Document:

exhibit10-109.htm

EXHIBIT 10-109

 

Pinnacle Airlines Corp.

 

Summary of Terms and Conditions of the $74,285,000

 

Senior Secured Superpriority Debtor-in-Possession Facility

 

This Summary of Proposed Terms and Conditions (including the Annexes hereto, the “Term Sheet”) is not intended to be a comprehensive list of all relevant terms and conditions of the transactions contemplated herein.  It is for the purpose of outlining the proposed credit facility described below.

 

	
  

	
Borrower:

	
Pinnacle Airlines Corp. (the “Borrower”), as a debtor in possession under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”), in a jointly administered case (the “Borrower’s Case”) pending in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) with its affiliated debtors in possession including Pinnacle Airlines, Inc. (“Pinnacle Airlines”), Colgan Airlines, Inc. (“Colgan”), Mesaba Airlines (“Mesaba”) and Pinnacle East Coast Operations Inc. (“Pinnacle East”) expected to be filed on April 1, 2012 (the “Filing Date”).

 

	
  

	
Guarantors:

	
All obligations under the Facility (as defined below) and the other Loan Documents (as defined below) will be unconditionally guaranteed (the “Guarantee”) by each subsidiary of the Borrower that files as a debtor in possession in the Cases (as defined below) pending in the Bankruptcy Court (the “Guarantors’ Cases” and together with the Borrower’s Case, the “Cases”) and jointly administered with the Borrower’s Case and any other domestic subsidiary of the Borrower (collectively, the “Guarantors”).  The Borrower and the Guarantors are referred to herein as the “Obligors” or, as the case may be, the “Debtors”.

 

	
  

	
DIP Facility:

	
A superpriority senior secured multiple draw term loan facility (the “Facility”) in an aggregate principal amount of up to $74.285 million (the “Commitment”).  Amounts repaid or prepaid under the Facility may not be reborrowed.

 

	
  

	
Lenders:

	
Delta Air Lines, Inc. (together with its successors and assigns, “Delta”) and other institutions selected by Delta (collectively, the “Lenders”).

 

	
  

	
Administrative Agent:

	
Delta (together with its successors and assigns, the “Administrative Agent”).

 

	
  

	
Collateral Agent:

	
Delta (together with its successors and assigns, the “Collateral Agent”).

 

	
  

	
Purpose/Use of Proceeds:

	
The proceeds of the Facility shall be used (i) to provide working capital for, and for other general corporate purposes of, the Borrower

 

  

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and its subsidiaries, including the payment of expenses of administration in the Cases, (ii) to repay in full the Promissory Note, and (iii) to pay the costs and expenses of the Lenders, in each case in accordance with the Budget.

For avoidance of doubt, no portion of the Facility, the collateral securing the Facility, the proceeds of the Facility or the collateral or the Carve-Out (as defined below) may be used in connection with the investigation (including, without limitation, discovery proceedings), initiation or prosecution of any claims, causes of action, objections, adversary proceedings or other litigation against the Lenders and the Promissory Note Lender (as defined below), including, but not limited to, (i) with respect to raising any defense to the validity, perfection, priority, extent, or enforceability of the obligations under the Facility and/or the Promissory Note (as defined below) including the liens with respect thereto and (ii) with respect to pursuing any potential claims against the Lenders or the Promissory Note Lender (or their respective predecessors-in-interest, agents, affiliates, representatives, attorneys, or advisors) asserting or alleging any claims including, but not limited to, “lender liability”-type claims or causes of action, causes of actions under chapter 5 of the Bankruptcy Code (including under section 502(d) of the Bankruptcy Code), or any other claims or causes of action under, or in any way otherwise relating to, the Loan Documents, the Facility, the Promissory Note and the Promissory Note Security Agreement (as defined below) (collectively, the “Promissory Note Documents”) provided that, the Debtors shall not be precluded from asserting, and may assert, claims against Delta or any of its subsidiaries arising under or related to any other agreements between the parties other than claims resolved between and among the parties in the Delta Connection Agreements; and provided further that up to $50,000 in the aggregate may be used to reimburse any official committee appointed in the Debtors’ chapter 11 cases (the “Committee”) for reasonable costs and out-of-pocket expenses incurred in connection with the investigation of the validity, perfection and/or priority of the liens securing the Promissory Note.

 

Application of Proceeds.  The amounts outstanding under the Promissory Note shall be paid in full with proceeds of the Facility immediately after entry of a Final Order.1

 

 

	
Availability:

	
Upon the Bankruptcy Court’s entry of the Final Order (the “Final Order Entry Date”), the full amount of the Commitment shall be available to the Borrower, subject to (i) the execution and delivery of definitive documents relating to the Facility, which shall be in form and substance satisfactory to the Lenders (the “Loan Documents”), (ii) compliance with the terms, conditions and covenants (including compliance with the 13-week Projection) described in the Loan Documents, including the conditions set forth in the Annexes attached

 

  

	
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Repayment of Promissory Note amount shall remain subject to specified period in which Unsecured Creditors Committee may challenge extent, validity, priority, perfection and enforceability of Promissory Note obligations and liens.  In the event that the Court determines that repayment, or any amount of repayment, was improper, such repayment shall be subject to total or partial disgorgement (as the Court may determine).

 

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hereto and (iii) satisfaction of the conditions set forth herein.  Subject to the terms hereof, the Facility may be borrowed in accordance with the terms of the Loan Documents; provided, that in no event may the Borrower make more than three (3) separate borrowing requests and each borrowing request shall be in the minimum amount of $10 million.

	
Budget:

	
As used in the terms, conditions, and covenants described in this Term Sheet, “Budget” means the following (each in form and substance satisfactory to the Lenders in their sole discretion):

 

	
  

	
(i)

	
in the case of the initial Budget (delivered as a condition to the closing and initial funding of the Facility and a copy of which is attached as Schedule I hereto), a 13-week statement of sources and uses for the next 13 weeks of the Borrower and its subsidiaries, broken down by week, including, without limitation, the anticipated uses of the Facility for such period (a “13-week Projection”), and thereafter on Wednesday of each week, an updated 13-week Projection for the subsequent 13 week period, which update shall be acceptable to the Lenders; and

 

	
  

	
(ii)

	
a business plan and projected operating budget for a period of one (1) year (the “Operating Forecast”), broken down by month, including, without limitation, income statements, balance sheets, cash flow statements, projected capital expenditures, asset sales, and estimated cost savings, and a line item for total available liquidity;

 

and which shall provide, among other things, for the payment of the costs and expenses relating to the Facility, ordinary course administrative expenses, bankruptcy-related expenses and working capital and other general corporate needs (including payment of amounts owed to the Lenders under other agreements) and corporate obligations incurred as a result of projected restructuring of its operations and business.  The Borrower shall also provide weekly variance report/reconciliation to the applicable period in the current 13-week Projection on Wednesday of each week for the prior week showing actual cash receipts and disbursements for the immediately preceding week, noting therein all variances, on a line-item basis, from values set forth for such period in the Budget, and shall include explanations for all material variances. Notwithstanding anything to the contrary contained herein, the parties agree to revise the then current Budget, and to the extent necessary, applicable financial covenants, to reflect the impact of the accelerated removal of aircraft pursuant to terms of Article II.C(y) of the 2007 CRJ-900 Agreement on the Borrower’s and Guarantors’ financial performance.

 

	
  

	
Maturity:

	
The maturity date of the Facility will be (and all Loans and obligations under the Facility shall be indefeasibly repaid in full in cash on) the earliest of: (i) stated maturity, which shall be one (1) year from the Filing Date, (ii) the substantial consummation of a sale of substantially all of the assets of any Obligor, which in any event must be approved by the Lenders (in their sole discretion), (iii) the effective

 

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date of any Chapter 11 plan of any Obligor pursuant to any confirmation order reasonably satisfactory to the Lenders, (iv) the date that is 30 days after the filing date if the Final Order Entry Date shall not have occurred by such date, or (v) the acceleration of the Loans or termination of the Commitment under the Facility, including, without limitation, as a result of the occurrence of an Event of Default (as defined below) (any such occurrence, the “Maturity Date”).

	
  

	
Upon (i) substantial consummation of the Plan (as defined on Annex IV herein), (ii) the absence of any continuing or unwaived default or event of default under the Facility or the Exit Facility, (iii) delivery of customary closing documentation, including a written notice from the Obligors electing to borrow under the Exit Facility at least ten (10) business days prior to the proposed date of conversion of the Facility into the Exit Facility (the “Exit Date”) and (iv) payment of the Lenders’ costs and expenses in connection with negotiation and documentation of the Exit Facility, the Lenders agree to convert the Facility into a senior secured exit term facility on the terms set forth in the Secured Promissory Note attached hereto as Annex V (the “Exit Facility”).

 

	
  

	
Closing Date:

	
The date on which the Commitment is made available for borrowings under the Facility (the “Closing Date”), which shall be no later than two (2) business days after the Final Order Entry Date, subject to satisfaction (or waiver in the Lenders’ sole discretion) of the applicable conditions precedent set forth herein.

 

	
  

	
Amortization:

	
None.

 

	
Interest Rate:

	
As set forth on Annex II hereto.

 

	
Borrowing Procedure:

	
Borrowing requests under the Facility shall be signed by a financial officer and made on two (2) business days’ notice (received by the Lenders by 9:00 am, Atlanta time).

 

	
  

	
Currency:

	
Borrowings shall be made in U.S. Dollars.  All repayments or prepayments under the Facility will be made without setoff or counterclaim.

 

	
  

	
Funding Protection:

	
Standard provisions including indemnification, capital adequacy requirements, gross-up for withholding (subject to customary qualifications), if applicable, compensation for increased costs (including reduced payments or earnings and increased capital requirements) and compliance with any change in law, regulatory restrictions, guidelines, or request of relevant authorities.

 

	
  

	
Voluntary Prepayments:

	
The Borrower may repay the Loans under the Facility at any time without premium or penalty upon (i) at least three (3) business days’ prior written notice; provided that in the case of repayment, each partial repayment shall be in an amount of $1 million or multiples of $1 million in excess thereof (or, if less, the outstanding amount of applicable Loans or any other amount approved by the Lenders), and, in the case of reduction of the Commitment, each partial reduction

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shall be in an amount of $1 million or multiple of $1 million in excess thereof (or, if less, the remaining available balance of the Commitment).  Any reduction of the Commitment shall be permanent, unless waived by the Lenders in their sole discretion.

	
Mandatory Prepayments:

	
Mandatory prepayments upon the receipt of net proceeds from (i) asset sales (including insurance and condemnation) or (ii) the issuance of debt or equity.

 

	
  

	
Priority/Security:

	
All obligations of the Obligors to the Lenders or any of their affiliates under the Loan Documents, and all guaranties of all of the obligations under the Loan Documents by the Guarantors, shall at all times:

 

(i)        pursuant to Bankruptcy Code section 364(c)(1), be entitled to joint and several superpriority administrative expense claims in the Cases having priority over all administrative expenses of any kind specified in sections 503(b) and 507(b) of the Bankruptcy Code;

 

(ii)        pursuant to Bankruptcy Code section 364(c)(2), be secured by a perfected first priority lien on all now owned or hereafter acquired tangible and intangible assets and property of the Obligors including, without limitation, accounts, documents, goods, inventory, equipment, capital stock in subsidiaries and joint ventures, investment property, instruments, chattel paper, commercial tort claims, cash, cash equivalents, securities accounts, deposit accounts, commodity accounts, real estate, leasehold interests, gate leaseholds, slots, airframes, engines, spare engines, spare parts, contracts, patents, copyrights, trademarks, causes of action (excluding avoidance actions), and other general intangibles (including, without limitation, tax refunds and payment intangibles), and all products and proceeds thereof (including proceeds of avoidance actions) (the “Collateral”), to the extent that such Collateral is not subject to valid, perfected and non-avoidable liens as of the commencement of the Cases2;

 

(iii)        pursuant to Bankruptcy Code section 364(c)(3), be secured by a perfected junior lien on all Collateral, to the extent that such Collateral is subject to valid, perfected and non-avoidable liens in favor of third parties in existence at the time of the commencement of the Cases or to valid liens in existence at the time of such commencement that are perfected subsequent to such commencement as permitted by Section 546(b) of the Bankruptcy Code (other than property that is subject to the existing liens that secure the obligations under the Promissory Note, which liens shall be primed by the liens securing the obligations under the Loan Documents in accordance with the terms of this Term Sheet excluding only the Collateral that is equipment (as defined in Section 1110(a)(3)) where the agreement with the senior lienholder or applicable law  precludes such lien  (the “Existing Liens”); and

 

  

2Such collateral will include, without limitation, any owned Saab 340B aircraft, Federal and state income tax refund, ground service equipment, other equipment, vehicles, computer hardware and software, and ARS options.

 

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(iv)  pursuant to Bankruptcy Code section 364(d), be secured by a perfected first-priority priming lien on the Promissory Note Collateral (as defined below) (the “Existing Primed Liens”), with the Existing Primed Liens being primed by and made subject and subordinate (with respect to the Promissory Note Collateral) to the perfected first priority senior liens to be granted to the Lenders under the Facility, which senior priming liens in favor of the Lenders shall also prime any liens granted after the commencement of the Cases to provide adequate protection in respect of any of the Primed Liens;

 

	
  

	
subject in each case only to a carve-out (the “Carve-Out”) which shall be comprised of the following:  (i) the unpaid fees of the Clerk of the Bankruptcy Court and the U.S. Trustee pursuant to 28 U.S.C. §1930(a)(6) and (ii) the payment of (x) all fees, disbursements, costs and expenses which are incurred before the Funding Termination Date (as defined below) and after the Petition Date for each Professional (as defined below), less any amount actually paid to each such Professional retained by the Debtors or any statutory committees appointed in the case (the “Committee”) pursuant to Bankruptcy Code sections 327, 328, 330, 331, 503 or 1102 (collectively, the “Professionals”) to the extent allowed at any time by the Bankruptcy Court, whether by interim order, procedural order or otherwise,  and owed pursuant to the Professionals’ respective engagement letters; (y) fees and expenses of the Debtors’ Professionals, in an aggregate amount not to exceed $2.0 million  (the “Termination Carve-Out”), which are incurred after the Funding Termination Date, with respect to the Professionals, such fees and expenses are ultimately allowed by the Bankruptcy Court, each subject to the rights of any party in interest to object to the allowance of any such fees and expenses sought by Professionals in clauses (x) and (y) hereof.  Notwithstanding anything to the contrary, an amount equal to the Termination Carve-Out shall be reserved against the Commitment.  Upon the occurrence of a Funding Termination Date, an amount equal to the Termination Carve-Out shall be funded in a segregated escrow account solely to fund the Carve-Out.

 

	
  

	
As used herein, “Funding Termination Date” means the first Business Day after the expiration of the Notice Period (as defined below).

