit maturing within one year
from the date of acquisition issued by a bank or trust company organized under
the laws of the United States or any state thereof having capital surplus and
undivided profits aggregating at least $100,000,000; and
(vi) investments in commercial paper given the highest rating by a
national credit rating agency and maturing not more than 270 days from the date
of creation thereof.
RSTW - RSTW Partners III, L.P., a Delaware Limited Partnership.
RSTW Debt - means and includes all indebtedness, obligations and
liabilities of any Loan Party now or hereafter owing under or in respect of the
RSTW Debt Documents.
RSTW Debt Documents - means (i) the RSTW Loan Agreement, (ii) the RSTW
Note, (iii) the RSTW Securities Documents, and (iv) all promissory notes,
agreements, proxies, security documents, guaranties, share certificates,
documents and instruments now or at any time hereafter executed and/or delivered
by any Loan Party and, in favor of or for the benefit of RSTW in connection
therewith or related thereto; as all of the foregoing now exist or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced to
the extent permitted under this Agreement and the RSTW Subordination Agreement.
Appendix A - Page 13
<PAGE>
RSTW Loan Agreement - means that certain Note Purchase Agreement dated
September 16, 1998, by and among RSTW and Borrowers, as the same now exist and
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced to the extent permitted under this Agreement at the RSTW Subordination
Agreement.
RSTW Note - means the Senior Subordinated Note dated September 16, 1998,
in the stated principal amount of $10,000,000 issued by Borrowers to RSTW,
together with any amendments, modifications, extensions, substitutions,
restatements or replacements of the same to the extent permitted under this
Agreement at the RSTW Subordination Agreement.
RSTW Securities Documents - means the "Securities Documents" as defined in
the RSTW Subordination Agreement.
RSTW Subordination Agreement - means the Subordination Agreement, dated
the date hereof, by and between Lender and RSTW as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
Schedule of Accounts - as defined in Section 6.2.1.
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
Security Documents - the Guaranty Agreements, the Mortgages and all other
instruments and agreements now or at any time hereafter securing the whole or
any part of the Obligations.
Senior Debt - means all Money Borrowed, excluding Subordinated Debt.
Solvent - as to any Person, such Person (i) owns Property whose fair
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (ii) is able to pay all of its
Indebtedness as such Indebtedness matures and (iii) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.
Southern - as defined in the preamble of this Agreement.
Statutory Reserves - a fraction (expressed as a decimal), the numerator of
which is the number one and the denominator of which is the number one minus the
aggregate of the maximum reserve percentages (including, without limitation, any
marginal, special, emergency or supplemental reserves), expressed as a decimal,
established by the Federal Reserve Board and any other banking authority to
which Lender is subject for "Eurocurrency Liabilities" (as defined in Regulation
D of the Federal Reserve Board or any successor thereto). Such reserve
percentages shall include, without limitation, those imposed under such
Regulation D. Any LIBOR Portion shall be deemed to constitute Eurocurrency
Liabilities and as such shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration, exceptions or offsets
which may be available from time to time to Lender under such Regulation D.
Statutory Reserves shall be adjusted automatically on and
Appendix A - Page 14
<PAGE>
as of the effective date of any change in any reserve percentage, provided that
no adjustment shall reduce Statutory Reserves below the amount in effect on the
Closing Date.
Subordinated Debt - the RSTW Debt and Indebtedness of any Borrower
pursuant to the Convertible Notes.
Subordination Agreements - collectively, the RSTW Subordination Agreement
and the Consolidated Notes Subordination Agreement as the same may be amended,
modified, supplemented, extended, renewed, restated or replaced.
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting Stock
at the time of determination.
Tax - collectively, any present and future tax, levy, impost, duty, fee,
assessment, deduction, withholding or other charge of whatever nature, including
income, receipts, excise, property, sales, transfer, license, payroll,
withholding, social security and franchise taxes now or hereafter imposed or
levied by the United States, or any state, local or foreign government or by any
department, agency or other political subdivision or taxing authority thereof or
therein and all interest, penalties, additions to tax and similar liabilities
with respect thereto and (ii) in relation to any LIBOR Portion and the
applicable LIBOR Rate, any tax, levy, impost, duty, deduction, withholding or
charges of whatever nature required by any Legal Requirement (1) to be paid by
Lender and/or (2) to be withheld or deducted from any payment otherwise required
hereby to be made by any Borrower to Lender; provided, that the term "Tax" shall
not include any taxes imposed upon the net income of Lender.
