LINE OF CREDIT AGREEMENT
This Line of Credit Agreement ("Agreement") is made and entered into this 28th
day of march 1996 by and between SANWA BANK CALIFORNIA (the "Bank") and
ALIGN-RITE INTERNATIONAL, INC. (the "Borrower").
1.01. CERTAIN DEFINED TERMS. Unless elsewhere defined in this Agreement
the following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms defined):
A. "ADVANCE" shall mean an advance to the Borrower under any line of
credit facility or similar facility provided for in Section 11 of this
Agreement which provides for draws by the Borrower against an established
B. "BUSINESS DAY" shall mean a day, other than a Saturday or Sunday, on
which commercial banks are open for business in California,
C. "COLLATERAL" shall mean any personal or real property in which the
Bank may be granted a lien or security interest to secure payment of the
D. "DEBT" shall mean all liabilities of the Borrower less Subordinated
E. "EFFECTIVE TANGIBLE NET WORTH" shall mean the Borrower's stated net
worth plus Subordinated Debt but less all intangible assets of the
Borrower (i.e., goodwill, trademarks, patents, copyrights, organization
expense and similar intangible items).
F. "ENVIRONMENTAL CLAIMS" shall mean all claims, however asserted, by
any governmental authority or other person alleging potential liability
or responsibility for violation of any Environmental Law or for release
or injury to the environment or threat to public health, personal injury
(including sickness, disease or death), property damage, natural
resources damage, or otherwise alleging liability or responsibility for
damages (punitive or otherwise), cleanup, removal, remedial or response
costs, restitution, civil or criminal penalties, injunctive relief, or
other type of relief, resulting from or based upon (i) the presence,
placement, discharge, emission or release (including intentional and
unintentional, negligent and non-negligent, sudden or non-sudden,
accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Materials at, in, or from
property owned, operated or controlled by the Borrower, or (ii) any other
circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law.
G. "ENVIRONMENTAL LAWS" shall mean all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
governmental authorities, in each case relating to environmental, health,
safety and land use matters; including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean
Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste
Disposal Act, the Federal Resource Conservation and Recovery Act, the
Toxic Substances Control Act, the Emergency Planning and Community
Right-to-Know Act, the California Hazardous Waste Control Law, the
California Solid Waste Management Resource, Recovery and Recycling Act,
the California Water Code and the California Health and Safety Code.
H. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, including (unless the context
otherwise requires) any rules or regulations promulgated thereunder.
I. "EVENT OF DEFAULT" shall have the meaning set forth in the section
herein entitled "Events of Default".
J. "Hazardous Materials" shall mean all those substances which are
regulated by, or which may form the basis of liability under any
Environmental Law, including all substances identified under any
Environmental Law as a pollutant Contaminant, hazardous waste, hazardous
constituent, special waste, hazardous substance, hazardous material, or
toxic substance, or petroleum or petroleum derived substance or waste.
K. "INDEBTEDNESS" shall mean, with respect to the Borrower, (i) all
indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which the Borrower is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which the Borrower otherwise assures a creditor against loss
and (ii) obligations under leases which shall have been or should be, in
accordance with generally accepted accounting principles, reported as
capital leases in respect of which the Borrower is liable, contingently
or otherwise, or in respect of which the Borrower otherwise assures a
creditor against loss.
L. "LIBOR RATE" shall mean an interest rate determined by the Bank's
Treasury Desk as being the arithmetic mean (rounded upwards, if
necessary, to the nearest whole multiple of one-sixteenth of one percent
(1/16%)) of the U.S. dollar London Interbank Offered Rates for the
relevant period appearing on page 3750 (or such other page as may replace
3750) of the Telerate screen at or about 11:00 a.m. (London time) on the
second Business Day prior to the first day of the relevant interest
period (adjusted for any and all assessments, surcharges and reserve
M. "OBLIGATIONS" shall mean all amounts owing by the Borrower to the
Bank pursuant to this Agreement including, but not limited to, the unpaid
principal amount of Advances.
N. "PERMITTED LIENS" shall mean: (i) liens and security interests
securing indebtedness owed by the Borrower to the Bank; (ii) liens for
taxes, assessments or similar charges either not yet due or being
contested in good faith, provided proper reserves are maintained therefor
in accordance with generally accepted accounting procedure; (iii) liens
of materialmen, mechanics, warehousemen, or carriers or other like liens
arising in the ordinary course of business and securing obligations which
are not yet delinquent; (iv) purchase money liens or purchase money
security interests upon or in any property acquired or held by the
Borrower in the ordinary course of business to secure Indebtedness
outstanding on the date hereof or permitted to be incurred pursuant to
this Agreement; (v) liens and security interests which, as of the date
hereof, have been disclosed to and approved by the Bank in writing; and
(vi) those liens and security interests which in the aggregate constitute
an immaterial and insignificant monetary amount with respect to the net
value of the Borrower's assets.
O. "REFERENCE RATE" shall mean an index for a variable interest rate
which is quoted, published or announced from time to time by the Bank as
its reference rate and as to which loans may be made by the Bank at,
below or above such reference rate.
P. "SUBORDINATED DEBT" shall mean such liabilities of the Borrower
which have been subordinated to those owed to the Bank in a manner
acceptable to the Bank.
1.02. ACCOUNTING TERMS. All references to financial statements, assets,
liabilities, and similar accounting items not specifically defined herein shall
mean such financial statements or such items prepared or determined in
accordance with generally accepted accounting principles consistently applied
and, except where otherwise specified, all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
1.03. OTHER TERMS. Other terms not otherwise defined shall have the
meanings attributed to such terms in the California Uniform Commercial Code.