 

	
  

	
Notwithstanding the foregoing, no portion of the Carve-Out or proceeds of the Facility may be used in connection with the investigation (including, without limitation, discovery proceedings), initiation or prosecution of any claims, causes of action, objections or other litigation against the Lenders or the Promissory Note Lender, including, but not limited to, (i) with respect to raising any defense to the validity, perfection, priority, extent, or enforceability of the obligations under the Facility and/or the Promissory Note (as defined below) including the liens with respect thereto and (ii) with respect to pursuing any potential claims against the Lenders or the Promissory Note Lender (or their respective predecessors-in-interest, agents,

 

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affiliates, representatives, attorneys, or advisors) asserting or alleging any claims including, but not limited to, “lender liability”-type claims or causes of action, causes of actions under chapter 5 of the Bankruptcy Code (including under section 502(d) of the Bankruptcy Code), or any other claims or causes of action under, or in any way otherwise relating to, the Loan Documents, the Facility, the Promissory Note, the 2007 CRJ-900 Agreement, the CRJ-200 Agreement, the 2010 CRJ-900 Agreement; provided that up to $50,000 in the aggregate may be used to reimburse any Committee for the reasonable costs and out-of-pocket expenses incurred in connection with the investigation of the validity, perfection and/or priority of the liens securing the Promissory Note.

	
  

	
For purposes of this Term Sheet, the term “Existing Primed Secured Facilities” shall mean the debt outstanding under the promissory note dated July 1, 2010 issued by Borrower, Pinnacle Airlines, and Mesaba (as amended, restated, supplemented or otherwise modified from time to time, the “Promissory Note”), to Delta (the “Promissory Note Lender”) which Promissory Note is secured by a pledge of certain equipment of Mesaba and the capital stock in Mesaba (the “Promissory Note Collateral”) pursuant to a Security and Pledge Agreement dated as of July 1, 2010 among Delta, Borrower, Pinnacle Airlines and Mesaba (as amended, restated, supplemented or otherwise modified from time to time the “Promissory Note Security Agreement”).

 

	
  

	
All of the liens described herein securing the Facility and the obligations thereunder shall be effective and perfected as of the Final Order Entry Date and without the necessity of the execution of mortgages, security agreements, pledge agreements, financing statements or other agreements; provided that the Obligors shall execute and deliver all such agreements, documents or instruments and take any actions, in each case that the Lenders shall request to create, perfect, effect the priority or otherwise maintain the liens described herein securing the Facility.

 

	
  

	
Adequate Protection:

	
Pursuant to sections 361, 363(e) and 364(d)(1) of the Bankruptcy Code, and to the extent the Promissory Note is not repaid in full with proceeds of the Facility, the Promissory Note Lender shall be granted the following adequate protection (collectively, the “Adequate Protection”) of its pre-petition security interests for, and equal in amount to, but without duplication, the diminution in the value (each such diminution, a “Diminution in Value”) of the pre-petition security interests of such Promissory Note Lender, whether or not such Diminution in Value results from the sale, lease or use by the Debtors of the Promissory Note Collateral, the priming of the pre-petition security interests of such Promissory Note Lender or the stay of enforcement of any pre-petition security interest arising from section 362 of the Bankruptcy Code, or otherwise (the Promissory Note Lender consents to the priming liens securing the Facility in accordance with the terms of the Final Order):

 

	
(a)  

	
Adequate Protection Liens.  As security for and solely to the extent of any Diminution in Value of the pre-petition security interests, the Promissory Note Lender shall be granted for its benefit valid, enforceable, nonavoidable and fully perfected, as of the Final Order Entry Date and without the necessity of the execution of mortgages, security agreements, pledge agreements, financing statements or other agreements, post petition security interests in and liens on the Collateral (together, the “Adequate Protection Liens”), subject and subordinate only to (x) the Carve-Out, (y) the liens securing the Facility and (z) any Existing Liens.

 

	
(b)  

	
Superpriority Claim.  To the extent of any Diminution in Value of the pre-petition security interests, the Promissory Note Lender shall be granted, subject to the payment of the Carve-Out, a superpriority administrative expense claim as provided for in section 507(b) of the Bankruptcy Code, immediately junior to the claims under section 364(c)(1) of the Bankruptcy Code held by the Lenders under the Facility, provided that the Promissory Note Lender shall not receive or retain any payments, property or other amounts in respect of the superpriority claims under section 507(b) of the Bankruptcy Code granted hereunder or under the Existing Primed Secured Facilities unless and until the obligations under the Facility have indefeasibly been paid in cash in full (the “Adequate Protection Claim”).

 

	
(c)  

	
Current Payments of Interest and Fees.  The Promissory Note Lender shall receive from the Debtors current cash payments of interest on the Promissory Note, calculated at the rates, in the manner and at the times provided in the Promissory Note (provided, however, that interest shall accrue and be paid at the default rate) and fees and expense reimbursements.  The first payment to the Promissory Note Lender under this clause (c) shall include any and all accrued but unpaid interest as of the date of commencement of the Cases plus any and all interest that would have accrued from the commencement of the Cases through and including the date of such first payment plus fees and expense reimbursements.

 

	 	 

	
  

	
Provisions Regarding Setoff Rights:

	
The Debtors shall not set off obligations owed to the Lenders under the Facility against any obligations that the Lenders owe to any of the Debtors, without the Lenders’ consent.  Each of Delta and the Debtors agree that if on the Filing Date the Debtors file a motion to approve the Facility and the assumption of the Delta Connection Agreements (as defined below) and continue in good faith to pursue approval of such motion at a hearing on or before May 17, 2012, then until May 17, 2012, Delta will not file a motion (a “Delta Setoff Motion”) seeking to conduct any offset of prepetition amounts owing between and among such parties (that were not otherwise settled or offset prior to the Filing Date); provided, however, that Delta may conduct an administrative freeze of such amounts that Delta could otherwise seek to set off pending the assumption of the Delta Connection Agreements or the approval of a Delta Setoff Motion. 

	
  

	 

	
  

	
Representaions and Warranties:

	
Each of the Obligors shall make customary and usual representations and warranties for transactions of this nature and other representations and warranties requested by the Lenders (subject to exceptions, qualifications and materiality to be mutually agreed), including the following: due incorporation and good standing; due authorization, execution, delivery and enforceability of Loan Documents; absence of consents or approvals; no violation of law, organizational documents or material agreements as a result of execution, delivery or performance; absence of liens; financial statements and accuracy of disclosure; compliance with applicable laws (including, without limitation FAA, environmental laws and ERISA); Investment Company Act; margin regulations; absence of material adverse change;  absence of material unstayed litigation, proceeding or investigation and other contingent obligations; use of proceeds (including, in accordance with the Budget); payment of obligations; labor matters; ERISA; insurance; ownership of property; subsidiaries; air carrier status; absence of defaults under material agreements entered into after the date of commencement of the Cases; specific material contracts have been continued; further assurances regarding creation and perfection of security interests and guarantees; financing orders of the Bankruptcy Court shall continue to be in full force and effect and not amended, modified or supplemented in a manner adverse to the Lenders; and other bankruptcy matters as agreed upon.

 

	
  

	
Covenants:

 

	
  

	
- Affirmative Covenants:

 

	
  

	
Each of the Obligors shall agree to customary and usual affirmative covenants for transactions of this nature and other affirmative covenants requested by the Lenders (subject to exceptions, qualifications and materiality to be mutually agreed), including the following: maintenance of financial statements in accordance with GAAP; maintenance of books and records; delivery of financial reporting (including the Budget as described below); maintenance of customary insurance; maintenance of corporate existence and material rights, certificates, licenses, authorizations and privileges; payment of all post-petition taxes and other post-petition obligations; continuing  retention of Barclays Capital and Seabury Group to perform financial and restructuring services in accordance with the terms of their engagement letters; notification of the Lenders of any (i) Default or Event of Default and (ii) certain other material events; inspection rights; compliance with laws, including ERISA; delivery of, reasonably in advance of filing under the circumstances to permit review by the Lenders any motions, pleadings, replies, objections, memoranda, financial information, applications, judicial information or other documents to be filed with the Bankruptcy Court (or any other

 

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 court) in, or in connection with, the Cases; delivery of any financial and other non-privileged information provided to any Committee, contemporaneously with the delivery to such Committee, as the case may be; further assurances regarding creation and perfection of security interests and guarantees (including but not limited to any aircraft mortgages and other security documents requested by the Lenders to grant liens in favor of the Lenders as evidence of perfection of such liens under the applicable federal and state law); and such other affirmative covenants in respect of (i) reports, regulatory filings and other information in connection with routes, (ii) maintaining authorizations from the Federal Aviation Administration and the Department of Transportation and (iii) gate utilization.

- Negative covenants:

 

	
  

	
Each of the Obligors shall agree to customary and usual negative covenants for transactions of this nature and other negative covenants requested by the Lenders (subject to exceptions, qualifications and materiality to be mutually agreed), including covenants that the Obligors shall not (and shall not apply to the Court for authority absent consent of the Lenders to): create or permit to exist any liens or encumbrances on any assets; create or permit to exist indebtedness for borrowed money in addition to indebtedness under the Loan Documents; make loans, guarantees, acquisitions, capital contributions or investments; sell, transfer or otherwise dispose of any assets (including, without limitation, the stock of any subsidiary); enter into or permit to exist any transaction with any of its affiliates (to be defined); declare or make any dividend, distribution or any other restricted payment; merge, consolidate or amalgamate with any other party or otherwise dissolve or liquidate; modify or alter in any material manner the nature and type of its business or the manner in which such business is conducted, except as required by the Bankruptcy Code; change its fiscal year; modify, amend or waive certain material agreements and organizational documents; make voluntary prepayments in respect of certain indebtedness; enter into agreements with negative pledges or restrictions upon subsidiary transactions; file an application for the approval of any superpriority claim or any lien in any of the Cases that is pari passu with or senior to the liens securing the Facility, the Primed Liens, the Adequate Protection Liens, or the Superpriority Claim without the consent of the Lenders and the Promissory Note Lender; and commence any adversary proceeding, contested matter or other action asserting any claims or defenses or otherwise against the Lenders or the Promissory Note Lender with respect to the Facility or the Promissory Note.

 

- Financial covenants:

 

	
1.  

	
The Debtors shall not permit unrestricted cash and cash equivalents (net of the escrows referred to above) to be less than $25.0 million as of the last day of any calendar month or the first business day of the next month if the last day falls on a weekend.

 

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There shall not occur a variance from the Budget in excess of 15% measured on a cumulative four week rolling basis for Total Operating Expenses, beginning four weeks after the Filing Date, unless waived by the Lender.

	
2.  

	
Beginning as of September, 2012, Adjusted Total Operating Expenses shall not exceed the amounts set forth on the schedule II as of the date opposite such levels stated therein.  “Adjusted Total Operating Expenses” means (a) Total Operating Expenses (as defined in the Budget) minus (b) (i) Total Pass through Expenses (as defined in the Budget), plus (ii) noncash charges plus (ii) non-recurring, unusual or extraordinary items.

 

	
  

	
Events of Default:

	
The Facility shall be subject to customary events of default and those other events of default set forth in Annex III hereto.

 

	
  

	
Upon the occurrence and continuance of any Events of Default beyond the applicable grace period (if any), the automatic stay shall be deemed modified and the Lenders may take all or any of the following actions without further order of or application to the Bankruptcy Court after the occurrence of the Funding Termination Date, provided that the Lenders shall provide the Borrower (with a copy to counsel for (A) any Committee appointed in the Cases and (B) the United States Trustee for the Southern District of New York) with five (5) business days prior written notice (the “Notice Period”);

 

	
  

	
(i)

	
declare the principal of and accrued interest on the outstanding borrowings, and all amounts payable under the Loan Documents, to be immediately due and payable;

 

	
  

	
(ii)

	
terminate the Commitment to lend;

 

(iii)       set-off any amounts otherwise owed to Delta or any of its affiliates;

 

(iv)       take any action or exercise any right or remedy against the Collateral permitted under the Loan Documents, the Final Order or by applicable law; and/or

 

(v)       take any other action or exercise any other right or remedy  permitted under the Loan Documents, the Final Order or by applicable law.

 

	
  

	
Conditions Precedent for

	
  

	
Borrowings:

	
The obligation to provide extensions of credit up to the full amount of the Commitment shall be subject to the Obligors’ satisfaction of or the Lenders’ waiver of the applicable conditions precedent listed on Annex I attached hereto.

	
Conditions to All Borrowings:

	
The conditions to all borrowings will include requirements relating to prior written notice of borrowing of at least five (5) business days, the accuracy of representations and warranties, the absence of any Default or Event of Default and the following conditions:

 

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(i)        As a result of such extension of credit, usage of the Commitment shall not exceed (i) the applicable Commitment then in effect, or (ii) the aggregate amount authorized by the Final Order;

	
  

	
(ii)

	
The Final Order shall be in full force and effect, and shall not have been vacated, reversed, modified, amended, or stayed;

 

	
  

	
(iii)

	
Representations and warranties shall be true and correct in all material respects (except where qualified by materiality, then just the accuracy thereof); and

 

	
  

	
(iv)

	
No default or Event of Default shall exist or arise immediately after giving effect to the transactions.

 

	
Amendments and Waivers:

	
Amendments, waivers, consents and approvals contemplated hereby or by the Loan Documents shall be in writing and shall require the consent of the Lenders holding greater than 50.1% of aggregate amount of loans and unused commitments (the “Required Lenders”); provided, that if there are two or more Lenders, then Required Lenders means at least two Lenders (affiliated Lenders being considered one Lender for this purpose).  Consent of all the Lenders (or all directly affected Lenders, as specified in the Loan Documents) to increase commitments, reduce principal or interest (other than waiver of default interest, defaults or events of default), extend scheduled payments (other than waivers of mandatory prepayments), release of all or substantially all guarantees and release all or substantially all Collateral.

 

	
  

	
Assignments and

	
Participations:

	
Assignments in minimum acceptable amounts by the Lenders to other persons with the Borrower’s (so long as, in the case of the Borrower’s consent, no Event of Default exists) reasonable approval, such approval not to be unreasonably withheld or delayed. Participations by the Lenders shall be permitted subject to customary limitations on voting.

 

	
Taxes:

	
The Facility will include customary provisions to the effect that all payments are to be made free and clear of any taxes (other than applicable franchise taxes and taxes on overall net income), imposts, assessments, withholdings or other deductions whatsoever, subject to customary qualifications.

 

	
Indemnity; Expenses:

	
The Obligors shall pay (a) all costs and expenses of the Lenders associated with the preparation, execution, delivery and administration of the Loan Documents and any amendment or waiver with respect thereto (including the fees, disbursements and other charges of counsel (including local, conflicts and special counsel as necessary) and financial advisors for the Lenders), (b) all expenses of the Lenders (including the fees, disbursements and other charges of counsel (including local, conflicts and special counsel) for the Lenders) and financial advisors in connection with the enforcement of the Loan Documents and (c) all expenses associated with collateral monitoring,

 

collateral reviews and appraisals, environmental reviews and fees and expenses of other advisors and professionals engaged by the Lenders.