Total Credit Facility - $18,000,000 and as the same may from time to time
be reduced pursuant to subsection 3.3.3.
Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
Other Terms. All other terms contained in the Agreement shall have, when
the context so indicates, the meanings provided for by the Code to the extent
the same are used or defined therein.
Certain Matters of Construction. References to "Sections," "subsections,"
"Exhibits," "Schedules," and to the Appendix shall be to Sections, subsections,
Exhibits, Schedules and the Appendix, respectively, of or to the Agreement
unless otherwise specifically provided. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. In the computation periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" means "to but excluding." The section
titles, table of contents and list of exhibits appear as a matter of convenience
only and shall not affect the interpretation of the Agreement. All references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations. All
Appendix A - Page 15
<PAGE>
references to any of the Loan Documents shall include any and all modifications
thereto and any and all extensions or renewals thereof. Whenever the phrase
"including" shall appear in this Agreement, such word shall be understood to
mean "including, without limitation."
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
Appendix A - Page 16
<PAGE>
LIST OF EXHIBITS
Exhibit A [Reserved for Future Use]
Exhibit B Business Locations
Exhibit C Jurisdictions in which the Loan Parties and their
Subsidiaries are Authorized to do Business
Exhibit D Capital Structure
Exhibit E Corporate Names
Exhibit F Tax Identification Numbers of the Loan Parties
Exhibit G Patents, Trademarks, Copyrights and Licenses
Exhibit H Contracts Restricting the Right to Incur Debts by a Loan Party
Exhibit I Litigation
Exhibit J Capitalized Leases
Exhibit K Operating Leases
Exhibit L Pension Plans
Exhibit M Labor Contracts
Exhibit N Compliance Certificate
Exhibit O Permitted Liens
Exhibit P Borrowing Base Certificate
Exhibit Q Property Acquired Within Past Five Years
Exhibit R Excluded Property
<PAGE>
EXHIBIT A
RESERVED FOR FUTURE USE
Exhibit A - Page 1
<PAGE>
EXHIBIT B
BUSINESS LOCATIONS
1. Each Loan Party currently has the following business locations, and no
others:
Chief Executive Office:
Avalon Community Services,Inc. Southern Correction Systems, Inc.
------------------------------ ---------------------------------
13401 Railway Drive 13401 Railway Drive
Oklahoma City, OK 73114 Oklahoma City, OK 73114
Other Locations:
Avalon Community Services, Inc. Southern Corrections Systems, Inc.
------------------------------- ----------------------------------
Emerald Square Avalon Correction Center
701 N. Council 302 W. Archer
Oklahoma City, OK 73127 Tulsa, OK 74103
Carver Center
2801 S.W. Third Street
El Paso intermediate Sanction
Facility
1650 Horizon Blvd.
El Paso, TX 79927
Ozark Correction Center/
Transition Center
Rt 2, Box 1-P or Rt 2, Box 432-A
Fordland, MO 65652
Turley Correctional Center
6101 N. Cincinatti Ave.
Tulsa, OK 74123
Union City Juvenile Center
700 N. SH 81
Union City, OK 73090
<PAGE>
EXHIBIT B
BUSINESS LOCATION
2. Each Loan Party maintains its books and records relating to Accounts and
General Intangibles at:
Avalon Correctional Services, Inc. Southern Corrections Systems, Inc.
--------------------------------- ----------------------------------
13401 Railway Drive 13401 Railway Drive
Oklahoma City, OK 73114 Oklahoma City, OK 73114
3. Each Loan Party has had no office, place of business or agent for process
located in any county other than as set forth above, except:
Not Applicable
4. Each Subsidiary of a Loan Party currently has the following business
locations, and no others:
Chief Executive Office:
Elk City Properties, Inc. Central Oklahoma Properties, Corp.