2.01. COMMITMENT TO LEND. Subject to the terms and conditions of this
Agreement and so long as no Event of Default occurs, the Bank agrees to extend
to the Borrower the credit accommodations that follow.
2.02. LINE OF CREDIT FACILITY. The Bank agrees to make loans and Advances
to the Borrower. upon the Borrower's request therefor made prior to the
Expiration Date (as defined below in this Section 2.02), up to a total
principal amount from time to time outstanding of not more than $2,500,000.00.
Within the foregoing limits, the Borrower may borrow, partially or wholly
prepay, and reborrow under this Line of Credit facility.
A. PURPOSE. Advances made under this Line of Credit shall be used for
B. INTEREST RATE. Except with respect to "Fixed Rate Advances" as
provided below, interest shall accrue on the outstanding principal
balance of Advances under this Line of Credit at a variable rate equal to
the Bank's Reference Rate, per annum, as it may change from time to time.
(Such rate is referred to in this Section 2.02 as the "Variable Rate".)
The Variable Rate shall be adjusted concurrently with any change in the
Reference Rate. Interest shall be calculated on the basis of 360 days
per year but charged on the actual number of days elapsed.
C. ALTERNATIVE FIXED RATE LIBOR PRICING. In addition to Advances based
upon the Variable Rate ("Variable Rate Advances"), at the Borrower's
election, the Bank hereby agrees to make Advances to the Borrower under
this Line of Credit at a fixed rate (each a "Fixed Rate Advance") which
shall be approximately equivalent to 1.50% per annum in excess of the
LIBOR Rate (the "Fixed Rate"). Such Advances shall be in the minimum
amount of $100,000.00 and in $100,000.00 increments thereafter and for
such period of time (each an "Interest Period") for which the Bank may
quote and offer such Fixed Rate, provided that the Interest Period shall
be for a minimum of at least 30 days and for a maximum of not more than
473 days and provided further that any Interest Period shall not extend
beyond the Expiration Date (as defined below) of this facility. Interest
on any Fixed Rate Advance shall be computed on the basis of 360 days per
year but charged on the actual number of days elapsed.
(i) NOTICE OF ELECTION TO ADJUST INTEREST RATE. Upon telephonic notice
which shall be received by the Bank at or before 2:00 p.m. (California
time) on a Business Day, the Borrower may elect:
(a) That interest on a Variable Rate Advance shall be adjusted to
accrue at a Fixed Rate; provided, however, that such notice shall be
received by the Bank no later than two Business Days prior to the
day (which shall be a Business Day) on which the Borrower requests
that interest be adjusted to accrue at the Fixed Rate.
(b) That interest on a Fixed Rate Advance shall continue to accrue
at a newly quoted Fixed Rate or shall be adjusted to commence to
accrue at the Variable Rate; provided however, that such notice
shall be received by the Bank no later than two Business Days prior
to the last day of the Interest Period pertaining to such Fixed Rate
Advance. If the Bank shall not have received notice as prescribed
herein of the Borrower's election that interest on any Fixed Rate
Advance shall continue to accrue at the Fixed Rate, the Borrowers
shall be deemed to have elected that interest thereon shall be
adjusted to accrue at the Variable Rate upon the expiration of the
Interest Period pertaining to such Advance.
(ii) PROHIBITION AGAINST PREPAYMENT OF FIXED RATE ADVANCES.
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE AGREEMENT, NO PREPAYMENT
SHALL BE MADE ON ANY FIXED RATE ADVANCE EXCEPT ON A DAY WHICH IS THE LAST
DAY OF THE INTEREST PERIOD PERTAINING THERETO. IF THE WHOLE OR ANY PART
OF ANY FIXED RATE ADVANCE IS PREPAID BY REASON OF ACCELERATION OR
OTHERWISE, THE BORROWER SHALL, UPON THE BANK'S REQUEST, PROMPTLY PAY TO
AND INDEMNIFY THE BANK FOR ALL COSTS AND ANY LOSS (INCLUDING INTEREST)
ACTUALLY INCURRED BY THE BANK AND ANY LOSS (INCLUDING LOSS OF PROFIT
RESULTING FROM THE RE-EMPLOYMENT OF FUNDS) SUSTAINED BY THE BANK AS A
CONSEQUENCE OF SUCH PREPAYMENT.
(iii) INDEMNIFICATION FOR FIXED RATE COSTS. During any period of
time in which interest on any Advance is accruing on the basis of a Fixed
Rate, the Borrower shall, upon the Bank's request. promptly pay to and
reimburse the Bank for all costs incurred and payments made by the Bank
by reason of any future assessment, reserve, deposit or similar
requirements or any surcharge, tax or fee imposed upon the Bank or as a
result of the Bank's compliance with any directive or requirement of any
regulatory authority pertaining or relating to funds used by the Bank in
quoting and determining the Fixed Rate.