 

	
  

	
The Lenders (and their affiliates and their respective officers, directors, employees, advisors and agents) will have no liability for, and will be indemnified and held harmless against, any loss, liability, cost or expense incurred in respect of the financing contemplated hereby or the use or the proposed use of proceeds thereof; provided that the Obligors shall have no obligation to indemnify any indemnified person against any such loss, liability cost or expense to the extent its arises from the gross negligence or willful misconduct of such indemnified party as determined by a final and non-appealable order of a court of competent jurisdiction.  The Lenders shall not be responsible or liable to any Obligor, any of its subsidiaries or any other person for special, consequential or punitive damages.

 

	
DIP Order:

	
The Final Order shall provide for, among other things, (i) estate stipulations, (ii) releases from liability for all claims and causes of action arising out of or relating to the Facility and all other agreements, certificates, instruments and other documents and statements related thereto (a) the Lenders, effective immediately, and (b) for the Promissory Note Lender, effective only upon the expiry of the challenge period for third parties, (iii) indemnification for the Lenders relating to the Facility, (iv) assumption of the Delta Connection Agreements and the allowance of the offset of prepetition amounts owing  between and among the parties thereto (to the extent such amounts were not offset or settled prior to the Filing Date) and (v) other customary provisions.

	
  

	
Governing Law and

	
  

	
Jurisdiction:

	
The Facility will provide that the Debtors and the Lenders will submit to the exclusive jurisdiction and venue of the Bankruptcy Court.  New York law shall govern the Loan Documents (other than security documents to be governed by local law or matters determined by reference to the Bankruptcy Code).

 

	
  

	
Confidentiality:

	
The terms included in this Term Sheet are for the exclusive use of the Obligors and the Lenders, each of whom agrees to keep this information strictly confidential and not to reproduce or disclose the terms hereof without the prior written consent of the non-disclosing party, other than to (i) such persons, officers, directors, employees, advisors, attorneys and accountants (each a “Representative”) directly involved in the consideration of this matter on a confidential and need-to-know basis, provided that in no event shall disclosure hereof or thereof be made to any financing sources other than the Lenders, and (ii) pursuant to the order of any court or administrative agency in any pending legal or administrative proceeding, or otherwise as required by applicable law or regulation, compulsory legal process or as requested by a governmental authority (in which case you agree to inform the non-disclosing party promptly thereof to the extent lawfully permitted to do so).  Notwithstanding the foregoing, the Debtors may file a copy of this Term Sheet and the Commitment Letter that this Term Sheet is attached to with the Bankruptcy Court.

 

--

 

  

10

  

Counsel to the Lender:                                              Kirkland & Ellis LLP.

 

--

 

  

11

  

Annex I

 

 

Pinnacle Airlines Corporation

 

Summary of Conditions Precedent to the Facility

 

This Summary of Conditions Precedent outlines certain of the conditions precedent to the Facility referred to in the Summary of Terms and Conditions.

 

A.           CONDITIONS TO AVAILABILITY

 

	
1.  

	
Final Order/Bankruptcy Matters.

 

	
  

	
(a)

	
The Cases shall have been commenced in the Bankruptcy Court for the Southern District of New York and all of the “first day orders” and all related pleadings to be entered at the time of commencement of the Cases or shortly thereafter shall have been reviewed in advance by the Lenders and shall be reasonably satisfactory in form and substance to the Lenders.

 

	
  

	
(b)

	
Not later than the Filing Date, the Debtors shall have filed a motion to the Bankruptcy Court, in form and substance satisfactory to the Lenders, seeking approval of the Facility and assumption of the Delta Connection Agreements.

 

	
  

	
(c)

	
Not later than May 17, 2012, a final order shall have been entered by the Bankruptcy Court (the “Final Order”), in form and substance acceptable to the Lenders, approving and authorizing (i) the Facility and transactions contemplated herein, all provisions thereof and the priorities and liens granted under Bankruptcy Code section 364(c) and (d), as applicable, (ii) extensions of credit in amounts not in excess of $74.285 million, (iii) payment by the Debtors of all of the costs and expenses provided for in the Facility (iv) adequate protection for the benefit of the Promissory Note Lender, in each case in form and substance satisfactory to the Lenders on a motion by the Debtors that is in form and substance satisfactory to the Lenders and (v) the Debtors’ assumption of the Delta Connection Agreements attached to the Term Sheet as Exhibit A and the offset of any obligations (which did not otherwise occur prior to the Filing Date) between and among the parties to such Agreements. The Final Order shall have been entered on such prior notice to such parties as may be satisfactory to the Lenders.

 

	
  

	
(d)

	
The Final Order shall be in full force and effect and shall not have been reversed, modified, amended, stayed, or vacated, in the case of any modification or amendment, in any manner, or relating to a matter, without the consent of the Lenders.

 

	
  

	
(e)

	
The Debtors shall be in compliance in all respects with the Final Order.

 

	
  

	
(f)

	
No trustee or examiner with expanded powers shall have been appointed with respect to the Debtors or their respective properties.

 

	
  

	
(g)

	
A cash management order encompassing cash management arrangements satisfactory to the Lenders shall be in full force and effect.

 

	
2.  

	
Financial Statements, Budgets and Reports.

 

	
  

	
(a)

	
The Lenders shall have received the Budget, which Budget shall be in form and substance satisfactory to Lenders.

 

	
  

	
(b)

	
The Lenders shall have received the Operating Forecast, which shall be in form and substance satisfactory to it.

 

	
  

	
(c)

	
The Lenders shall have received such information (financial or otherwise) as may be requested by them, including, without limitation, (i) the Obligors’ business plans, consolidated and by division, for the period ending on the last day of the fiscal quarter in which the Maturity Date is scheduled to occur and such business plans shall be satisfactory to the Lenders (including, without limitation, the financial projections and business plans as required in the Annexes hereto) and (ii) all reports, audits and other information regarding compliance with laws and regulations, including environmental laws and regulations.

 

	
3.  

	
Payment of Costs and Expenses.

 

	
  

	
(a)

	
All costs, expenses (including, without limitation, reasonable legal fees) and other compensation contemplated by the Loan Documents to be payable to the Lenders shall have been paid to the extent due and the Debtors shall have complied with all of their other obligations to the Lenders.

 

	
4.  

	
Collateral and Other Matters

 

	
  

	
(a)

	
Receipt and approval of UCC and other lien searches (including tax liens and judgments and FAA recordations) as requested by the Lenders.

 

	
  

	
(b)

	
The Lenders shall hold perfected, first priority (subject to those permitted liens to be agreed and the Carve-Out) security interests in and liens upon the Collateral, and the Lenders shall have received such evidence of the foregoing as the Lenders reasonably require.

 

	
5.  

	
Customary Closing Documents.

 

	
  

	
(a)

	
The Loan Documents, all amendments to the Delta Connection Agreements, and such other agreements and documents between and among Delta, the Lenders, and the Debtors to effectuate the requirements set forth above and in Annex IV attached hereto (and all motions and orders related thereto), all in form and substance satisfactory to the Lenders, shall have been executed and delivered by all parties thereto.

 

	
  

	
(b)

	
All corporate and judicial proceedings and instruments and agreements in connection with the loan transactions among the Obligors and the Lenders contemplated by the Loan Documents shall be satisfactory in form and substance to the Lenders and the Lenders  shall have received all information and all documents, instruments, agreements, certificates, or papers requested by any of them.

 

	
  

	
(c)

	
Since September 30, 2011, there shall not have been any change, development or event that has occurred (other than the commencement of the Borrower’s Case, events leading up to the commencement of the Borrower’s Case and matters otherwise disclosed in writing to Delta on or prior to the date hereof), which the Lenders shall determine has had or could reasonably be expected to have a material adverse effect on the transactions.

 

--

 

  

12

  

	
  

	
(d)

	
All governmental and third party approvals necessary for the transactions and the continuing operations of the Obligors shall have been obtained on terms satisfactory to the Lenders and shall be in full force and effect.

	
  

	
(e)

	
Such other customary conditions for facilities of this type as are satisfactory to the Lenders.

 

	
  

	
(f)

	
The Lenders shall have received any information requested by them, including the required periodic updates of the Budget and weekly variance reports, each in form and substance satisfactory to the Lenders.

 

	
  

	
(g)

	
The Debtors shall be in compliance with the Budget, including as of the Closing Date.

 

--

 

  

13

  

 

Annex II

 

Pinnacle Airlines Corporation

 

Interest Rates

 

	
Interest Rates:

 

	
Loans will bear interest at 12.5%.

	
Default Interest:

	
During the continuance of an event of default under the Facility, Loans will bear interest at an additional 2.00% per annum.

 

	  	  
	  	  
	  	  

 

--

 

  

14

  

--

 

  

15

  

Annex III

 

Events of Default shall include the following (subject to materiality and exceptions to be agreed):

 

	
1.  

	
The failure of the Obligors to make any payments (including of principal and interest) when due to the Promissory Note Lender or the Lenders (as provided in the Final Order, as applicable);

 

	
2.  

	
A default or breach (after to giving effect to any required written notice from Delta and after giving effect to any applicable grace period, if any) by the Obligors under the following agreements, which give Delta (or its affiliate) the right to terminate such agreements: (i) the Delta Connection Agreement, dated as of April 27, 2007, by and among Borrower, Pinnacle Airlines and Delta (as amended, the “2007 CRJ-900 Agreement”); (ii) the Third Amended and Restated Airline Services Agreement, dated as of April 1, 2012 by and among Borrower, Pinnacle Airlines and Delta (as amended, the “CRJ-200 Agreement”);  (iii) the Amended and Restated 2010 Delta Connection Agreement dated as of April 1, 2012 by and among Borrower, Pinnacle Airlines and Delta (as amended, the “2010 CRJ-900 Agreement”; collectively, the 2007 CRJ-900 Agreement, the CRJ-200 Agreement and the 2010 CRJ-900 Agreement shall be referred to as the “Delta Connection Agreements”); and (iv) any lease or sublease between Delta (or any of its affiliates) and any Obligor with respect to any aircraft or other equipment operated pursuant to the Delta Connection Agreements.

 

	
3.  

	
The breach by any Obligor of any covenant (other than certain affirmative covenants);

 

	
4.  

	
The breach by any Obligor of any other affirmative covenant or agreement contained in the Loan Documents and such breach shall continue unremedied for more than thirty days from notice or knowledge of any Obligor;

 

	
5.  

	
Any representation or warranty made by any Obligor shall prove to have been incorrect or false in any material respect when made;

 

	
6.  

	
Conversion of any of the Cases to a case under chapter 7 of the Bankruptcy Code;

 

	
7.  

	
The appointment of a trustee in any of the Cases without the consent of the Lenders;

 

	
8.  

	
The appointment of an examiner with expanded powers in any of the Cases without the consent of the Lenders;

 

	
9.  

	
The dismissal of any of the Cases;

 

	
10.  

	
The entry of any order (a) modifying, reversing, staying or amending or (b) revoking, rescinding or vacating the Final Order without the express prior written consent of the Lenders;

 

	
11.  

	
Any Debtor shall attempt or file any motion to amend, vacate or modify the Final Order over the objection of the Lenders;

 

	
12.  

	
Failure to reach any of the Chapter 11 Milestones as set forth in Annex IV;

 

	
13.  

	
Other than (i) in connection with granting the first day relief as proposed by the Debtors or relief granted under section 1110 of the Bankruptcy Code (that is acceptable to the Lenders) or (ii) to the extent that the Debtors shall remain in compliance with the Budget

 

--

 

  

16

  

after giving effect to the foregoing and such relief shall not be adverse to the interests of the Lenders, the Bankruptcy Court shall enter an order granting relief from the automatic stay to the holder or holders of any other security interest or lien (other than the Lenders) in any Collateral to permit the pursuit of any judicial or non-judicial transfer or other remedy against any of the Collateral with a value in excess of $1 million subject to any such relief from the automatic stay, or granting any form of adequate protection, including, without limitation, requiring cash payments by such Debtor to such holder or holders, in lieu of such relief;

	
14.  

	
Any Debtor shall bring or consent to any motion or application in the Cases: (i) to grant any lien that is pari passu or senior to any lien granted to the Lenders under the Loan Documents or the Final Order, except as expressly permitted therein; (ii) to recover from any portions of the Collateral any costs or expenses of preserving or disposing of such Collateral under section 506(c) of the Bankruptcy Code; or (iii) to grant a superpriority claim, other than that granted in the Final Order (and other than with respect to the Carve-Out), which is pari passu with or senior to any of the claims of the Lenders against the Borrower or any other Guarantor hereunder, under the Final Order (or there shall arise or be granted any superpriority claim pari passu or senior to any such claims);

 

	
15.  

	
Any other party shall both seek and obtain allowance of any order in the Cases to recover from any portions of the Collateral any costs or expenses of preserving or disposing of such Collateral under section 506(c) of the Bankruptcy Code;

 

	
16.  

	
An order shall be entered by the Bankruptcy Court confirming a plan of reorganization or liquidation in any of the Cases that does not provide for payment of all of the obligations due under the Facility in full in cash on or before the effective date of such plan), unless the Lenders shall have approved the terms of such plan;

 

	
17.  

	
An order shall be entered by the Bankruptcy Court, or any Debtor shall make a motion for an order of the Bankruptcy Court, dismissing any of the Cases that does not contain a provision for indefeasible payment of all of the obligations due under the Facility in full in cash;

 

	
18.  

	
At any time after the thirteen-week anniversary of the date of commencement of the Cases, a Budget that has been approved by the Lenders in accordance with the Loan Documents is not then in full force and effect;

 

	
19.  

	
Any Debtor shall make any payment (whether by way of adequate protection or otherwise) of principal or interest or otherwise on account of any prepetition indebtedness (including, without limitation, reclamation claims), unless (i) authorized by the “first day orders” and related pleadings approved by the Lenders, (ii) approved by the Lenders and the Bankruptcy Court or (iii) set forth in the Budget approved by the Lenders;

 

	
20.  

	
Any material provision of the Loan Documents shall cease to be valid and binding on the Obligors (other than in accordance with its express terms), or any Obligor shall so assert in any pleading filed in any court;

 

	
21.  

	
The date of commencement of any adversary proceeding, contested matter or other action by any Debtor asserting any claims and defenses or otherwise against the Promissory Note Lender with respect to the obligations of any Debtor thereunder or the liens granted to the Promissory Note Lender to secure the obligations under the Promissory Note;

 

--

 

  

17

  

	
22.  

	
Any judgment in excess of $1 million as to any post-petition obligation shall be rendered against any Obligor and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed; or there shall be rendered against Obligors a non-monetary judgment which could reasonably be expected to result in a material adverse effect (to be mutually defined);

 

	
23.  

	
Certain ERISA-related defaults;

 

	
24.  

	
A default occurs under any lease or leases by an Obligor as lessee of any real or personal property, excluding any defaults due to the Obligor’s Chapter 11 filing or any Court approved rejection of such lease or leases under section 365 or 1110 of the Bankruptcy Code, regarding a failure to make a post-petition payment under which the aggregate rentals payable under such lease or all such leases in the aggregate exceed $1,000,000.

 

	
25.  

	
A Change of Control (to be defined) shall occur;

 

	
26.  

	
Rejection of any of the Delta Connection Agreements without the Lenders’ consent; or

 

	
27.  

	
Such other Events of Default as are customary for facilities of this type, and for the Borrower’s operation and assets, as are satisfactory to the Lenders.