------------------------- ----------------------------------
13401 Railway Drive 13401 Railway Drive
Oklahoma City, OK 73114 Oklahoma City, OK 73114
Other Locations: None
5. Each Subsidiary of a Loan Party maintains its books and records relating
to Accounts and General Intangibles at:
Elk City Properties, Inc. Central Oklahoma Properties, Corp.
------------------------- ----------------------------------
13401 Railway Drive 13401 Railway Drive
Oklahoma City, OK 73114 Oklahoma City, OK 73114
6. Each Subsidiary of a Loan Party has had no office, place of business or
agent for process located in any county other than as set forth above,
except:
Not Applicable
<PAGE>
EXHIBIT C
JURISDICTIONS IN WHICH THE LOAN PARTIES,
AND THEIR SUBSIDIARIES
ARE AUTHORIZED TO DO BUSINESS
Name of Entity Jurisdictions
--------------------------------- -----------------
Avalon Community Services, Inc. Missouri
Nevada
Oklahoma
Southern Corrections Systems, Inc Colorado
Missouri
Nebraska
Oklahoma
Texas
Elk City Properties, Inc. Oklahoma
Central Oklahoma Properties, Corp Oklahoma
<PAGE>
EXHIBIT D
CAPITAL STRUCTURE
1. The classes and number of authorized shares of each Loan Party and any
Subsidiary of such Loan Party and the record owner of such shares are as
follows:
Avalon Correctional Services, Inc.:
- -----------------------------------
Class Number of Shares Number of Shares
of Stock Issued and Outstanding Record Owners Authorized but Unissued
- ---------- ---------------------- --------------- -----------------------
Common-A 4,664,328 Publicly Traded 15,335,672
Common-B -0- N/A 4,000,000
Preferred -0- N/A 1,000,000
Avalon Community Services, Inc. owns 100% of the common stock of all other
related parties.
2. The number, nature and holder of all other outstanding Securities of each
Loan Party and each Subsidiary of such Loan Party is as follows:
Avalon Community Services, Inc. - See Attached
No other loan party has any securities outstanding other than common
stock owned by Avalon Community Services, Inc.
3. The correct name and jurisdiction of incorporation of each Subsidiary of
each Loan Party and the percentage of its issued and outstanding shares
owned by such Loan Party are as follows:
N/A
Exhibit D - Page 1
<PAGE>
EXHIBIT D
CAPITAL STRUCTURE
4. The name of each of Loan Party's corporate or joint venture Affiliates and
the nature of the affiliation are as follows:
Avalon Retirement Centers, LLC - Avalon Community Services, Inc.
Owns 15% LLC interest
5. Warrants and options of each Loan Party with a description of exercise
options and price.
<TABLE>
<CAPTION>
Avalon Community Services
Equity Instruments
02/12/99 Donald E. RSTW Pro Trust Jerry M.
Total Street Smith Partners Equity Sunderland
............................................................................................
<S> <C> <C> <C> <C> <C> <C>
Common Stock 4,664,328 1,836,826 1,027,729 1,622,448
Convertible Debentures 1,283,333 470,000 666,667
Class B Warrants 275,100 219,100
Class C Warrants 837,500 533,000 10,000
Class D Warrants 200,000
Class E Warrants 79,000
CEO Guarantee Warrants 750,000 750,000
Underwriter Warrants 100,000
Legg Mason warrants 200,539
John P.O'Shea Warrants 60,000
Stock Options outstanding 492,900 126,270 126,270
--------------------------------------------------------------------------------------------
8,942,700 3,058,926 1,913,999 1,622,448 666,667 126,270
============================================================================================
34.21% 21.40% 18.14% 7.45% 1.41%
============================================================================
</TABLE>
Exhibit D - Page 2
<PAGE>
EXHIBIT E
CORPORATE NAMES
1. Avalon's correct corporate name, as registered with the Secretary of State
of the State of Nevada, is:
Avalon Community Services, Inc.