(iv) INVOLUNTARY CONVERSION FROM FIXED RATE TO VARIABLE RATE. In the
event that the Bank shall at any time determine that the accrual of
interest on the basis of the Fixed Rate (a) is infeasible because the
Bank is unable to determine the Fixed Rate due to the unavailability of
U.S. dollar deposits, contracts or certificates of deposit in an amount
approximately equal to the amount of the relevant Advance and for a
period of time approximately equal to the relevant interest Period, or
(b) is or has become unlawful or infeasible by reason of the Bank's
compliance with any new law, rule, regulation, guideline or order, or any
new interpretation of any present law, rule, regulation, guideline or
order, then the Bank shall give to the Borrower telephonic notice thereof
(confirmed in writing) setting forth in reasonable detail the factors
underlying its determination, in which event any Fixed Rate Advance shall
be deemed to be a Variable Rate Advance and interest shall thereupon
immediately accrue at the Variable Rate.
D. PAYMENT OF INTEREST.
(i) VARIABLE RATE ADVANCES. The Borrower hereby promises and
agrees to pay interest on all Variable Rate Advances monthly on the
last day of each month, commencing on April 30. 1996.
(ii) FIXED RATE ADVANCES. The Borrower hereby promises and agrees
to pay the Bank interest on any Fixed Rate Advance with an Interest
Period of 90 days or less on the last day of the relevant Interest
Period. The Borrower further promises and agrees to pay the Bank
interest on any Fixed Rate Advance with an Interest Period in excess
of 90 days on a quarterly basis (i.e. on the last day of each 90-day
period occurring in such Interest Period) and on the last day of the
relevant Interest Period.
If interest is not paid as and when it is due, the amount of such unpaid
interest shall bear interest, until paid in full, at a rate of interest
equal to the Variable Rate.
E. REPAYMENT OF PRINCIPAL. Unless sooner due in accordance with the
terms of this Agreement. the Borrower hereby promises and agrees to repay
outstanding Advances as follows:
(i) FIXED RATE ADVANCES. Unless adjusted at the end of the relevant
Interest Period as provided above, the principal amount of each Fixed
Rate Advance, shall be due and payable to the Bank on the last day of
the Interest Period pertaining to such Fixed Rate Advance.
(ii) VARIABLE RATE ADVANCES. On June 30, 1997 the full aggregate
unpaid principal balance of all Advances then outstanding, together
with all accrued and unpaid interest thereon shall be due and payable
to the Bank.
Any payment received by the Bank shall, at the Bank's option, first be
applied to pay any late fees or other fees then due and unpaid, and then
to interest then due and unpaid and the remainder thereof (if any) shall
be applied to reduce principal.
F. LATE FEE. If any regularly scheduled payment of principal and/or
interest (exclusive of the final payment upon maturity), or any portion
thereof, under this Line of Credit is not paid within ten (10) calendar
days after it is due, a late payment charge equal to five percent (5%) of
such past due payment may be assessed and shall be immediately payable.
G. MAKING LINE ADVANCES/NOTICE OF BORROWING. Each Advance made
hereunder shall be conclusively deemed to have been made at the request
of and for the benefit of the Borrower (i) when credited to any deposit
account of the Borrower maintained with the Bank or (ii) when paid in
accordance with the Borrower's written instructions. Subject to any
other requirements set forth in this Agreement, Advances shall be made by
the Bank upon telephonic or written notice received from the Borrower in
form acceptable to the Bank, which notice shall be received by the Bank
at or before 2:00 p.m. (California time) on a Business Day. The Borrower
may borrow under the Line of Credit by requesting either:
(i) A VARIABLE RATE ADVANCE. A Variable Rate Advance may be made
on the Business Day notice is received by the Bank, provided
however, that if the Bank shall not have received notice at or
before 2:00 p.m. (California time) on the day such Advance is
requested to be made, such Variable Rate Advance may be made, at the
Bank's option, on the next Business Day.
(ii) A FIXED RATE ADVANCE. The Borrower may elect that an Advance
be made as A Fixed Rate Advance by requesting the Bank to provide a
quote as to the rate which would apply for a designated Interest
Period and concurrently with receiving such quote, giving the Bank
irrevocable notice of the Borrower's acceptance of the rate quoted
provided such notice shall be given to the Bank not later than 10:00
a.m. (California time) on a date (which shall be a Business Day) at
least two days prior to the first day of the requested Interest
H. EXPIRATION OF THE LINE OF CREDIT FACILITY. Unless earlier
terminated in accordance with the terms of this Agreement the Bank's
commitment to make Advances to the Borrower hereunder shall automatically
expire on June 30, 1997 (the "Expiration Date"), and the Bank shall be
under no further obligation to advance any monies thereafter.
I. LINE ACCOUNT. The Bank shall maintain on its books a record of
account in which the Bank shall make entries for each Advance and such
other debits and credits as shall be appropriate in connection with the
Line of Credit facility (the "Line Account"). The Bank shall provide the
Borrower with a monthly statement of the Borrower's Line Account, which
statement shall be considered to be correct and conclusively binding on
the Borrower unless the Bank is notified by the Borrower to the contrary
within thirty (30) days after the Borrower's receipt of any such
statement which is deemed to be incorrect.
J. AMOUNTS PAYABLE ON DEMAND. If the Borrower fails to pay on demand
any amount so payable under this Agreement, the Bank may, at its option
and without any obligation to do so and without waiving any default
occasioned by the Borrower's failure to pay such amount, create an
Advance in an amount equal to the amount so payable, which Advance shall
thereafter bear interest as provided under this Line of Credit facility.