 

 

--

 

  

18

  

--

 

  

19

  

Annex IV

 

	
  

	
Chapter 11 Milestones:

	
The Debtors are required to meet the following milestones in their chapter 11 cases (the “Chapter 11 Milestones”):

 

I.           BUSINESS PLAN/PLAN OF REORGANIZATION

 

	
1.  

	
By no later than 37 days after the Filing Date, the Debtors shall deliver to the Lenders and their counsel a comprehensive business plan and projected budget for a period of 6 years, including, without limitation, explanations regarding the material assumptions contained therein, income statements, balance sheets, cash flow statements, projected capital expenditures, asset sales, and estimated cost savings, and a line item for total available liquidity.

 

	
2.  

	
By no later than the earlier of (i) 30 days after entry of a final order or final orders by the Bankruptcy Court granting the Section 1113 Motions or approving a settlement regarding modifications of the CBAs (each, as defined below) and (ii) 202 days after the Filing Date (the earlier of such dates, the “Plan Filing Date”), the Debtors must file a chapter 11 plan of reorganization and disclosure statement that are reasonably acceptable to the Lenders.

 

	
3.  

	
By no later than 90 days after the Plan Filing Date, the Debtors must have obtained confirmation of a plan of reorganization that is reasonably acceptable to the Lenders (the “Plan”).

 

II.           SECTION 1113

 

	
4.  

	
By no later than 37 days after the Filing Date, the Debtors shall deliver proposals seeking modifications to the collective bargaining agreements to which the Debtors are a party (the “CBAs”) as contemplated in section 1113(b)(1) of the Bankruptcy Code to the authorized representatives of the employees covered by each of the CBAs together with all relevant information needed for the unions to evaluate such proposals.

 

	
5.  

	
By no later than 45 days after the delivery of proposals seeking modification to the CBAs, unless a settlement has been reached regarding modification of the CBAs (in form and substance reasonably acceptable to the Lenders), the Debtors must file motions pursuant to Section 1113 of the Bankruptcy Code with respect to the CBAs (the “Section 1113 Motions”) and, contemporaneously therewith, the Debtors must file a motion or motions for an order, in form and substance reasonably acceptable to the Lenders, setting forth notice, discovery and other related procedures and hearing dates with respect to the Section 1113 Motions (the “Section 1113 Scheduling Motion”).

 

	
6.  

	
In the event that Section 1113 Motions are filed, by no later than 90 days following the date that the Section 1113 Motions are filed, the Bankruptcy Court shall have entered a final order or final orders granting the Section 1113 Motions or approving a settlement regarding modifications of the CBAs (in each case, reasonably acceptable to the Lenders).

 

III.           TRANSITION AGREEMENT

 

	
7.  

	
To the extent requested by Delta, the Obligors shall (i) provide all information necessary or advisable in connection with establishing a mutually acceptable transition agreement providing for an orderly transition in the event of the Debtors’ rejection, material breach, or termination of either the CRJ-200 Agreement or the 2010 CRJ-900 Agreement and (ii) negotiate in good faith with Delta to reach agreement on any such transition agreement.

 

--

 

  

20

  

Annex V

 

Exit Facility

 

See attached.

 

--

 

  

21

  

Schedule I

 

Budget

 

See attached.

 

--

 

  

22

  

Schedule II

 

Adjusted Total Operating Expenses

 

	
For the Month Ending

	
Maximum Adjusted Total Operating Expenses

	
September 30, 2012

	
$44,000,000

	
October 31, 2012

	
$44,000,000

	
November 30, 2012

	
$42,000,000

	
December 31, 2012

	
$42,000,000

	
January 31, 2013

	
$37,000,000

	
February 28, 2013

	
$35,000,000

	
March 31, 2013

	
$36,500,000

--

 

  

23

  

Exhibit A

 

See attached.

 

--

 

  

24

  

 

SECURED PROMISSORY NOTE

 

Due [Maturity Date: fifth anniversary of the effective date of the plan of reorganization]

 

Atlanta, Georgia

 

[Closing Date: effective date of the plan of reorganization]

 

$[balance of DIP amount as of the effective date of the Plan]

 

FOR VALUE RECEIVED, each of Pinnacle Airlines Corp., a Delaware corporation (“PAC”), Pinnacle Airlines, Inc., a Georgia corporation (“PAI”), Colgan Air, Inc., a Virginia corporation (“Colgan”)1, Pinnacle East Coast Operations Inc., a  New York corporation (“Pinnacle East”) and Mesaba Aviation, Inc., a Minnesota corporation (“Mesaba” and, together with PAC, PAI, Colgan and Pinnacle East, individually “Borrower” and collectively “Borrowers”), hereby jointly and severally promises to pay to the order of Delta Air Lines, Inc. (together with its successors and assigns, the “Holder”), or its assignees on [the fifth anniversary of the Closing Date] (the “Maturity Date”) the principal sum of [outstanding amount under the DIP Credit Facility as of the Closing Date] ($[•]) (or, if less, the then remaining outstanding principal amount) together with interest on the outstanding principal amount hereof at a rate per annum equal to 12.5% calculated on the basis of a year comprised of 365 (or where appropriate 366) days (without compounding), payable in arrears on March 31, June 30, September 30 and December 31 (each, a “Repayment Date”), commencing [__________]2, and at maturity (whether by required prepayment, acceleration, declaration or otherwise) and thereafter on demand.  Any portion of the principal amount hereof which is not paid at maturity (as aforesaid) shall thereafter bear interest at a rate per annum until paid equal to the sum of 2% plus the then applicable interest rate hereunder from time to time.

 

On April 1, 2012, the Borrowers filed cases (the “Cases”) for protection under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”).  In connection with the Cases, the Holder and the Borrowers executed that certain Secured Super-Priority Debtor in Possession Credit Agreement (as amended, modified or supplemented, the “DIP Credit Facility”) pursuant to which the Holder loaned PAC $________________ and each other Borrower guaranteed such loans.  On ____________ __, 2012, the Borrowers submitted the Plan and the Plan was confirmed on ________, ___, 201_.  In order to consummate the Plan and subject to the terms and conditions contained herein, the Holder is converting all amounts outstanding under the DIP Credit Agreement to amounts outstanding under this Secured Promissory Note.3

 

  

	
1

	
To be a Borrower to the extent in existence on the Closing Date.

 

  

	
2

	
First of the Repayment Dates after the Closing Date.

 

  

	
3

	
To be completed with correct dates as of the Closing Date.

 

  

25

  

In consideration of the premises and to induce the Holder to enter into this Secured Promissory Note and to convert $___________4 of obligations under the DIP Credit Facility to principal outstanding under this Secured Promissory Note pursuant to the terms of this Secured Promissory Note and the other Note Documents, the Borrowers hereby agree with the Holder as follows:

 

SECTION 1. Principal Payments

 

.  (a) The Borrowers shall make payments of the outstanding principal amount hereof in installments on each quarterly anniversary of the Closing Date, commencing the first quarterly anniversary of the Closing Date and continuing through Maturity Date, in an amount equal in the case of each such installment to one twentieth of the original principal amount of this Secured Promissory Note (the “Secured Promissory Note”).

 

(a) In addition, Borrowers may, at any time and from time to time with at least three Business Days’ prior written notice to the Holder, prepay without premium or penalty all, or any portion in an integral multiple of $1,000,000, of the principal amount hereof (each such prepayment to be accompanied by the payment of all interest accrued through the date of such prepayment on the principal amount prepaid and to be applied against all remaining installments in the inverse order of the maturity thereof).

 

(b) Within three (3) Business Days of receipt, the Borrowers shall prepay the amounts outstanding under this Secured Promissory Note in an amount equal to the Net Cash Proceeds received from the Disposition of any Collateral (each such prepayment to be accompanied by the payment of all interest accrued through the date of such prepayment on the principal amount prepaid and to be applied pro rata against all remaining installments thereof).

 

SECTION 2. Payments etc

 

.  Both principal and interest are payable in lawful money of the United States of America in immediately available funds to such account of the Holder as the Holder may notify to Borrowers from time to time, free and clear of, and without deduction for or on account of, any and all present and future taxes, levies, imposts, deductions, charges, withholdings and all liabilities with respect thereto

 

.  Whenever any payment to be made hereunder shall otherwise be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest in connection with such payment.  Unless the Holder otherwise elects upon at least three Business Days’ prior written notice to PAC, (so long as Delta Air Lines Inc. (“Delta”) or its affiliates are the sole Holders), payments of principal hereof and interest hereon in each case due and payable shall be made on the applicable Repayment Date by deductions from amounts due and payable to Borrowers under the ASA Connection Agreement in the manner set forth therein; provided, however, in addition to any rights of  the Holder under the Connection Carrier Agreements, if an Event of Default shall have occurred and is continuing, the Holder shall have the right to deduct such amount from amounts due and payable to Borrowers under any Connection Carrier Agreement.

 

  

	
4

	
Amount outstanding as of the Closing Date.

 

  

26

  

 

SECTION 3. Representations and Warranties

 

.  Each Borrower represents and warrants as of the date hereof, after giving effect to consummation of the Plan, as follows:

 

(a) Each Borrower is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business requires such qualification, except for such failures to be qualified and in good standing, if any, that when taken together with all other such failures could not be reasonably expected to have a Material Adverse Effect.

 

(b) Each Borrower’s execution, delivery and performance of this Note and each other document or instrument to which it is a party delivered in connection herewith (including the Security Agreement and each other Note Document) are within such Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do not contravene

 

(i) such Borrower’s charter or by-laws;

 

(ii) any law, rule or regulation applicable to such Borrower (including without limitation, Regulation G, T, U or X of the Board of Governors of the Federal Reserve System); or

 

(iii) any contractual restriction binding on or affecting such Borrower;

 

except, with respect to clauses (ii) and (iii) above, to the extent such contravention could not be reasonably expected to result in a Material Adverse Effect.

 

(c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance of this Note and each other Note Document by each Borrower, other than the filing of any applicable Uniform Commercial Code financing statements and those listed on Schedule 3(c) hereof.

 

(d) Each of this Note and each other Note Document is the legal, valid and binding obligation of each Borrower that is a party thereto enforceable against each such Borrower in accordance with its terms, except as the enforceability thereof may be limited by (A) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws (whether statutory, regulatory or decisional), now or hereafter in effect, affecting the enforcement of creditors’ rights generally and (B) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

 

(e) PAC’s audited consolidated balance sheet as at [most recent date prior to effective date of the Plan], and PAC’s related audited consolidated statements of

 

  

27

  

income and stockholders’ equity for the fiscal year then ended, copies of which have been furnished to the Holder, fairly present in all material respects PAC’s consolidated financial condition as at such date and the results of its consolidated operations for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied.

 

(f) There is no action, suit or proceeding pending against, or, to any Borrower’s knowledge, threatened against or affecting, any Borrower before any court or arbitrator or any governmental body, agency or official which has had or could be reasonably expected to have a Material Adverse Effect.

 

(g) No Borrower is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

 

(h) No Borrower is in default under any of its obligations to banks or other financial institutions or with respect to any Federal or state agency which default has had or could be reasonably expected to have a Material Adverse Effect.

 

(i) PAC has no subsidiaries except PAI, Mesaba, Colgan and Pinnacle East.

 

(j) [Each of] PAI [and Mesaba]5 Mesaba is a citizen of the United States (as defined in Section 40102(a)(15) of Title 49 of the United States Code) holding a carrier operating certificate issued by the Secretary of Transportation pursuant to Chapter 447 of Title 49 of the United States Code (or any successor provision) for aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo.

 

(k) Each employee benefit plan (as defined in the Employment Retirement Income Security Act of 1974, as amended (“ERISA”)) of each Borrower is in full compliance with all applicable requirements of ERISA and the Internal Revenue Code of 1986, as amended, no steps have been taken to terminate any such plan and no contribution failure has occurred with respect to any such plan sufficient to give rise to a lien under ERISA, except in each case as could not be reasonably expected to result in a Material Adverse Effect.  No condition exists or event or transaction has occurred with respect to any such plan which might result in the incurrence by any Borrower of any material liability, fine or penalty.

 

(l) All factual information heretofore or contemporaneously furnished by or on behalf of any Borrower in writing to the Holder for purposes of or in connection with this Note or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of any Borrower in writing to the Holder will be, taken as a whole, true and accurate in every material respect on the date as of which such information is dated or certified, and such information is not, or shall not be,

 

  

	
5

	
Bracketed language to be deleted if Mesaba is no longer an air carrier.

 

  

28

  

as the case may be, incomplete by omitting to state any material fact necessary to make such information not materially misleading.

 

(m) (i) The fair value of the assets of the Borrowers and their subsidiaries, taken as a whole and on a consolidated basis, at a fair valuation, will exceed the debts and liabilities of the Borrowers and their subsidiaries, taken as a whole and on a consolidated basis, respectively.  (ii) The present fair salable value of the property of the Borrowers and their subsidiaries, taken as a whole and measured on a consolidated basis, is not less than the amount that will be required to pay the probable liability on the existing debts and other liabilities (including contingent liabilities) of the Borrowers and their subsidiaries, as they become absolute and mature. (iii) The Borrowers and their subsidiaries, taken as a whole and on a consolidated basis, will not have unreasonably small capital for the Borrowers and their subsidiaries to carry out their business as now conducted and as proposed to be conducted following the date of this Note.  (iv) No Borrower intends to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be received by such Borrower, and of timing and amounts of cash to be payable on or in respect of debt of such Borrower)..

 

SECTION 4. Affirmative Covenants

 

.  So long as any amount under this Note remains unpaid, PAC will, and will cause each of its subsidiaries to:

 

(a) Maintain Property.  Keep all material tangible property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted; maintain, with financially sound and reputable insurance companies, insurance on all of its material property (subject to customary deductibles), in at least such amounts and against at least such risks, as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and furnish to the Holder all information as to the insurance carried upon reasonable request.

 

(b) Business Activities.  Continue to engage solely in the business in which it is engaged on the date hereof and activities incidental and related thereto, except that Mesaba, Pinnacle East or PAI may merge with and into PAI, Pinnacle East or Mesaba (as the case may be) or Colgan; provided, that after giving effect to such merger no Default or Event of Default, which shall have occurred and be continuing.

 

(c) Books and Records.  Keep proper books of record and account in conformity with generally accepted accounting principles, and permit the Holder representatives to visit and inspect any of its properties, to examine and make abstracts from any of its books and records and to discuss its affairs, finances and accounts with its officers, employees and independent public accountants, all with reasonable advance written notice, at their own expenses, during normal business hours for no more than one time each year as long as no Event of Default has occurred and is continuing and subject to customary confidentiality obligations.

 

(d) Compliance with Laws etc.  Comply in all material aspects with all applicable laws, rules, regulations and orders, such compliance to include paying before the same become delinquent all taxes, assessments and governmental charges imposed

 

  

29

  

upon it or upon any of its properties except to the extent contested in good faith and by appropriate proceedings promptly instituted and diligently pursued.