2. In the conduct of its business, Avalon has used the following names:
Avalon Community Services, Inc.
Avalon Correctional Services, Inc.
Avalon Enterprise, Inc.
3. The correct corporate name of each remaining Loan Party, as registered
with the Secretary of State of the state of incorporation of such Loan
Party is:
Southern Corrections Systems, Inc., an Oklahoma corporation
Elk City Properties, Inc., an Oklahoma corporation
Central Oklahoma Properties, Corp., an Oklahoma corporation
4. In the conduct of its business, Loan Party has used the following names:
Avalon Community Services, Inc.
Avalon Correctional Services, Inc.
Avalon Enterprise, Inc.
5. Each Subsidiaries' correct corporate name, as registered with the
Secretary of State of the State of its incorporation, is:
Southern Corrections Systems, Inc., an Oklahoma corporation
Elk City Properties, Inc., an Oklahoma corporation
Central Oklahoma Properties, Corp., an Oklahoma corporation
6. In the conduct of its business, each Subsidiary has used the following names:
Elk City Properties, Inc., an Oklahoma corporation
Norman Housing, Inc., an Oklahoma corporation
Central Oklahoma Properties, Corp., an Oklahoma corporation
The Ark Treatment Center, Inc., an Oklahoma corporation
<PAGE>
EXHIBIT F
TAX IDENTIFICATION NUMBERS OF THE LOAN PARTIES
Loan Party Number
------------------------------------ --------------
Avalon Community Services, Inc. 13-3592263
Southern Corrections Systems, Inc. 73-1356291
Central Oklahoma Properties Corp. 73-1356347
Elk City Properties, Inc. 73-1377660
<PAGE>
EXHIBIT G
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
1. Borrowers' and their Subsidiaries' patents:
None
2. Borrowers' and their Subsidiaries' trademarks:
None
3. Borrowers' and their Subsidiaries' copyrights:
None
4. Borrowers' and their Subsidiaries' licenses (other than routine business
licenses, authorizing them to transact business in local jurisdictions):
None
<PAGE>
EXHIBIT H
CONTRACTS RESTRICTING THE RIGHT TO INCUR DEBTS BY A LOAN PARTY
Contracts that restrict the right of a Loan Party to incur Indebtedness:
Title of Contract Identity of Parties Nature of Restriction Term of Contract
- ----------------- ------------------- --------------------- ----------------
Debenture purchase Restrictions on Debenture
agreement dated Indebtedness Purchase
August 26, 1997, contained in Section agreement
as ammended by 3.20 of debenture governing terms
September 1998 purchase agreement, of 7.5%
"Amendment of as amended in Convertible
Debenture September, 1998. Debentures due
Purchase September 12,
agreement" 2007
- ----------------- ------------------- --------------------- ----------------
Note Purchase Avalon Community Restrictions on Governs terms of
Agreement Services, Inc., indebtedness purchase and
Southern Corrections contained in section sale of Senior
Systems, Inc., and 7.1 of the Note Subordinated
RSTW Partners III,LP Purchase agreement Note due
September 15,
2006
- ----------------- -------------------- --------------------- ---------------
<PAGE>
EXHIBIT I
LITIGATION
1. Actions, suits, proceedings and investigations pending against any Loan
Party or any Subsidiary of a Loan Party:
Complaining Jurisdiction
Title of Action Nature of Action Parties or Tribunal
- -------------------- ------------------- ------------- ---------------------
Miguel Angel Gomez Personal injury Miguel Gomez El Paso County Court
v. Avalon Community by Miguel Gomez Number 3, State of
Services, Inc., and Texas.