In addition, the Borrower hereby authorizes the Bank, if and to the
extent payment owed to the Bank under this Line of Credit facility is not
made when due, to charge, from time to time. against any or all of the
deposit accounts maintained by the Borrower with the Bank any amount so
3.01. CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT AND/OR FIRST
ADVANCE. The obligation of the Bank to make the initial extension of credit
and/or the first Advance hereunder is subject to the conditions precedent that
the Bank shall have received before the date of such extension of credit and/or
the first Advance all of the following, in form and substance satisfactory to
A. AUTHORITY TO BORROW. Evidence relating to the duly given approval
and authorization of the execution, delivery and performance of this
Agreement, all other documents, instruments and agreements required under
this Agreement and all other actions to be taken by the Borrower
hereunder or thereunder.
B. GUARANTORS. Continuing guaranties in favor of the Bank, in form and
substance satisfactory to the Bank, executed by Align-Rite Corporation
and Align-Rite International Limited (each a "Guarantor"), together with
evidence that the execution, delivery and performance of the Guaranties
by each Guarantor has been duly authorized.
C. LOAN FEES. Evidence that any required loan fees and expenses as set
forth above with respect to each credit facility have been paid or
provided for by the Borrower.
D. AUDIT. The opportunity to conduct an audit of the Borrower's books,
records and operations and the Bank shall be satisfied as to the
E. MISCELLANEOUS DOCUMENTS. Such other documents, instruments,
agreements and opinions as are necessary, or as the Bank may reasonably
require, to consummate the transactions contemplated under this
Agreement, all fully executed.
3.02. CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT AND/OR ADVANCES.
The obligation of the Bank to make any extensions of credit and/or each Advance
to or on account of the Borrower (including the initial extension of credit
and/or the first Advance) shall be subject to the further conditions precedent
that, as of the date of each extension of credit or Advance and after the
making of such extension of credit or Advance:
A. REPRESENTATIONS AND WARRANTIES. The representations and warranties
set forth in the Section entitled "Representations and Warranties" herein
and in any other document, instrument, agreement or certificate delivered
to the Bank hereunder are true and correct.
B. EVENT OF DEFAULT. No event has occurred and is continuing which
constitutes, or, with the lapse of time or giving of notice or both,
would constitute an Event of Default.
C. SUBSEQUENT APPROVALS, ETC. The Bank shall have received such
supplemental approvals, opinions or documents as the Bank may reasonably
3.03. REAFFIRMATION OF STATEMENTS. For the purposes hereof, the
Borrower's acceptance of the proceeds of any extension of credit and the
Borrower's execution of any document or instrument evidencing or creating any
Obligation hereunder shall each be deemed to constitute the Borrower's
representation and warranty that the statements set forth above in this Section
are true and correct.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties to the
Bank, which representations and warranties are continuing:
4.01. STATUS. The Borrower is a corporation duly organized and validly
existing under the laws of the State of California and is properly licensed,
qualified to do business and in good standing in, and, where necessary to
maintain the Borrower's rights and privileges, has complied with the fictitious
name statute of every jurisdiction in which the Borrower is doing business.
4.02. AUTHORITY. The execution, delivery and performance by the Borrower
of this Agreement and any instrument, document or agreement required hereunder
have been duly authorized and do not and will not: (i) violate any provision of
any law, rule, regulation, writ judgment or injunction presently in effect
affecting the Borrower; (ii) require any consent or approval of the
stockholders of the Borrower or violate any provision of the articles of
incorporation or by-laws of the Borrower; or (iii) result in a breach of or
constitute a default under any material agreement to which the Borrower is a
party or by which it or its properties may be bound or affected.
4.03. LEGAL EFFECT. This Agreement constitutes, and any document,
instrument or agreement required hereunder when delivered will constitute,
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms.
4.04. FICTITIOUS TRADE STYLES. The Borrower currently uses no fictitious
trade styles in connection with its business operations. The Borrower shall
notify the Bank within thirty (30) days of the use of any fictitious trade
style at any future date, indicating the trade style and state(s) of its use.
4.05. FINANCIAL STATEMENTS. All financial statements, information and
other data which may have been and which may hereafter be submitted by the
Borrower to the Bank are true, accurate and correct and have been and will be
prepared in accordance with generally accepted accounting principles
consistently applied and accurately represent the Borrower's financial
condition and, as applicable, the other information disclosed therein. Since
the most recent submission of any such financial statement, information or
other data to the Bank, the Borrower represents and warrants that no material
adverse change in the Borrower's financial condition or operations has occurred
which has not been fully disclosed to the Bank in writing.
4.06. LITIGATION. Except as have been disclosed to the Bank in writing,
there are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or the Borrower's
properties before any court or administrative agency which, if determined
adversely to the Borrower, would have a material adverse effect on the
Borrower's financial condition or operations.
4.07. TITLE TO ASSETS. The Borrower has good and marketable title to all
of its assets and the same are not subject to any security interest,
encumbrance, lien or claim of any third person except for Permitted Liens.
4.08. ERISA. If the Borrower has a pension, profit sharing or retirement
plan subject to ERISA, such plan has been and will continue to be funded in
accordance with its terms and otherwise complies with and continues to comply
with the requirements of ERISA.
4.09. TAXES. The Borrower has filed all tax returns required to be filed
and paid all taxes shown thereon to be due, including interest and penalties,
other than taxes which are currently payable without penalty or interest or
those which are being duly contested in good faith.