 

(e) Reporting Requirements.  Furnish to the Holder (it being agreed that the filing of any publicly available reports and registration statements with the Securities and Exchange Commission or any national securities exchange shall satisfy the relevant reporting requirement under this clause (e)):

 

(i) as soon as available and in any event within 45 days after the end of each of PAC’s first three quarters of each of its fiscal years, PAC’s consolidated balance sheets as of the end of such quarter and consolidated statements of income and stockholders’ equity for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by PAC’s chief financial officer;

 

(ii) as soon as available and in any event with 90 days after the end of each of PAC’s fiscal years, a copy of PAC’s annual report for such year containing financial statements for such year certified without a going concern or similar qualification and without a qualification as to the scope of the audit by Ernst & Young LLP or other independent public accountants reasonably acceptable to the Holder;

 

(iii) not later than 10 days after each date as of which liquidity is measured in accordance with Section 5(g), a statement of the cash and cash equivalents balance of PAC and its subsidiaries as of the close of such date;

 

(iv) as soon as possible and in any event within five days after any senior officer of any Borrower has actual knowledge of any Default or Event of Default continuing on the date of such statement, a statement of PAC’s chief financial officer setting forth details of such Default or Event of Default or event and the action which Borrowers have taken and propose to take with respect thereto;

 

(v) promptly after the sending or filing thereof, copies of all reports which PAC makes available to any of its security holders;

 

(vi) promptly after the filing or receiving thereof, copies of all material reports and notices which PAC or any of its subsidiaries files under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which PAC or any of its subsidiaries receives from such corporation or any other government agency, in each case other than in the ordinary course of business; and

 

(vii) upon written request from the Holder on the basis of its reasonable belief that a Material Adverse Effect has occurred or is reasonably likely to occur, such other information respecting the condition

 

  

30

  

or operations, financial or otherwise, of PAC or any of its subsidiaries, in each case subject to applicable confidentiality obligations.

 

All financial statements furnished pursuant to this clause (e) shall be prepared in accordance with generally accepted accounting principles applied on a basis consistent with those used in the preparation of financial statements described in clause (e) of Section 3.

 

(f) Air Carrier Status.  Cause PAI [and Mesaba]6 to remain a certificated air carrier in accordance with the provisions of clause (j) of Section 3 (except as permitted by clause (b) of this Section 4).

 

(g) Payment of Obligations.  Pay, discharge or otherwise satisfy as the same shall become due and payable in the normal conduct of its business, all its obligations, except, in each case, to the extent any such obligation is being contested in good faith and by appropriate proceedings for which appropriate reserves have been established in accordance with GAAP or the failure to pay or discharge the same would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(h) Further Assurances.  Promptly upon request by the Holder (i) correct any material defect or error that may be discovered in the execution, acknowledgment, filing or recordation of any Note Document or other document or instrument relating to any Collateral, and (ii) execute and deliver any and all further documents, agreements and instruments, and take all further actions, (x) that may be required or advisable under applicable law or that the Holder may request, in order to effectuate the transactions contemplated by the Note Documents, (y) in order to create, grant, establish, preserve, protect and perfect the validity, perfection and priority of the liens and security interests created or intended to be created by the Note Documents and (z) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Holder the rights granted now or hereafter intended to be granted by the Borrowers to the Holder under any Note Document.

 

SECTION 5. Negative Covenants

 

.  So long as any amount under this Note remains unpaid, PAC will not, and will not permit any of its subsidiaries to:

 

(a) Debt.  Create or suffer to exist any Debt other than (i) Debt under this Note, (ii) Debt outstanding on the date hereof and indentified in Schedule I hereto, (iii) Debt created with the prior written consent of the Holder, (iv) Debt secured by a Permitted Lien, (v) Debt owed to any other Borrower and subordinated to the Debt under this Note and (vi) other unsecured Debt.

 

(b) Liens, etc.  Create or suffer to exist any lien, security interest or other charge or encumbrance, or any other type of preferential arrangement, upon or with

 

  

	
6

	
Delete if at time no longer air carrier.

 

  

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respect to any of its properties, whether now owned or hereafter acquired, or assign any right to receive income, other than (i) the Note Documents and (ii) Permitted Liens.

 

(c) Dividends.  Declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any of its classes of capital stock, or purchase, redeem or otherwise acquire for value any shares of any of its classes of capital stock or any warrants, rights, or options to acquire any such shares, now or hereafter outstanding, except for cash dividends paid by any subsidiary of PAC to PAC.

 

(d) Loans and Advances.  Make any loan or advance to any Person, except for (i) any loan or advance to any Borrower, (ii) travel and other ordinary course of business advances to officers and employees and (iii) without limiting clause (i), other loans or advances to Persons who are not directors, officers, employees or affiliates of PAC or any of its subsidiaries in an aggregate outstanding principal amount with respect to all such other loans and advances not in excess of $5,000,000.

 

(e) Transactions with Affiliates.  Enter into any transaction or series of related transactions with any of its Affiliates, other than on terms and conditions substantially as favorable to it as would reasonably be obtained by it at that time in a comparable arms-length transaction with a Person other than an Affiliate.

 

(f) Mergers, etc.  PAC shall not merge or consolidate with or into any Person unless PAC is the surviving entity of such merger or consolidation and after giving effect to such merger or consolidation, no Default or Event of Default, shall have occurred and be continuing.

 

(g) Minimum Liquidity.  Permit the sum of all cash and cash equivalents of PAC and its subsidiaries to be less than $25,000,000 as of the close of business of the first six month ends after the Closing Date and $30,000,000 as of the close of business on the last day of each calendar month thereafter (and if such day falls on a day that is not a Business Day, then the first Business Day in the next calendar month); provided that the covenant in this clause (g) shall no longer be applicable at any time when the aggregate outstanding principal amount under this Note is less than $20,000,000.

 

(h) Financial Test.  Permit the ratio of Consolidated EBITDAR to Consolidated Fixed Charges for any period of four consecutive fiscal quarters ending on each date set forth below, to be less than the ratio opposite such date.

 

  

32

  

 

	
Four Consecutive Fiscal Quarter Period Ending

	
Ratio of Consolidated EBITDAR to Consolidated Fixed Charges

	
June 30, 2013, September 30, 2013,  and December 31, 2013

	
1.05:1.00

	
March 31, 2014

	
1.075:1.00

	
June 30, 2014, September 30, 2014, and December 31, 2014

	
1.10:1.00

	
March 31, 2015 and the last day of each calendar quarter thereafter

	
1.15:1.00

 

SECTION 6. Events of Default

 

.  If any of the following events (“Events of Default”) occurs and is continuing:

 

(a) Borrowers fail to pay

 

(i) any principal of this Note when due;

 

(ii) any interest on this Note within five (5) Business Days after the date when due; or

 

(iii) any other amounts payable under this Note within ten (10) Business Days after the date when due;

 

(b) any representation or warranty made by any Borrower in or in connection with this Note proves to have been incorrect in any material respect when made;

 

(c) any Borrower fails to perform or observe any covenant or agreement contained in Section 5 and, if such failure can be remedied, such failure remains unremedied for seven (7) days after the earlier of (i) a Borrower obtaining knowledge of such failure and (ii) written notice thereof is given to Borrowers by Holder;

 

(d) any Borrower fails to perform or observe any other term, covenant or agreement contained in this Note or the Security Agreement on its part to be performed or observed and any such failure remains unremedied for thirty (30) days after the earlier of (i) a Borrower obtaining knowledge of such failure and (ii) written notice thereof is given to Borrowers by Holder;

 

(e) any event or condition occurs which results in the acceleration of the maturity of any indebtedness for borrowed money of any Borrower exceeding $3,000,000 in aggregate principal amount at the time outstanding or which permits (or,

 

  

33

  

with the giving of notice or lapse of time or both, would enable) the holder of such indebtedness for borrowed money or any Person acting on such holder’s behalf to accelerate the maturity thereof;

 

(f) any default occurs under any lease or leases by any Borrower as lessee of any real or personal property under which the aggregate rentals payable under such lease or all such leases in the aggregate exceed $3,000,000;

 

(g) (i) PAC or any of its subsidiaries admits in writing its inability to pay debts, or makes a general assignment for the benefit of creditors; (ii) any proceeding is instituted by or against PAC or any of its subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking appointment of a receiver, trustee or other similar official for PAC or any of its subsidiaries or for any substantial part of its property and such proceeding (if instituted against PAC or any of its subsidiaries) is not dismissed or stayed within 60 days of the commencement thereof; or (iii) PAC or any of its subsidiaries takes any corporate action to authorize any of the actions set forth in this clause (g);

 

(h) one or more final judgments or orders for the payment of money in excess of $1,000,000 in the aggregate shall be rendered against any Borrower and such judgment or order shall continue unsatisfied and unstayed for a period of 60 days;

 

(i) any Borrower fails to perform or observe any term, covenant or agreement contained in any other agreement with Holder or any of its affiliates on its part to be performed or observed which failure has resulted in an “event of default” (or similar term) thereunder;

 

(j) any of the following events shall occur with respect to any employee benefit plans of PAC or any of its subsidiaries, except in each case as could not be reasonably expected to result in a Material Adverse Effect: (i) the institution by any Borrower of any steps to terminate any such plan; (ii) or a contribution failure occurs with respect to any such plan sufficient to give rise to a lien under ERISA;

 

(k) Holder terminates any Connection Carrier Agreement;

 

(l) any material provision of any Note Document shall, for any reason (other than as specifically set forth therein), cease to be valid and binding on any Borrower, or any Borrower shall so assert in any pleading filed in any court or any material portion of any lien on the Collateral (as reasonably determined by the Holder) intended to be created by the Loan Documents shall cease to be or shall not be a valid and perfected lien having the priorities contemplated hereby or thereby; or

 

(m) Any Note Document after delivery thereof shall for any reason ceases to create a valid and perfected lien, with the priority required by the Note Documents on and security interest in any material portion of the Collateral (as reasonably determined by the Holder) purported to be covered thereby.

 

  

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then, if any Event of Default described in the preceding clause (g) shall occur, the outstanding principal amount of this Note and other obligations hereunder and under each other Note Document shall automatically be and become immediately due and payable, without notice or demand.  If any Event of Default (other than any Event of Default described in the preceding clause (g)) shall occur for any reason, whether voluntary or involuntary, and be continuing, (i) the Holder may by notice to the Borrowers declare all or any portion of the outstanding principal amount of this Note and other obligations hereunder and under each other Note Document to be due and payable, whereupon the full unpaid amount of this Note and other obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment and (ii) exercise any and all remedies under and in accordance with the Note Documents and under applicable law available to the Holder.  During the continuance of an Event of Default, at the election of the Holder, the principal amount outstanding hereunder shall accrue interest at a rate per annum equal to the sum of 2.0% plus the then applicable rate hereunder.

 

SECTION 7. Amendments, etc

 

.  No amendment to or waiver of any provision of this Note or any other document or instrument delivered in connection herewith, nor consent to any departure by any Borrower therefrom, will in any event be effective unless the same is in writing and signed by the Holder and the Borrowers and then such amendment, waiver or consent will be effective only in the specified instance and for the specific purpose for which given.

 

SECTION 8. Notices, etc

 

.  All notices and other communications provided for hereunder must be in writing (including facsimile communication) and mailed or facsimiled or delivered, if to Borrowers, at Pinnacle Airlines Corp., One Commerce Square, 40 South Main Street, 14th Floor, Memphis, TN 38103, Fax No: 901-348-4103, Attention: Chief Financial Officer, with a copy to: Pinnacle Airlines Corp., One Commerce Square, 40 South Main Street, 14th Floor, Memphis, TN 38103, Fax No: 901-348-4103, Attention: General Counsel (and notice given to such address shall be deemed to be notice to all Borrowers); and if to the Holder, at 1030 Delta Boulevard, Department 856, Atlanta, GA 30354, Fax No: 404-773-7345, Attention: Senior Vice President and Treasurer; or, as to Borrowers and the Holder, at such other address as designated by any party in a written notice to the other parties.  All such notices and communications will, when mailed or facsimiled, be effective when received in the mails or sent by facsimile (receipt confirmed), respectively, addressed as aforesaid.

 

SECTION 9. Accounting and Certain Other Terms

 

.  i)  All accounting terms not specifically defined herein shall be construed and consistently applied in accordance with those generally accepted accounting principles applied in the preparation of the financial statements referred to in clause (e) of Section 3, except as otherwise stated herein.

 

(a) In addition, for purposes of this Note, the following terms will have the following meanings:

 

  

35

  

 

“Affiliate” shall mean, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person.  For purposes of this definition, a Person (a “Controlled Person”) shall be deemed to be “controlled by” another Person (a “Controlling Person”) if the Controlling Person possesses, directly or indirectly, power to direct or cause the direction of the management and policies of the Controlled Person whether by contract or otherwise; provided, that in no event shall the Holder constitute an Affiliate of the Borrowers.

 

“Bankruptcy Court” means United States Bankruptcy Court for the Southern District of New York.

 

“Bankruptcy Code” has the meaning set forth in the recitals.

 

“Business Day” means a day on which banks are not required or authorized to close in Atlanta, Georgia or Minneapolis, Minnesota.

 

“Closing Date” means [______________]7.

 

“Code” has the meaning set forth in the recitals.

 

“Collateral” means the “Collateral” as defined in the Security Agreement and any other assets pledged or in which a lien is granted pursuant to any Note Document, including, without limitation, any mortgaged property.8

 

“Connection Carrier Agreement” means (i) the Delta Connection Agreement, dated as of April 27, 2007, by and among PAC, PAI and Delta (the “2007 Connection Agreement”), (ii) the Third Amended and Restated Airline Services Agreement, dated as of April 1, 2012 by and among PAC, PAI and Delta (“ASA Connection Agreement”) and (iii) the Amended and Restated 2010 Delta Connection Agreement dated as of April 1, 2012 by and among PAC, PAI and Delta.

 

“Consolidated EBITDAR” shall for any period mean the consolidated operating income of PAC and its subsidiaries for such period plus (i) consolidated aircraft operating rental expenses of PAC and its subsidiaries for such period plus (ii) amortization and depreciation that were deducted in arriving at the amount of such consolidated operating income for such period plus (iii) interest income of PAC and its subsidiaries for such period, all as determined on a consolidated basis in accordance

 

  

	
7

	
Date of conversion.

 

  

	
8

	
Collateral shall be assets that the DIP Credit Facility has a lien on at emergence, which exclude (i) assets that are subject to the Existing Credit Agreement (as defined in the DIP Credit Facility), (ii) any assets to the extent that, and for so long as, such grant of a security interest therein would violate applicable law or regulation or, in the case of assets acquired after the Closing Date, such grant of a security interest therein would violate an enforceable contractual obligation binding on such assets that existed at the time of the acquisition thereof and was not created or made binding on such assets in contemplation or in connection with the acquisition of such assets in each case after giving effect to the applicable anti-assignment provisions of the Uniform Commercial Code (other than proceeds and receivables thereof, the assignment of which is expressly deemed effective under the Uniform Commercial Code notwithstanding such prohibition) and (iii) other assets identified by Delta.