Southern Corrections
Systems, Inc., Cause
No. 98-3733
- -------------------- ------------------- ------------- ---------------------
Scott Robert Horn vs. Claim that Mr. Horn Scott Robert District Court of
Southern Corrections discharged "in Horn Tulsa County, State
Systems, Inc., d/b/a violation of public of Oklahoma Case
Avalon Correctional policy" No. CJ-99-00199
Services, Inc.,
and/or Turley
Correctional Center
- ------------------- ------------------- ------------- ---------------------
2. The only threatened actions, suits, proceedings or investigations of which
any Loan Party or any Subsidiary of a Loan Party is aware are as follows:
Dispute with Oscar J. Boldt Construction Company: Avalon Community Services,
Inc., is presently in discussions with Boldt Construction Company regarding cost
overruns on the Union City Juvenile Medium Security Residential Treatment
Facility. Boldt Construction Company has requested change orders to increase the
construction price under the contract with Boldt. Avalon has responded that the
construction contract is a "guaranteed maximum price" contract and that any cost
overruns not attributable to change orders directed and approved by Avalon are
entirely Boldt's responsibility. It is anticipated that this matter will be
submitted to arbitration in the near future.
<PAGE>
EXHIBIT J
CAPITALIZED LEASES
Borrowers' and their Subsidiaries have the following capitalized leases:
None
<PAGE>
EXHIBIT K
OPERATING LEASES
Borrowers' and their Subsidiaries have the following Operating Leases:
<TABLE>
<CAPTION>
Start End Monthly
Description Lessor & Address Date Date Amount
- ---------------------------------------------- -------------------------------------------- ---------- ---------- -----------
Copiers -
<S> <C> <C> <C> <C>
Ozark Savin 9035DL, ID #11182 Standley Corporation/ 05/01/97 04/30/02 239
Turley Savin 9035DL, ID #11181 Nutech Business Systems 05/01/97 04/30/02 238
Central Office Savin 9500, ID #11547 2601 NW Expressway 02/01/98 01/31/01 547
El Paso (Savin 9122DL),.#1B27110186 Oklahoma City, OK, 73112 03/20/98 03/19/02 189
Central Off(Aficio 450) ser.#7708870377 Copy Solutions 12/07/98 12/06/01 388
Carver (Aficio 350), ser.#7698900487 5715 N Western, Suite G 12/07/98 12/06/01 273
Union City (Aficio 450), ser.#7708870584 Oklahoma City, OK, 73118 12/07/98 12/06/01 333
Avalon Cor(Aficio 200),.#A7227020123 IOS Capital 09/01/98 05/31/02 134
P.O. Box 9115
Macon, GA, 31210
Central Office Fax, ser.#UBY-71476 Canon Financial Services 07/21/96 07/20/99 134
P.O. Box 370
Burlington, NJ 08016
Central Postage Meter & Scale Pitney Bowes Credit Corp. 11/20/96 01/19/01 140
201 Merritt Seven
Norwalk CT, 06856-5151
Total Office Equipment Leases 2,615
---------
Vehicles-
96 Lexus VIN JT8BF12G3T0166300 Lexus Financial Services 05/28/96 05/27/99 487
96 Lexus VIN JT8BD42S5T0123265 PO Box 832428 Richardson, 05/13/96 05/12/99 675
TX, 75083
98 Mercedes 3 WDBKK47F9WF006713 Jerry Sunderland 05/25/98 05/25/03 934
2017 Raintree Rd
Total Vehicle Leases Edmond, OK 73013 2,097
---------
Total All Leases 4,712
=========
</TABLE>
<PAGE>
EXHIBIT L
PENSION PLANS
The Loan Parties and their Subsidiaries have the following Plans:
Party Type of Plan
- ---------------------------------- ----------------------------------------
Avalon Community Services, Inc. ERISA exempt retirement deferred
compensation plan
<PAGE>
EXHIBIT M
COLLECTIVE BARGAINING AGREEMENTS; LABOR CONTROVERSIES
1. Borrowers' and their Subsidiaries are parties to the following collective
bargaining agreements:
None
2. Material grievances, disputes of controversies with employees are as follows:
None
3. Threatened strikes, work stoppages and asserted pending demands for
collective bargaining are as follows:
None
<PAGE>
EXHIBIT N
COMPLIANCE CERTIFICATE
[Letterhead of Avalon]
_________________, 19__
Fleet Capital Corporation
2711 North Haskell
Suite 2100, LB 21
Dallas, Texas 75204
The undersigned, the chief financial officer of Avalon Community Services,
Inc., d/b/a Avalon Correctional Services, Inc. ("Avalon"), gives this
certificate to Fleet Capital Corporation ("Lender") in accordance with the
requirements of Section 8.1.3 of that certain Loan and Security Agreement dated
______________, 19__, among the Loan Parties and Lender ("Loan Agreement").
Capitalized terms used in this Certificate, unless otherwise defined herein,
shall have the meanings ascribed to them in the Loan Agreement.