4.10. ENVIRONMENTAL COMPLIANCE. The operations of the Borrower comply, and
during the term of this Agreement will at all times comply, in all respects
with all Environmental Laws, the Borrower has obtained licenses, permits,
authorizations and registrations required under any Environmental Law
("Environmental Permits") and necessary for its ordinary operations, all such
Environmental Permits arc in good standing, and the Borrower is in compliance
with all material terms and conditions of such Environmental Permits, neither
the Borrower nor any of its present properties or operations are subject to any
outstanding written order from or agreement with any governmental authority nor
subject to any judicial or docketed administrative proceeding, respecting any
Environmental Law, Environmental Claim or Hazardous Material; there are no
Hazardous Materials or other conditions or circumstances existing, or arising
from operations prior to the date of this Agreement, with respect to any
property of the Borrower that would reasonably be expected to give rise to
Environmental Claims; Provided however, that with respect to property leased
from an unrelated third party, the foregoing representation is made to the best
knowledge of the Borrower. In addition, (i) the Borrower does not have or
maintain any underground storage tanks which are not properly registered or
permitted under applicable Environmental Laws or which are leaking or disposing
of Hazardous Materials off-site, and (ii) the Borrower has notified all of its
employees of the existence, if any, of any health hazard arising from the
conditions of their employment and have met all notification requirements under
Title III of CERCLA and all other Environmental Laws.
The Borrower covenants and agrees that, during the term of this Agreement, and
so long thereafter as the Borrower is indebted to the Bank under this
Agreement, the Borrower shall, unless the Bank otherwise consents in writing:
5.01. PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS.
Maintain and preserve its existence and all rights and privileges now enjoyed;
not liquidate or dissolve, merge or consolidate with or into, or acquire any
other business organization; and conduct its business in accordance with all
applicable laws, rules and regulations.
5.02. MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Borrower operates and maintain such other insurance and coverages as may be
required by the Bank. All such insurance shall be in form and amount and with
companies satisfactory to the Bank. With respect to insurance covering
properties in which the Bank maintains a security interest or lien, such
insurance shall be in an amount not less than the full replacement value
thereof, at the Bank's request, shall name the Bank as loss payee Pursuant to a
loss payable endorsement satisfactory to the Bank and shall not be altered or
canceled except upon ten (10) days' prior written notice to the Bank. Upon the
Bank's request, the Borrower shall furnish the Bank with the original policy or
binder of all such insurance.
5.03. MAINTENANCE OF PROPERTIES. The Borrower shall maintain and preserve
all its properties in good working order and condition in accordance with the
general practice of other businesses of similar character and size, ordinary
wear and tear excepted.
5.04. PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of all
assessments and taxes and all of its liabilities and obligations including, but
not limited to, trade payables, unless the same are being contested in good
faith by appropriate proceedings with the appropriate court or regulatory
agency. For purposes hereof, the Borrower's issuance of a check, draft of
similar instrument without delivery to the intended payee shall not constitute
5.05. INSPECTION RIGHTS. At any reasonable time and from time to time
permit the Bank or any representative thereof to examine and make copies of the
records and visit the properties of the Borrower and to discuss the business
and operations of the Borrower with any employee or representative thereof. If
the Borrower now or at any time hereafter maintains any records (including, but
not limited to, computer generated records and computer programs for the
generation of such records) in the possession of a third party, the Borrower
hereby agrees to notify such third party to permit the Bank free access to such
records at all reasonable times and to provide the Bank with copies of any
records it may request, all at the Borrower's expense, the amount of which
shall be payable immediately upon demand,
5.06. REPORTING REQUIREMENTS. Deliver or cause to be delivered to the
Bank in form and detail satisfactory to the Bank:
A. ANNUAL STATEMENTS. Not later than 90 days after the Borrower's
fiscal year end, the Borrower's annual consolidated financial statement
and Form 10K, which statement shall be audited by a CPA firm acceptable
to the Bank with an unqualified opinion.
B. INTERIM STATEMENTS. Not later than 45 days after each of the
Borrower's fiscal quarters, the Borrower's consolidated financial
statement and Form 10Q as of the end of such period.
C. OTHER INFORMATION. Promptly upon the Bank's request, such other
information pertaining to the Borrower or any Guarantor as the Bank may
5.07. GENERAL PLEDGE OF PROPERTY IN POSSESSION OF BANK. To secure payment
of all of the Borrower's Obligations under this Agreement and performance of
all of the terms, covenants and agreements contained herein, the Borrower
hereby grants to the Bank a security interest in and to all monies, and
property of the Borrower now or hereafter in the possession of the Bank or the
Bank's agents, or any one of them, including, but not limited to, all deposit
accounts, certificates of deposit, stocks, bonds, indentures, warrants, options
and other negotiable and non-negotiable securities and instruments, together
with all stock rights, rights to subscribe, liquidating dividends, cash
dividends, payments, dividends paid in stock, new securities or other property
to which the Borrower may become entitled to receive on account of such
5.08. PAYMENT OF DIVIDENDS. The Borrower shall not declare or pay any
dividends on any class of its stock now or hereafter outstanding except
dividends payable solely in the corporation's capital stock.
5.09. REDEMPTION OR REPURCHASE OF STOCK. The Borrower shall not redeem or
repurchase any class of its corporate stock now or hereafter outstanding.
5.10. ADDITIONAL INDEBTEDNESS. Not, after the date hereof, create, incur
or assume, directly or indirectly, any liability or indebtedness other than (i)
indebtedness owed or to be owed to the Bank or (ii) indebtedness to trade
creditors incurred in the ordinary course of the Borrower's business.