 

  

36

  

with generally accepted accounting principles applied on a basis consistent with those used in the preparation of the financial statements referred to in clause (e) of Section 3 plus (iv) all fees, costs and expenses (including, without limitation, all restructuring costs and expenses, professional fees and other charges), write-downs and payments payable by the Borrowers in connection with the Cases, the Plan and the Note Documents plus (v) fees, costs and expenses incurred as a result of Delta accelerating the removal of aircraft pursuant to Article II.C(y) of the 2007 Connection Agreement.

 

“Consolidated Fixed Charges” shall for any period mean the total consolidated interest expense of PAC and its subsidiaries (excluding interest expense on any aircraft indebtedness and any aircraft parts indebtedness in respect of the CR- 900 Aircraft) payable or paid in cash for such period (calculated without regard to any limitations on the payment thereof) plus the total consolidated aircraft operating rental expenses of PAC and its subsidiaries for such period plus the principal amount of all scheduled amortization payments on all Debt, all as determined on a consolidated basis in accordance with generally accepted accounting principles applied on a basis consistent with those used in the preparation of the financial statements referred to in clause (e) of Section 3.  The total consolidated interest expense and principal amount of scheduled amortization payments for the period of four consecutive quarters ended on June 30, 2013 shall be calculated as the total consolidated interest expense and principal amount of scheduled amortization payments for the calendar quarter ended on June 30, 2013 times four; the total consolidated interest expense and principal amount of scheduled amortization payments for the period of four consecutive quarters ended on September 30, 2013 shall be calculated as the total consolidated interest expense and principal amount of scheduled amortization payments for the period of two consecutive calendar quarters ended on September 30, 2013 times two; and the total consolidated interest expense and principal amount of scheduled amortization payments for the period of four consecutive quarters ended on December 31, 2013 shall be calculated as the total consolidated interest expense and principal amount of scheduled amortization payments for the period of three consecutive calendar quarters ended on December 31, 2013 times 4/3.

 

 

        “CR-900 Aircraft” means the aircraft operated by a Borrower pursuant to the 2007 Connection Agreement.

 

 

“Debt” means, when used with reference to any Person:

 

(i) indebtedness of such Person for borrowed money,

 

(ii) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments,

 

(iii) obligations of such Person to pay the deferred purchase price of property or services (other than trade debt on customary terms incurred in the ordinary course of business),

 

  

37

  

 

(iv) obligations of such Person as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, consistently applied, recorded as capital leases,

 

(v) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, and

 

(vi) liabilities of such Person in respect of unfunded vested benefits under plans covered by Title IV of ERISA, together with the regulations thereunder, in each case as in effect from time to time.

 

“Default” shall mean any event or condition which, upon the giving of notice or expiration of any cure period or both would, unless cured or waived, constitute an Event of Default.

 

“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith and any casualty or condemnation (it being agreed that collections of account receivables, use or other disposition of cash or cash equivalents and disposition of assets among the Borrowers shall not be deemed Disposition of Collateral).

 

“DIP Credit Facility” shall have the meaning set forth in the recitals to this Secured Promissory Note.

 

“Material Adverse Effect” means a material adverse effect on (a) the business, operations or financial condition of PAC and its subsidiaries, taken as a whole, (b) the validity or enforceability of this Note, the Security Agreement or the rights and remedies of the Holder hereunder or thereunder (c) the ability of any Borrower to pay its obligations under this Note or any other Note Document or (d) a material adverse effect on the Collateral or the liens in favor of the Holder on the Collateral or the priority of such liens.

 

“Net Cash Proceeds” means proceeds received by any Borrower after the Closing Date in cash or cash equivalents from any Disposition of Collateral in each case, net of (i) the reasonable cash costs of sale, assignment or other disposition, (ii) taxes paid or reasonably estimated to be payable as a result thereof, (ii) reserves provided, to the extent required by GAAP, against any liabilities that are directly attributed to such Disposition and (iv) any amount payable to a Person that is not an Affiliate of a Borrower which is secured by the assets subject to such solely to the extent the such Person’s security is senior in right of payment to the Holder; provided, that, if (i) PAC shall deliver an Officer’s Certificate to the Holder promptly following receipt of any such proceeds setting forth PAC or the applicable Borrower’s intention to use any portion of such proceeds, to acquire, maintain, develop, construct, improve, upgrade or

 

  

38

  

repair assets useful in the business of PAC and its subsidiaries which shall be subject to a first priority Lien under the Note Documents within 6 months of such receipt and (ii) no Default or Event of Default exists at the time of delivery of such notice or at the time of reinvestment of such Net Cash Proceeds, such portion of such proceeds shall not constitute Net Cash Proceeds except to the extent not, within 6 months of such receipt, so used; provided, further, that no Net Cash Proceeds calculated in accordance with the foregoing realized in any fiscal year shall constitute Net Cash Proceeds in such fiscal year until the aggregate amount of all such net cash proceeds in such fiscal year shall exceed $1,000,000.

 

“Note Documents” means, collectively, (i) this Secured Promissory Note, (ii) the Security Agreement, (iii) each aircraft mortgage, real estate mortgages, security agreement, pledge agreement, deposit account control agreement, securities account control agreement, intellectual property security agreement and each other agreement to which a Borrower is a party and that creates or purports to create a lien in any Collateral in favor of the Holder and (iv) any amendment, modification or supplement to any of the foregoing.

 

“Permitted Liens” means: (i) liens securing Debt under this Note; (ii) liens existing on the date of this Note and listed in Schedule II hereto; (iii) liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (iv) landlords’, carriers’, workmen’s, warehousemen’s, mechanic’s, materialmen’s, repairmen’s, employees’ or other like liens arising in the ordinary course of business with respect to amounts which are not yet delinquent or that are being contested in good faith by appropriate proceedings; (v) pledges or deposits made in the ordinary course of business in connection with (a) leases, performance bonds or similar obligations, (b) workers’ compensation, unemployment insurance and other social security legislation or (c) securing the performance of surety bonds and appeal bonds required (I) in the ordinary course of business or in connection with the enforcement of rights or claims of the Borrowers or (II) in connection with judgments that do not give rise to an Event of a Default; (vi) with respect to real property or interests therein, easements, licenses, rights-of-way, restrictions, minor defects or irregularities in title and other similar encumbrances which, in the aggregate, do not materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrowers or liens disclosed in title reports; and (vii) liens on any property other than the Collateral (as such term is defined in the Security Agreement).

 

“Person” means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

 

“Plan” means [COMPLETE TITLE OF PLAN], which shall be in form and substance reasonably acceptable to the Holder.

 

“Repayment Date” has the meaning set forth in the recitals.

 

“Security Agreement” means that certain Security and Pledge Agreement, dated as of the date hereof, by and among the Borrowers and Holder.

 

  

39

  

“Transactions” means, collectively, (i) the transactions in connection with and as contemplated by the Note Documents, (ii) the consummation of the Plan and (iii) all other related transactions, including the payment of fees and expenses in connection therewith

 

(b) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented, extended, amended and restated or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any references to any law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law (including by succession of comparable successor laws), (iii) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns (subject to any restriction on assignment set forth herein) and, in the case of any governmental authority, any other governmental authority that shall have succeeded to any or all of the functions thereof, (iv) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Secured Promissory Note in its entirety and not to any particular provision hereof, (v) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Secured Promissory Note and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

 

SECTION 10. Conditions Precedent.  The Borrowers shall have no rights under this Note and the Holder shall not be obligated to advance any funds to the Borrowers hereunder, or to take, fulfill, or perform any other action hereunder, until the following conditions have been fulfilled to the reasonable satisfaction of the Holder:

 

(a) Note Documents.  This Secured Promissory Note, the Security Agreement and each other Note Document required hereunder shall have been executed and delivered, in form, scope and substance reasonably satisfactory to the Holder, to the Holder, and the Holder shall have a first priority perfected security interest (subject to Permitted Liens) in all Collateral.

 

(b) The Plan.  The Plan shall be reasonably acceptable to the Holder and shall have been approved by all necessary parties and confirmed by the Bankruptcy Court in the Cases.

 

(c) Governmental Approvals.  All necessary governmental (domestic and foreign), Bankruptcy Court and third party orders, approvals and consents in connection with the Plan and otherwise referred to therein shall have been obtained and

 

  

40

  

remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which, in the judgment of the Holder, restrains, prevents, or imposes materially adverse conditions upon, the consummation of the Plan or otherwise referred to therein. Additionally, there shall not exist any judgment, order, injunction or other restraint prohibiting or imposing materially adverse conditions upon the Plan, this Secured Promissory Note or the other Note Documents.

 

(d) Officer’s Certificate.  The Holder shall have received an Officer’s Certificate from the Borrowers certifying (i) as to the truth of the representations and warranties contained in the Note Documents as though made on and as of the Closing Date and (ii) compliance with the conditions precedent set forth in this Section 10.

 

(e) Representations and Warranties.  All representations and warranties shall be true and correct on and as of the Closing Date (although any representations and warranties which expressly relate to a given date or period shall be required to be true and correct as of the respective date or for the respective period, as the case may be), after giving effect to the Transactions, as though made on and as of such date.

 

(f) Absence of Defaults.  No Default or Event of Default shall have occurred and be continuing, or would result from consummation of the Transactions.  No Default (as defined in the DIP Credit Facility) or Event of Default (as defined in the DIP Credit Facility) shall have occurred and be continuing.

 

(g) Corporate Documents.  The Holder shall have received copies of (i) resolutions of each Borrower authorizing the transactions contained herein, (ii) a secretary’s certificate of each Borrower, (iii) a good standing certificate of each Borrower certified by the Secretary of State of the State of the jurisdiction of incorporation or organization of the Borrowers or Guarantor, as applicable, and (iv) incumbency certificates of each Borrower, each in form and substance reasonably satisfactory to the Holder.

 

(h) Notice.  The Holder’s shall have received a written notice from the Borrower electing to convert amounts outstanding under the DIP Credit Facility to amounts outstanding under this Secured Promissory Note at least ten (10) business days prior to the Closing Date.

 

(i) Payment of Fees and Expenses.  The Borrowers shall have paid to the Holder the then unpaid balance of all accrued and unpaid costs and expenses then due, owing and payable to the Holder under and pursuant to Note Documents (including the fees and out-of-pocket expenses of counsel to the Holder) as to which invoices have been issued and presented on or before the Closing Date.

 

(j) Insurance.  The Holder shall have received certificates of insurance with respect to insurance maintained by the Borrowers, as the case may be, which certificates evidence compliance by the Borrowers with the insurance requirements set forth herein and in the Note Documents as of the Closing Date and the Holder shall have

 

  

41

  

been named as loss payees with respect to all Collateral and additional insureds (as their interests may appear), on such policies of insurance of the Borrowers as the Holders as specified in the Note Documents.

 

SECTION 11. Costs and Expenses

 

.  Each Borrower jointly and severally agrees to pay on demand all (a) all costs and expenses of the Holder associated with the preparation, execution, delivery and administration of the Note Documents and any amendment or waiver with respect thereto (including the fees, disbursements and other charges of counsel (including local, conflicts and special counsel as necessary) and, to the extent in “work out” or restructuring, financial advisors for the Holder), (b) all expenses of the Holder (including the fees, disbursements and other charges of counsel (including local, conflicts and special counsel) for the Holder) and financial advisors in connection with the enforcement of the Note Documents and (c) all expenses associated with collateral monitoring, collateral reviews and appraisals, environmental reviews and fees and expenses of other advisors and professionals engaged by the Holder.

 

SECTION 12. Right of Set-off

 

.  Upon the occurrence and during the continuance of any Event of Default, the Holder hereof is hereby authorized at any time and from time to time, without notice to Borrowers (any such notice being expressly waived), to set off and apply any and all obligations at any time owing by such holder to or for any Borrower’s credit or account against any and all of such Borrower’s obligations now or hereafter existing under this Note or any other document or instrument delivered in connection herewith, irrespective of whether or not such holder has made any demand under this Note or any other document or instrument delivered in connection herewith, and although such obligations may be unmatured.  The Holder’s rights under this Section 12 are in addition to other rights and remedies (including other rights of set-off) which it may have and, so long as Delta or any of its affiliates are the sole Holders, are in addition to Holder’s right to cause payments of principal hereof and interest hereon to be made by deductions from amounts payable to Borrowers under the Connection Carrier Agreements in the manner set forth therein.

 

SECTION 13. Indemnification and Survival

 

.  Each Borrower hereby jointly and severally indemnifies, exonerates and holds the Holder (including Delta) and each of its affiliates, officers, directors, employees and agents (collectively, the “Indemnified Parties”) free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities, damages and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including attorneys’ fees and disbursements (collectively, the “Indemnified Liabilities”), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to

 

(a) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment and any Borrower; or

 

(b) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated

 

  

42

  

by any Borrower of any hazardous material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any environmental law), regardless of whether caused by, or within the control of, such Borrower,

 

except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party’s gross negligence or willful misconduct as determined by a non-appealable order of a court of competent jurisdiction, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, each Borrower hereby jointly and severally agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.  Each Borrower’s obligations under this Section 13 and under Section 11 shall in each case survive the payment in full of all obligations hereunder.

 

SECTION 14. Assignment

 

.  The rights and obligations of the Borrowers may not be assigned by the Borrowers without the prior written consent of the Holder, which consent may be granted or withheld in the Holder’s sole discretion.  The Holder may assign at any time this Note to any other Person with, so long as no Event of Default has occurred and is continuing, the consent of the Borrowers (such consent not to be unreasonably withheld, delayed or conditioned), in which event, the assignee shall have, to the extent of such assignment, the same rights and benefits as it would have if it were the Holder, except as otherwise provided by the terms of such assignment or participation.  Upon a valid assignment of a party’s rights and obligations under this Note, this Note shall inure to the benefit of and be binding upon the successors and permitted assigns and transferees of the Borrowers and the Holder.

 

SECTION 15. Governing Law

 

. THIS NOTE AND EACH OTHER DOCUMENT OR INSTRUMENT DELIVERED IN CONNECTION HEREWITH SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.

 

SECTION 16. Forum Selection and Consent to Jurisdiction

 

.  EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY:

 

(a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS NOTE AND THE OTHER RELATED DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;

 

(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR

 

  

43

  

PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;

 

(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SECTION 8 OR AT SUCH OTHER ADDRESS OF WHICH THE OTHER PARTIES SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND

 

(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

 

SECTION 17. Waiver of Jury Trial

 

.  EACH BORROWER AND HOLDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE OR THE SECURITY AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF IT.

 

SECTION 18. Joint and Several Obligations

 

.  The obligations of the Borrowers hereunder are joint and several.  Each Borrower agrees that its obligations are a primary obligation of such Borrower and not merely a contract of surety.  Each Borrower waives presentation to, demand for payment from and protest to such Borrower or any other Borrower, and also waives notice of protest for nonpayment.  The obligations of Borrowers hereunder shall not be affected by (i) the failure of the Holder to assert any claim or demand or to enforce any right or remedy against any Borrower under the provisions of this Note or otherwise, (ii) any extension or renewal of any provision hereof, (iii) any rescission, waiver, compromise, acceleration, amendment or modification of any of the terms or provisions of this Note, the Security Agreement or any other Note Document, (iv) the release, exchange waiver or foreclosure of any security held by the Holder, (v) the failure of the Holder to exercise any right or remedy against any Borrower, or (vi) the release or substitution of any collateral.  Each Borrower further waives any right to require that any resort be had by the Holder to any security held for payment of this Note or to any balance of any deposit, account or credit on the books of the Holder in favor of any Borrower.