1. Based upon my review of the balance sheets and statements of income of
Avalon and its Subsidiaries for the [fiscal year] [monthly period] ending
December 31, 1998, copies of which are attached hereto, I hereby certify
that:
2. No Default exists on the date hereof, other than: __NONE____________
________________________________________________ [if none, so state]; and
3. No Event of Default exists on the date hereof, other than
____________________NONE__________________________________________________ [if
none, so state].
Very truly yours,
-------------------------------
Chief Financial Officer
<PAGE>
EXHIBIT O
PERMITTED LIENS
1. All liens upon airplanes (including airplane engines) owned by any loan party
2. All liens upon any automobile owned by any loan party.
3. All liens for security of Permitted Purchase Money Indebtedness and
Permitted Purchase Money Liens.
4. Liens on El Paso Property, as permitted by the loan and Security Agreement.
5. Liens on Kubota Tractor.
<PAGE>
EXHIBIT P
BORROWING BASE CERTIFICATE
AVALON COMMUNITY SERVICES, INC.
d/b/a AVALON CORRECTIONAL SERVICES, INC.
and
SOUTHERN CORRECTIONS SYSTEMS, INC.
This certificate is given by Avalon Community Services, Inc., d/b/a Avalon
Correctional Services, Inc., a Nevada corporation ("Avalon") and Southern
Correction System, Inc., an Oklahoma corporation ("Southern") pursuant to
Section 8.1.4 of that certain Loan and Security Agreement dated as of February
25, 1999, among Borrowers and Fleet Capital Corporation, a Rhode Island
Corporation ("Lender") (as such agreement may have been amended, restated,
supplemented or otherwise modified from time to time the "Loan Agreement").
Captialized terms used herein without definition shall have the meaning set
forth in the loan agreement.
The officer executing this certificate is the Chief Financial Officer of
Borrowers and as such is duly authorized to execute and deliver this certificate
on behalf of Borrowers. By executing this certificate such officer hereby
certifies to the Lender that:
(a) Attached hereto as Schedule I is a calculation of the Borrowing Base
as of the date listed below; and
(b) Based on the Borrowing Base calculation attached hereto as Schedule I,
the Borrowing Base as of the date listed below (i.e. the date of
determination) is:
$___________________
(The Borrowing Base is the lesser of A or B on Schedule I).
IN WITNESS WHEREOF, Borrowers have caused this Certificate to be executed by its
Chief Financial Officer as of ______________, ____.
AVALON COMMUNITY SERVICES, INC.
d/b/a AVALON CORRECTIONAL SERVICES, INC.
SOUTHERN CORRECTION SYSTEMS, INC.
By:___________________________________
Chief Financial Officer
<PAGE>
EXHIBIT Q
PROPERTY ACQUIRED WITHIN PAST FIVE YEARS
1. Avalon Correctional Center
302 W. Archer Street
Tulsa, OK 74103
2. Carver Center
2801 S.W. Third Street
Oklahoma City, OK 73108
3. El Paso Intermediate Sanction Facility (acquired from Secure
Correctionsd, Inc.)
1650 Horizon Blvd.
El Paso, TX 79927
4. Turley Correctional Center (acquired from Freedom Ranch, Inc.)
6101 N. Cincinnati Ave.
Tulsa, OK 74123
5. Union City Juvenile Center
700 N. SH 81
P.O. Box 247
Union City, OK 73090
6. El Paso Phase I expansion
1700 Horizon Hills Boulevard
El Paso, Tx 79927
<PAGE>
EXHIBIT R
EXCLUDED PROPERTY
1. Airplanes (including airplane engines) owned by any loan party.
2. All automobiles owned by any loan party
<PAGE>