5.11. LIENS AND ENCUMBRANCES. Not create, assume or permit to exist any
security interest, encumbrance, mortgage, deed of trust or other lien
(including, but not limited to, a lien of attachment, judgment or execution)
affecting any of the Borrower's properties, or execute or allow to be filed any
financing statement or continuation thereof affecting any such properties,
except for Permitted Liens or as otherwise provided in this Agreement.
5.12. TRANSFER ASSETS. Not sell, contract for sale, transfer, convey,
assign, lease or sublet any assets of the Borrower except in the ordinary
course of business as presently conducted by the Borrower, and then, only for
full, fair and reasonable consideration.
5.13. CHANGE IN THE NATURE OF BUSINESS. Not make any material change in
the Borrower's financial structure or in the nature of the Borrower's business
as existing or conducted as of the date of this Agreement.
5.14. FINANCIAL CONDITION. Maintain at all times:
A. NET WORTH. A minimum Effective Tangible Net Worth, on a
consolidated basis, of not less than $21,000,000.00 plus 50% of net
income after taxes earned after June 30, 1995.
B. DEBT TO NET WORTH RATIO. A maximum ratio of total liabilities to
Effective Tangible Net Worth of not more than 1.00 to 1.00 on a
C. CURRENT RATIO. A ratio of current assets to current liabilities of
not less than 1.50 to 1.00 on a consolidated basis.
D. PROFITABILITY. The Borrower shall maintain net consolidated income
after taxes of not less than $1,500,000.00 on an annual basis and not
less than $750,000.00 on a semi-annual basis.
E. DEBT SERVICE COVERAGE RATIO. A minimum debt service coverage ratio
of not less than 2.00 to 1.00 on a consolidated basis where debt service
coverage is defined as net income plus depreciation divided by the
current portion of long term debt. The current portion of long term debt
shall also include 20% utilization of the Borrower's line of credit
facility under this Agreement and the line of credit facility extended to
Align-Rite Corporation by Bank.
5.15. Environmental Compliance. The Borrower shall:
A. Conduct the Borrower's operations and keep and maintain all of its
properties in compliance with all Environmental Laws.
B. Give prompt written notice to the Bank, but in no event later than
10 days after becoming aware, of the following: (i) any enforcement,
cleanup, removal or other governmental or regulatory actions instituted,
completed or threatened against the Borrower or any of its affiliates or
any of its respective properties pursuant to any applicable Environmental
Laws, (ii) all other Environmental Claims, and (iii) any environmental or
similar condition on any real property adjoining or in the vicinity of
the property of the Borrower or its affiliates that could reasonably be
anticipated to cause such property or any part thereof to be subject to
any restrictions on the ownership, occupancy, transferability or use of
such property under any Environmental Laws.
C. Upon the written request of the Bank, the Borrower shall submit to
the Bank, at its sole cost and expense, at reasonable intervals, a report
providing an update of the status of any environmental, health or safety
compliance, hazard or liability issue identified in any notice required
pursuant to this Section.
D. At all times indemnify and hold harmless the Bank from and against
any and all liability arising out of any Environmental Claims.
5.16. NOTICE. Give the Bank prompt written notice of any and all (i)
Events of Default; and (ii) other matters which have resulted in, or might
result in a material adverse change in the financial condition or business
operations of the Borrower.
EVENTS OF DEFAULT
Any one or more of the following described events shall constitute an event of
default under this Agreement:
6.01. NON-PAYMENT. The Borrower shall fail to pay any Obligations within
10 days of when due.
6.02. PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. The Borrower shall
fail in any material respect to perform or observe any term, covenant or
agreement contained in this Agreement or in any document, instrument or
agreement evidencing or relating to any indebtedness of the Borrower (whether
owed to the Bank or third persons), and any such failure (exclusive of the
payment of money to the Bank under this Agreement or under any other document,
instrument or agreement, which failure shall constitute and be an immediate
Event of Default if not paid when due or when demanded to be due) shall
continue for more than 30 days after written notice from the Bank to the
Borrower of the existence and character of such Event of Default.
6.03. REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any
representation or warranty made by the Borrower under or in connection with
this Agreement or any financial statement given by the Borrower or any
Guarantor shall prove to have been incorrect in any material respect when made
or given or when deemed to have been made or given.
6.04. INSOLVENCY. The Borrower or any Guarantor shall: (i) become
insolvent or be unable to pay its debts as they mature; (ii) make an assignment
for the benefit of creditors or to an agent authorized to liquidate any
substantial amount of its properties or assets; (iii) file a voluntary petition
in bankruptcy or seeking reorganization or to effect a plan or other
arrangement with creditors; (iv) file an answer admitting the material
allegations of an involuntary petition relating to bankruptcy or reorganization
or join in any such petition; (v) become or be adjudicated a bankrupt; (vi)
apply for or consent to the appointment of, or consent that an order be made,
appointing any receiver, custodian or trustee for itself or any of its
properties, assets or businesses; or (vii) any receiver, custodian or trustee
shall have been appointed for all or a substantial part of its properties,
assets or businesses and shall not be discharged within 30 days after the date
of such appointment.
6.05. EXECUTION. Any writ of execution or attachment or any judgment lien
shall be issued against any property of the Borrower and shall not be
discharged or bonded against or released within 30 days after the issuance or
attachment of such writ or lien.
6.06. DEFAULT OF AFFILIATE. An event of default shall occur under any
credit agreement between the Bank and Align-Rite Corporation.
6.07. REVOCATION OR LIMITATION OF GUARANTY. Any Guaranty shall be revoked
or limited or its enforceability or validity shall be contested by any
Guarantor, by operation of law, legal proceeding or otherwise or any Guarantor
who is a natural person shall die.