 

Each Borrower hereby waives any defense that it might have based on a failure to remain informed of the financial condition of any other Borrower and any circumstances affecting the ability of any other Borrower to perform under this Note.  Each Borrower’s obligations hereunder shall not be affected by the genuineness, validity, regularity or enforceability of this Note, the Security Agreement or any other Note Document or by the existence, validity, enforceability, perfection, or extent of any

 

  

44

  

collateral therefor or by any other circumstance which might otherwise constitute a defense to such obligations.

 

The obligations of the Borrowers hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration, or compromise, and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegally or unenforceability of such obligations.  Without limiting the generality of the foregoing, the obligations of the Borrowers hereunder shall not be discharged or impaired or otherwise affected by failure of the Holder to assert any claim or demand or to enforce any remedy under this Note or any other agreement, by any waiver or modification of any provision hereof or thereof, by any default, failure or delay, willful or otherwise, in the performance of such obligations, or by any other act or thing or omission or delay or do any other act or thing which may or might in any manner or to any extent vary the risk of any Borrower or would otherwise operate as a discharge of any Borrower as a matter of law.

 

Each Borrower further agrees that its obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any obligation hereunder is rescinded or must otherwise be restored by Holder upon the bankruptcy or reorganization of such Borrower or otherwise.

 

Upon payment by any Borrower of any sums to the Holder hereunder, all rights of such Borrower against any other Borrower arising as a result thereof by way of right of subrogation or otherwise, shall in all respects be subordinate and junior in right of payment  to the prior payment in full of all the obligations of the Borrowers hereunder (including interest accruing on and after the filing of any petition in bankruptcy or of reorganization of a Borrower whether or not post filing interest is allowed in such proceeding).  If any amount shall be paid to such Borrower for the account of any other Borrower relating to the obligations hereunder, such amount shall be held in trust for the benefit of the Holder and shall forthwith be paid to the Holder to be credited and applied to the obligations hereunder, whether matured or unmatured.

 

  

45

  

PINNACLE AIRLINES CORP.

 

By:              /s/ Brian T. Hunt                                                  

Name:           Brian T. Hunt

Title:           Vice President and General Counsel

 

PINNACLE AIRLINES, INC.

 

By:              /s/ Brian T. Hunt                                                  

Name:           Brian T. Hunt

Title:           Vice President and General Counsel

 

MESABA AVIATION, INC.

 

By:              /s/ Brian T. Hunt                                                 

Name:           Brian T. Hunt

Title:           Vice President

 

PINNACLE EAST COAST OPERATIONS INC.

 

By:              /s/ Brian T. Hunt                                                  

Name:           Brian T. Hunt

Title:           Vice President and General Counsel

 

COLGAN AIRLINES, INC.

 

By:              /s/ Brian T. Hunt                                                  

Name:           Brian T. Hunt

Title:           Vice President and General Counsel

 

  

46

  

Acknowledged and Agreed:

 

DELTA AIR LINES, INC.

 

By:                       /s/ Donald T. Bornhurst                                                   

 

Name:                      Donald T. Bornhorst

 

Title:  Senior Vice President – Delta Connection

 

  

47

  

SCHEDULE I

 

to Secured Promissory Note

 

 

DEBT

 

 

 

	  	  
	  	  
	  	  
	  	  
	  	  
	  	  

  

48

  

SCHEDULE II

to Secured Promissory Note

 

LIENS

 

 

 

	  	  
	  	  
	  	  
	  	  
	  	  
	  	  
	  	  
	  	  

  

49

  

SCHEDULE 3(c)

to Secured Promissory Note

 

 

 

FILINGS

 

  

50

  

April 23, 2012

Pinnacle Airlines Corp.

One Commerce Square

40 S. Main St.

Memphis, TN

Attention:  Sean E. Menke

Facsimile:  (901) 348-4178

Ladies and Gentlemen:

On April 1, 2012, you and your subsidiaries each elected to file a chapter 11 proceeding (together the “Bankruptcy Cases”) in United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”).  You have advised Delta Air Lines, Inc. (“Delta”, the “Commitment Party,” “we” or “us”) that, in connection with the Bankruptcy Cases, you intend to obtain debtor-in-possession financing.

 

Delta is pleased to advise you of its commitment, and hereby commits to provide 100% of a $74,285,000 senior secured super-priority debtor-in-possession credit facility (the “DIP Credit Facility”) to Pinnacle Airlines Corp., a Delaware corporation (“Pinnacle”), Pinnacle Airlines, Inc., a Georgia corporation (“Pinnacle Georgia”), Pinnacle East Coast Operations Inc., a New York corporation (“Pinnacle East Coast”), Mesaba Aviation, Inc., a Minnesota corporation (“Mesaba”) and Colgan Air, Inc., a Virginia corporation (“Colgan”; and together with Pinnacle, Pinnacle Georgia, Pinnacle East Coast and Mesaba, each individually a “Company” and collectively, the “Companies”) on the terms and conditions set forth herein and in the Summary of Terms and Conditions of the $74,285,000 Senior Secured Debtor-in-Possession Facility attached hereto as Annex A (the “Term Sheet”).  The Term Sheet, together with this Amended and Restated Commitment Letter, hereinafter is referred to as the “Commitment Letter.”

 

Delta shall act as the administrative agent and the collateral agent with respect to the DIP Credit Facility.  The undersigned agrees that, without the prior written consent of the Commitment Party, (i) no additional agents or co-agents shall be appointed, or other titles conferred to any person or entity, in respect of the DIP Credit Facility, and (ii) no other lender under the DIP Credit Facility shall receive any compensation of any kind for its participation in the DIP Credit Facility.

 

Each Company agrees to pay (a) all costs and expenses of the Commitment Party and all other agents under the DIP Credit Facility associated with (i) the preparation, negotiation, execution, delivery, administration and enforcement of this Commitment Letter (including the Term Sheet) and the definitive documents relating to the DIP Credit Facility (the “Credit Facility Documentation”) and any amendment or waiver with respect thereto and (ii) the preparation, negotiation, execution and delivery of the Delta Connection Amendments  (in each case, including the fees, disbursements and other charges of counsel and financial advisors for the Commitment Party and all other agents under the DIP Credit Facility), (b) all expenses of the Commitment Party and all other agents under the DIP Credit Facility (including the fees, disbursements and other charges of counsel and financial advisors for the Lenders) in connection with the enforcement of the Credit Facility Documentation and (c) all expenses associated with collateral monitoring, collateral reviews and appraisals, diligence, environmental reviews and fees and expenses of the Commitent Party and advisors and professionals engaged by the Commitment Party and all other agents under the DIP Credit Facility.

 

  

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The Companies, jointly and severally, further agree to indemnify and hold harmless the Commitment Party, all other agents under the DIP Credit Facility, their affiliates, and their officers, directors, employees, agents and advisors (each an “Indemnified Party”) against any and all losses, claims, damages, costs, expenses (including fees, and expenses of attorneys and financial advisors) or liabilities of every kind whatsoever (collectively, the “Indemnified Obligations”) to which any of the Indemnified Parties may become subject in connection with this Commitment Letter, the DIP Credit Facility, the use or the proposed use of the proceeds thereof, the Bankruptcy Cases (solely in respect of the Commitment Party’s capacity as the Commitment Party, Administrative Agent (as defined in the Term Sheet) and/or the Lender (as defined in the Term Sheet), any other financing transaction contemplated by this Commitment Letter, any other transaction related thereto and any claim, litigation, investigation or proceeding relating to any of the foregoing and to reimburse each such Indemnified Party upon demand for any legal or other expenses incurred in connection with investigating or defending any of the foregoing, except that no Company shall be liable for any Indemnified Obligations of any Indemnified Party to the extent any of the foregoing is determined by a final and non-appealable order of a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Indemnified Party.  These Indemnified Obligations will continue notwithstanding any termination of this commitment or the Commitment Letter.

 

Each Company agrees that all information (including but not limited to projections, the “Information”) provided by or on behalf of you and your affiliates to the Commitment Party in connection with the DIP Credit Facility and the Bankruptcy Cases may be disseminated by or on behalf of the Commitment Party and made available to prospective lenders and other persons who have agreed to be bound by customary confidentiality undertakings acceptable to the Commitment Party (whether transmitted electronically by means of a website, e-mail or otherwise, or made available orally or in writing, including at prospective lender or other meetings).

 

You hereby represent, warrant and covenant (and it shall be a condition to the Commitment Party’s commitment hereunder and Delta’s agreement to perform the services described herein) that (a) all written Information, other than the projections, budgets, estimates or forward-looking statements, that has been or will be made available to the Commitment Party or any other Lender by or on behalf of you or any of your representatives is or will be, when furnished, complete and correct in all material respects and does not or will not, when furnished, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements are made, and (b) the projections, budgets, estimates and forward-looking statements that have been or will be made available to the Commitment Party by or on behalf of you or any of your representatives have been or will be prepared in good faith based upon accounting principles consistent with the historical audited financial statements of the Companies, if applicable, and upon assumptions and methods that are believed by you to be reasonable, at the time made and at the time the related projections, estimates and forward-looking statements are made available to the Commitment Party.  You agree that if at any time prior to the closing of the DIP Credit Facility, any of the representations and warranties in the preceding sentence would be incorrect if the Information was being furnished, and such representations and warranties were being made, at such time, then you will promptly supplement the Information so that such representations will be correct under those circumstances.  In providing the DIP Credit Facility, the Commitment Party will be entitled to use and rely primarily on the Information without responsibility for independent verification thereof.

 

  

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Each Company agrees that it shall not (and shall cause its affiliates not to), without the prior written consent of the Commitment Party attempt or agree to offer, issue, place, syndicate or arrange any debt securities or debt facilities for the Companies or any other obligor with respect to the DIP Credit Facility or make or authorize any announcement of any of the foregoing.

 

The obligations of the Commitment Party under this Commitment Letter are subject to, in addition to the other conditions set forth herein, and in the Term Sheet and in the definitive documentation for the DIP Credit Facility, (i) the execution and delivery of an amendment to each Delta Connection Agreement (as defined in the Term Sheet) in form and substance agreed by parties thereto (the “Delta Connection Amendments”), which Delta Connection Amendments shall be attached to the DIP motion in redacted form and such Delta Connection Amendments shall be in full force and effect, (ii) the absence, during the period from the date hereof to the closing of the DIP Credit Facility, of any change, development or event that has occurred (other than the commencement of the Bankruptcy Cases, events leading up to the commencement of the Bankruptcy Cases and matters otherwise disclosed in writing to Delta on or prior to the date hereof), which the Commitment Party shall determine has had or could reasonably be expected to have a material adverse effect on the transactions (provided, that solely the filing of an objection by any party in interest to the DIP Credit Facility, this Commitment Letter or the Amendments in the Bankruptcy Cases shall not constitute such a material change, development or event), (iii) the execution and delivery of the Credit Facility Documentation, satisfactory in form and substance to the Commitment Party on terms substantially consistent with the Term Sheet, and (iv) our not having discovered or otherwise becoming aware of information not previously disclosed to us that we believe to be materially inconsistent with the information provided to us (including pursuant to public filings) prior to the date hereof, of (x) the business, assets, properties, liabilities, operations, condition (financial or otherwise), operating results, or prospects of the Companies, taken as a whole or (y) the transactions contemplated hereby.

 

This Commitment Letter shall not be assignable by you without the prior written consent of us (and any purported assignment without such consent shall be null and void), and is intended to be solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties hereto and the Indemnified Parties.  The Commitment Party may transfer and assign its commitments hereunder, in whole or in part, to any of its affiliates or (not to be unreasonably withheld, delayed or conditioned) to any prospective lender or otherwise.  Upon such assignment, the applicable Commitment Party shall be released from the portion of its commitment hereunder that has been so transferred and assigned.

 

It is understood and agreed that this Commitment Letter shall not constitute or give rise to any obligation on the part of the Commitment Party, any other agent or lender under the DIP Credit Facility, or any of their respective affiliates to provide any financing, except as expressly provided herein.

 

You acknowledge and agree that (i) no fiduciary, advisory or agency relationship between you and the Commitment Party is intended to be or has been created in respect of any of the transactions contemplated by this Commitment Letter, irrespective of whether Delta has advised or is advising you on other matters, (ii) the Commitment Party, on the one hand, and you, on the other hand, have an arm’s-length business relationship that does not directly or indirectly give rise to, nor do you rely on, any fiduciary duty on the part of Delta, (iii) you are capable of evaluating and understanding, and you understand, and accept, the terms, risks and conditions of the transactions contemplated by this Commitment Letter, (iv) you have been advised that Delta is engaged in a broad range of transactions that may involve interests that differ from your

 

  

53

  

interests and that Delta has no obligation to disclose such interests and transactions to you by virtue of any fiduciary, advisory or agency relationship, and (v) you waive any claims you may have against the Commitment Party for breach of fiduciary duty or alleged breach of fiduciary duty and agree that Delta shall have no liability (whether direct or indirect) to you in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim on behalf of or in right of you, including your stockholders, employees or creditors.  Additionally, you acknowledge and agree that the Commitment Party is not advising you as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction.  You shall consult with your own advisors concerning such matters and shall be responsible for making your own independent investigation and appraisal of the transactions contemplated hereby, and the Commitment Party shall have no responsibility or liability to you with respect thereto.  Any review by the Commitment Party of the Companies, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Commitment Party and shall not be on behalf of you or any of your affiliates.

 

Each Company agrees that in any action arising in connection with this Commitment Letter or any transaction contemplated hereby the only damages that may be sought from the Commitment Party, all other agents and lenders under the DIP Credit Facility, or any of their affiliates or any Indemnified Party are those which are reasonably foreseeable as the result of any breach hereof.  The Commitment Party, all other agents and lenders under the DIP Credit Facility and their affiliates shall not be liable under this Commitment Letter or any Credit Facility Documentation (i) for any damages arising from the use by others of information or other materials obtained through electronic, telecommunications or other information transmission systems except to the extent such damages are found in a final, non-appealable judgment of a court of competent jurisdiction to have resulted from the willful misconduct or gross negligence of the Commitment Party, or (ii) in respect of any act, omission or event relating to the transaction contemplated hereby or thereby, on any theory of liability for any special, indirect, exemplary, consequential or punitive damages.