6.08. SUSPENSION. The Borrower shall voluntarily suspend the transaction
of business or allow to be suspended, terminated. revoked or expired any permit
license or approval of any governmental body necessary to conduct the
Borrower's business as now conducted.
6.09. CHANGE IN OWNERSHIP. There shall occur a sale, transfer,
disposition or encumbrance (whether voluntary or involuntary), or an agreement
shall be entered into to do so, with respect to more than 10% of the issued and
outstanding capital stock of the Borrower.
REMEDIES ON DEFAULT
Upon the occurrence of any Event of Default, the Bank may, at its sole
election. without demand and upon only such notice as may be required by law:
7.01. ACCELERATION. Declare any or all of the Borrower's indebtedness
owing to the Bank, whether under this Agreement or under any other document.
instrument or agreement, immediately due and payable, whether or not otherwise
due and payable.
7.02. CEASE EXTENDING CREDIT. Cease making Advances or otherwise
extending credit to or for the account of the Borrower under this Agreement or
under any other agreement now existing or hereafter entered into between the
Borrower and the Bank.
7.03. TERMINATION. Terminate this Agreement as to any future obligation
of the Bank without affecting the Borrower's obligations to the Bank or the
Bank's rights and remedies under this Agreement or under any other document
instrument or agreement.
7.04. NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of the Bank's
rights set forth herein or seek such other rights or pursue such other remedies
as may be provided by law, in equity or in any other agreement now existing or
hereafter entered into between the Borrower and the Bank, or otherwise.
8.01. DEFAULT INTEREST RATE. If an Event of Default has occurred and is
continuing, the Bank, at its option, may require the Borrower to pay to the
Bank interest on any Indebtedness or amount payable under this Agreement at a
rate which is 3% in excess of the rate or rates otherwise then in effect under
8.02. RELIANCE. Each warranty, representation, covenant and agreement
contained in this Agreement shall be conclusively presumed to have been relied
upon by tile Bank regardless of any investigation made or information possessed
by the Bank and shall be cumulative and in addition to any other warranties,
representations, covenants or agreements which the Borrower shall now or
hereafter give, or cause to be given, to the Bank.
8.03. DISPUTE RESOLUTION.
A. DISPUTES. It is understood and agreed that, upon the request of any
party to this Agreement, any dispute, claim or controversy of any kind,
whether in contract or in tort, statutory or common law, legal or
equitable, now existing or hereinafter arising between the parties in any
way arising out of, pertaining to or in connection with: (i) this
Agreement, or any related agreements, documents or instruments, (ii) all
past and present loans, credits, accounts, deposit accounts (whether
demand deposits or time deposits), safe deposit boxes, safekeeping
agreements, guarantees, letters of credit, goods or services, or other
transactions, contracts or agreements of any kind, (iii) any incidents,
omissions, acts, practices, or occurrences causing injury to any party
whereby another party or its agents, employees or representatives may be
liable, in whole or in part, or (iv) any aspect of the past or present
relationships of the parties, shall be resolved through a two-step
dispute resolution process administered by the Judicial Arbitration &
Mediation Services, Inc. ("JAMS") as follows:
B. STEP I - MEDIATION. At the request of any party to the dispute,
claim or controversy, the matter shall be referred to the nearest office
of JAMS for mediation, which is an informal, non-binding conference or
conferences between the parties in which a retired judge or justice from
the JAMS panel will seek to guide the parties to a resolution of the
C. STEP II - ARBITRATION (CONTRACTS NOT SECURED BY REAL PROPERTY).
Should any dispute, claim or controversy remain unresolved at the
conclusion of the Step I Mediation Phase, then (subject to the
restriction at the end of this subparagraph) all such remaining matters
shall be resolved by final and binding arbitration before a different
judicial panelist, unless the parties shall agree to have the mediator
panelist act as arbitrator. The hearing shall be conducted at a location
determined by the arbitrator in Los Angeles, California (or such other
city as may be agreed upon by the parties) and shall be administered by
and in accordance with the then existing Rules of Practice and Procedure
of JAMS and judgement upon any award rendered by the arbitrator may be
entered by any State or Federal Court having jurisdiction thereof. The
arbitrator shall determine which is the prevailing party and shall
include in the award that party's reasonable attorneys' fees and costs.
This subparagraph shall apply only if, at the time of the submission of
the matter to JAMS, the dispute or issues involved do not arise out of
any transaction which is secured by real property collateral or, if so
secured, all parties consent to such submission.
As soon as practicable after selection of the arbitrator, the arbitrator,
or the arbitrator's designated representative, shall determine a
reasonable estimate of anticipated fees and costs of the arbitrator, and
render a statement to each party setting forth that party's pro-rata
share of said fees and costs. Thereafter, each party shall, within 10
days of receipt of said statement, deposit said sum with the arbitrator.
Failure of any party to make such a deposit shall result in a
forfeiture by the non-depositing party of the right to prosecute or
defend the claim which is the subject of the arbitration, but shall not
otherwise serve to abate, stay or suspend the arbitration proceedings.
D. STEP II - TRIAL BY COURT REFERENCE (CONTRACTS SECURED BY REAL
PROPERTY). If the dispute, claim or controversy is not one required or
agreed to be submitted to arbitration, as provided in the above
subparagraph, and has not been resolved by Step I mediation, then any
remaining dispute, claim or controversy shall be submitted for
determination by a trial on Order of Reference conducted by a retired
judge or justice from the panel of JAMS appointed pursuant to the
provisions of Section 638(l) of the California Code of Civil Procedure,
or any amendment, addition or successor section thereto, to hear the case
and report a statement of decision thereon. The parties intend this
general reference agreement to be specifically enforceable in accordance
with said section. If the parties are unable to agree upon a member of
the JAMS panel to act as referee, then one shall be appointed by the
Presiding Judge of the county wherein the hearing is to be held. The
parties shall pay in advance, to the referee, the estimated reasonable
fees and costs of the reference, as may be specified in advance by the
referee. The parties shall initially share equally, by paying their
proportionate amount of the estimated fees and costs of the reference.
Failure of any party to make such a fee deposit shall result in a
forfeiture by the non-depositing party of the right to prosecute or
defend any cause of action which is the subject of the reference, but
shall not otherwise serve to abate, stay or suspend the reference
E. PROVISIONAL REMEDIES. Self Help and Foreclosure. No provision of,
or the exercise of any rights under any portion of this Dispute
Resolution provision, shall limit the right of any party to exercise self
help remedies such as set off, foreclosure against any real or personal
property collateral, or the obtaining of provisional or ancillary
remedies, such as injunctive relief or the appointment of a receiver,
from any court having jurisdiction before, during or after the pendency
of any arbitration. At the Bank's option, foreclosure under a deed of
trust or mortgage may be accomplished either by exercise of power of sale
under the deed of trust or mortgage, or by judicial foreclosure. The
institution and maintenance of an action for provisional remedies,
pursuit of provisional or ancillary remedies or exercise of self help
remedies shall not constitute a waiver of the right of any party to
submit the controversy or claim to arbitration.
8.04. WAIVER OF JURY. The Borrower and the Bank hereby expressly and
voluntarily waive any and all rights, whether arising under the California
constitution, any rules of the California Code of Civil Procedure, common law
or otherwise, to demand a trial by jury in any action, matter, claim or cause
of action whatsoever arising out of or in any way related to this Agreement or
any other agreement, document or transaction contemplated hereby.
8.05. RESTRUCTURING EXPENSES. In the event the Bank and the Borrower
negotiate for, or enter into, any restructuring, modification or refinancing of
the Indebtedness under this Agreement for the purposes of remedying an Event of
Default. The Bank, may require the Borrower to reimburse all of the Bank's
costs and expenses incurred in connection therewith, including, but not limited
to reasonable attorneys' fees and the costs of any audit or appraisals required
by the Bank to be performed in connection with such restructuring, modification
8.06. ATTORNEYS' FEES. In the event of any suit, mediation, arbitration
or other action in relation to this Agreement or any document, instrument or
agreement executed with respect to, evidencing or securing the indebtedness
hereunder, the prevailing party, in addition to all other sums to which it may
be entitled, shall
be entitled to reasonable attorneys' fees,
8.07. NOTICES. All notices, payments, requests, information and demands
which either party hereto may desire, or may be required to give or make to the
other party shall be given or made to such party by hand delivery or through
deposit in the United States mail, postage prepaid, or by Western Union
telegram, addressed to the address set forth below such party's signature to
this Agreement or to such other address as may be specified from time to time
in writing by either party to the other.
8.08. WAIVER. Neither the failure nor delay by the Bank in exercising any
right hereunder or under any document, instrument or agreement mentioned herein
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right hereunder or under any document, instrument or agreement mentioned
herein preclude other or further exercise thereof or the exercise of any other
right; nor shall any waiver of any right or default hereunder or under any
other document, instrument or agreement mentioned herein constitute a waiver of
any other right or default or constitute a waiver of any other default of the
same or any other term or provision.
8.09. CONFLICTING PROVISIONS. To the extent that any of the terms or
provisions contained in this Agreement are inconsistent with those contained in
any other document instrument or agreement executed pursuant hereto, the terms
and provisions contained herein shall control. Otherwise, such provisions
shall be considered cumulative.
8.10. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the Bank's prior
written consent. The Bank may sell, assign or grant participations in all or
any portion of its rights and benefits hereunder. The Borrower agrees that, in
connection with any such sale, grant or assignment, the Bank may deliver to the
prospective buyer, participant or assignee financial statements and other
relevant information relating to the Borrower and any guarantor.
8.11. JURISDICTION. This Agreement, any notes issued hereunder, and any
documents, instruments or agreements mentioned or referred to herein shall be
governed by and construed according to the laws of the State of California, to
the jurisdiction of whose courts the parties hereby submit.
8.12. HEADINGS. The headings set forth herein are solely for the purpose
of identification and have no legal significance.
8.13. ENTIRE AGREEMENT. This Agreement and all documents, instruments and
agreements mentioned herein constitute the entire and complete understanding of
the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties or
pertaining to the transactions contemplated hereunder that are not incorporated
or referenced in this Agreement or in such documents, instruments and
agreements are superseded hereby.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as
of the date first hereinabove written.
SANWA BANK CALIFORNIA ALIGN-RITE CORPORATION
By: /s/ DAN WILSON By:
Dan Wilson, Authorized Officer James L. MacDonald, Chief Executive
Newport Beach Office (CBC) By: /s/ PETER KATURICH
4400 MacArthur Boulevard, Suite 200 --------------------------------
Newport Beach, CA 92660 Peter N. Katurich, Chief
2428 Ontario Street
Burbank, CA 91504