 

This Commitment Letter is for Companies’ confidential use only and may not be disclosed by any Company to any person other than (i) its respective employees, directors, attorneys and financial advisors (but not commercial lenders) and then only in connection with the proposed transaction and on a confidential need-to-know basis, (ii) where in the Companies’ reasonable judgment, disclosure is required by law or compelled in a judicial or administrative proceeding. including, without limitation, the Bankruptcy Court (in which case you agree to inform the Commitment Party promptly thereof), (iii) the Company may file this Commitment Letter (including the Term Sheet) with the Bankruptcy Court pursuant to a motion, in form and substance acceptable to the Commitment Party, seeking approval of the terms of the Commitment Letter (including the Term Sheet) and the DIP Credit Facility, (iv) with the Commitment Party’s prior written consent to the proposed disclosure and (v) to any official committee appointed in the Bankruptcy Cases (and their advisors) so long as you obtain from the applicable persons or entities a confidentiality agreement with respect to such information in form and substance acceptable to the Commitment Party.  The Commitment Party reserves the right to review and approve, in advance, all materials, press releases, advertisements, and disclosures that you or your affiliates prepare that contain the Commitment Party’s or any affiliate’s name or describe the Commitment Party’s financing commitment.

 

The Term Sheet is intended to be indicative of the principal terms of the DIP Credit Facility and does not purport to specify all of the terms, conditions, representations and warranties, covenants and other provisions that will be contained in the final Credit Facility Documentation; provided, that the terms of the final Credit Facility Documentation shall be

 

  

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substantially consistent with the Term Sheet and the Companies and the Lenders agree to negotiate the final Credit Facility Documentation in good faith.

 

IF THIS COMMITMENT LETTER OR ANY ACT, OMISSION OR EVENT HEREUNDER OR THEREUNDER BECOMES THE SUBJECT OF A DISPUTE, EACH OF THE UNDERSIGNED HEREBY WAIVES TRIAL BY JURY (TO THE EXTENT PERMITTED BY APPLICABLE LAW). Each Company hereby consents and agrees to the exclusive jurisdiction of (i) the Bankruptcy Court upon the commencement of the Bankruptcy Cases and, (ii) if such cases are not commenced or the Bankruptcy Court declines to exercise jurisdiction, the state or federal courts located in New York County, State of New York in any action, investigation, litigation or proceeding arising out of or relating to this Commitment Letter or any transaction relating hereto, provided that the parties acknowledge that any appeals from those courts may have to be by a court located outside of such jurisdiction.  Each Company hereby expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and hereby waives any objection which any of them may have based on lack of personal jurisdiction, improper venue or inconvenient forum.  This Commitment Letter shall be governed by and shall be construed in accordance with the laws of the State of New York applicable to contracts made and performed in that state.

 

The provisions of this letter and the Term Sheet relating to “information”, “expenses”, “confidentiality”, “indemnity”, “assignments and amendments”, “counterparts and governing law”, “venue and submission to jurisdiction” and “waiver of jury trial” shall survive the termination or expiration of this Commitment Letter and shall remain in full force and effect regardless of whether the DIP Credit Facility closes; provided that this Commitment Letter and the Term Sheet shall be superseded by the definitive Credit Facility Documentation upon the closing of the DIP Facility.

 

This Commitment Letter supersedes all prior discussions, writings, indications of interest and proposals with respect to the DIP Credit Facility previously delivered to you or your affiliates by the Commitment Party or any of its affiliates.  Please indicate your acceptance of this commitment and return a signed copy of this Commitment Letter to the Commitment Party.  This commitment and the agreements of the Commitment Party herein will expire at 11:00 p.m., New York time, on April 23, 2012, unless on or prior to such time the Commitment Party shall have received a copy of this Commitment Letter executed by you.  Notwithstanding acceptance of this Commitment Letter, the commitment and the agreements of the Commitment Party herein will automatically terminate unless definitive Credit Facility Documentation is executed on or before May 18, 2012.  Upon expiration or termination of the commitment contained herein, the Commitment Party and its affiliates shall have no liability or obligation hereunder.  Termination of this commitment shall not affect your obligations hereunder, including your obligations to pay any costs or expenses provided for herein or in any other agreements entered into between you and the Commitment Party.

 

We hereby notify you that pursuant to the requirements of the USA PATRIOT Act, Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the “PATRIOT Act”), each lender may be required to obtain, verify and record information that identifies each Company, which information includes the name, address, tax identification number and other information regarding each Company that will allow such lender to identify each Company in accordance with the PATRIOT Act.  This notice is given in accordance with the requirements of the PATRIOT Act and is effective as to each lender.

 

  

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This Amended and Restated Commitment Letter supersedes in its entirety that certain Commitment Letter, dated as of April 1, 2012, by and among the Companies and Delta.

 

[Remainder of page intentionally left blank]

  

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We look forward to working with you and the management team of Pinnacle Airlines Corp. on this transaction.

Sincerely,

DELTA AIR LINES, INC.

By: /s/ Donald T. Bornhurst

Name: Donald T. Bornhurst

Title: Vice President, Delta Connection

  

57

  

ACCEPTED AND AGREED

 PINNACLE AIRLINES CORP.

By: /s/ Brian T. Hunt

Name: Brian T. Hunt

Title: Vice President/General Counsel

PINNACLE AIRLINES, INC.

By:   /s/ Brian T. Hunt

Name: Brian T. Hunt

Title: Vice President/General Counsel

PINNACLE EAST COAST OPERATIONS INC.

By:  /s/ Brian T. Hunt

Name: Brian T. Hunt

Title: Vice President/General Counsel

MESABA AVIATION, INC.

By:  /s/ Brian T. Hunt

Name: Brian T. Hunt

Title: Vice President/General Counsel

COLGAN AIR, INC.

By: /s/ Brian T. Hunt 

Name: Brian T. Hunt

Title:Vice President/General Counsel

  

58

  

Annex A

See attached

  

59exh_101.htm

EXHIBIT 10.1

 

Execution Copy

 

 

REVOLVING CREDIT

 

AND

 

SECURITY AGREEMENT

 

AMONG

 

ENGLOBAL CORPORATION,

ENGLOBAL U.S., INC.,

ENGLOBAL INTERNATIONAL, INC.,

ENGLOBAL GOVERNMENT SERVICES, INC.

(AS BORROWERS),

VARIOUS LENDERS,

 

AND

 

PNC BANK, NATIONAL ASSOCIATION

(AS LENDER AND AS AGENT)

 

 

 

 

May 29, 2012

 

  

  

  

TABLE OF CONTENTS

 

	
TABLE OF CONTENTS

	
i

	
List of Exhibits and Schedules

	
vii

	
REVOLVING CREDIT AND SECURITY AGREEMENT

	
1

	 	 
	
I

	
DEFINITIONS.

	
1

	  	
1.1

	
Accounting Terms

	
1

	  	
1.2

	
General Terms

	
1

	  	
1.3

	
Uniform Commercial Code Terms

	
28

	  	
1.4

	
Certain Matters of Construction

	
28

	 	 	 	 
	
II

	
ADVANCES, PAYMENTS.

	
29

	  	
2.1

	
Revolving Advances.

	
29

	  	
2.2

	
Procedure for Revolving Advances Borrowing.

	
30

	  	
2.3

	
Disbursement of Advance Proceeds

	
32

	  	
2.4

	
[Reserved].

	
32

	  	
2.5

	
Maximum Advances

	
33

	  	
2.6

	
Repayment of Advances.

	
33

	  	
2.7

	
Repayment of Excess Advances

	
33

	  	
2.8

	
Statement of Account

	
33

	  	
2.9

	
Letters of Credit

	
34

	  	
2.10

	
Issuance of Letters of Credit.

	
34

	  	
2.11

	
Requirements For Issuance of Letters of Credit.

	
35

	  	
2.12

	
Disbursements, Reimbursement.

	
35

	  	
2.13

	
Repayment of Participation Advances.

	
36

	  	
2.14

	
Documentation

	
37

	  	
2.15

	
Determination to Honor Drawing Request

	
37

	  	
2.16

	
Nature of Participation and Reimbursement Obligations

	
37

	  	
2.17

	
Indemnity

	
39

	  	
2.18

	
Liability for Acts and Omissions

	
39

	  	
2.19

	
Additional Payments

	
41

	  	
2.20

	
Manner of Borrowing and Payment.

	
41

	  	
2.21

	
Mandatory Prepayments.

	
42

	  	
2.22

	
Use of Proceeds.

	
43

	  	
2.23

	
Defaulting Lender.

	
43

	 	 	 	 
	
III

	
INTEREST AND FEES.

	
44

	  	
3.1

	
Interest

	
44

	  	
3.2

	
Letter of Credit Fees

	
45

	  	
3.3

	
[Reserved].

	
46

	  	
3.4

	
Fee Letter

	
46

	  	
3.5

	
Computation of Interest and Fees

	
46

	  	
3.6

	
Maximum Charges

	
46

	  	
3.7

	
Increased Costs

	
47

 

  

i

  

 

	  	
3.8

	
Basis For Determining Interest Rate Inadequate or Unfair

	
47

	  	
3.9

	
Capital Adequacy.

	
48

	  	
3.10

	
Gross Up for Taxes

	
49

	  	
3.11

	
Withholding Tax Exemption.

	
49

	  	
3.12

	
Communications; Substitution Lender

	
50

	 	 	 	 
	
IV

	
COLLATERAL:  GENERAL TERMS

	
50

	  	
4.1

	
Security Interest in the Collateral

	
50

	  	
4.2

	
Perfection of Security Interest

	
51

	  	
4.3

	
Disposition of Assets

	
51

	  	
4.4

	
Preservation of Collateral

	
51

	  	
4.5

	
Ownership of Collateral.

	
52

	  	
4.6

	
Defense of Agent's and Lenders' Interests

	
52

	  	
4.7

	
Books and Records

	
53

	  	
4.8

	
Financial Disclosure

	
53

	  	
4.9

	
Compliance with Laws

	
53

	  	
4.10

	
Inspection of Premises

	
54

	  	
4.11

	
Insurance

	
54

	  	
4.12

	
Failure to Pay Insurance

	
55

	  	
4.13

	
Payment of Taxes

	
55

	  	
4.14

	
Payment of Leasehold Obligations

	
55

	  	
4.15

	
Receivables.

	
55

	  	
4.16

	
Inventory

	
58

	  	
4.17

	
Maintenance of Equipment

	
58

	  	
4.18

	
Exculpation of Liability

	
58

	  	
4.19

	
Environmental Matters.

	
59

	  	
4.20

	
Financing Statements

	
61

	 	 	 	 
	
V

	
REPRESENTATIONS AND WARRANTIES.

	
61

	  	
5.1

	
Authority

	
61

	  	
5.2

	
Formation and Qualification.

	
61

	  	
5.3

	
Survival of Representations and Warranties

	
62

	  	
5.4

	
Tax Returns

	
62

	  	
5.5

	
Financial Statements.

	
62

	  	
5.6

	
Entity Name

	
63

	  	
5.7

	
O.S.H.A. and Environmental Compliance.

	
63

	  	
5.8

	
Solvency; No Litigation, Violation, Indebtedness or Default.

	
64

	  	
5.9

	
Patents, Trademarks, Copyrights and Licenses

	
65

	  	
5.10

	
Licenses and Permits

	
66

	  	
5.11

	
Default of Indebtedness

	
66

	  	
5.12

	
No Default

	
66

	  	
5.13

	
No Burdensome Restrictions

	
66

	  	
5.14

	
No Labor Disputes.

	
66

	  	
5.15

	
Margin Regulations.

	
66

	  	
5.16

	
Investment Company Act.

	
66

	  	
5.17

	
Disclosure

	
66

	  	
5.18

	
Swaps

	
67

 

  

ii

  

 

	  	
5.19

	
Conflicting Agreements

	
67

	  	
5.20

	
Application of Certain Laws and Regulations

	
67

	  	
5.21

	
Business and Property of Borrowers

	
67

	  	
5.22

	
Section 20 Subsidiaries

	
67

	  	
5.23

	
Anti-Terrorism Laws.

	
67

	  	
5.24

	
Trading with the Enemy

	
68

	  	
5.25

	
Inactive Subsidiary

	
68

	  	
5.26

	
Material Contracts

	
68

	 	 	 	 
	
VI

	
AFFIRMATIVE COVENANTS.

	
68

	  	
6.1

	
Payment of Fees

	
68

	  	
6.2

	
Conduct of Business and Maintenance of Existence and Assets

	
69

	  	
6.3

	
Violations

	
69

	  	
6.4

	
Government Receivables

	
69

	  	
6.5

	
Financial Covenants.

	
69

	  	
6.6

	
Execution of Supplemental Instruments

	
70

	  	
6.7

	
Payment of Indebtedness

	
70

	  	
6.8

	
Standards of Financial Statements

	
70

	  	
6.9

	
[Reserved].

	
70

	  	
6.10

	
Nature of Business

	
71

	  	
6.11

	
Subsidiaries

	
71

	  	
6.12

	
Post-Closing Obligations

	
71

	 	 	 	 
	
VII

	
NEGATIVE COVENANTS.

	
71

	  	
7.1

	
Merger, Consolidation, Acquisition and Sale of Assets.

	
71

	  	
7.2

	
Creation of Liens

	
72

	  	
7.3

	
Guarantees

	
72

	  	
7.4

	
Investments

	
72

	  	
7.5

	
Loans

	
72

	  	
7.6

	
Capital Expenditures

	
72

	  	
7.7

	
Dividends

	
72

	  	
7.8

	
Indebtedness

	
73

	  	
7.9

	
Nature of Business

	
73

	  	
7.10

	
Transactions with Affiliates

	
73

	  	
7.11

	
[Reserved].

	
73

	  	
7.12

	
Subsidiaries.

	
73

	  	
7.13

	
Fiscal Year and Accounting Changes

	
74

	  	
7.14

	
Pledge of Credit

	
74

	  	
7.15

	
Amendment of Organizational Documents

	
74

	  	
7.16

	
Material Contracts

	
74

	  	
7.17

	
Compliance with ERISA

	
74

	  	
7.18

	
Prepayment of Indebtedness

	
75

	  	
7.19

	
Anti-Terrorism Laws

	
75

	  	
7.20

	
Membership/Partnership Interests

	
75

	  	
7.21

	
Trading with the Enemy Act

	
75

	  	
7.22

	
Inactive Subsidiaries

	
75

 

  

iii

  

 

	
VIII

	
CONDITIONS PRECEDENT.

	
75

	  	
8.1

	
Conditions to Initial Advances

	
75

	  	
8.2

	
Conditions to Each Advance

	
79

	 	 	 	 
	
IX

	
INFORMATION AS TO CREDIT PARTIES.

	
80

	  	
9.1

	
Disclosure of Material Matters

	
80

	  	
9.2

	
Schedules.

	
80

	  	
9.3

	
Environmental Reports

	
81

	  	
9.4

	
Litigation

	
81

	  	
9.5

	
Material Occurrences

	
81

	  	
9.6

	
Government Receivables

	
81

	  	
9.7

	
Annual Financial Statements

	
81

	  	
9.8

	
Quarterly Financial Statements

	
82

	  	
9.9

	
Monthly Financial Statements

	
82

	  	
9.10

	
Other Reports

	
82

	  	
9.11

	
Additional Information

	
82

	  	
9.12

	
Projected Operating Budget

	
82

	  	
9.13

	
Variances From Operating Budget

	
83

	  	
9.14

	
Notice of Suits, Adverse Events

	
83

	  	
9.15

	
ERISA Notices and Requests

	
83

	  	
9.16

	
Additional Documents

	
84

	  	
9.17

	
Appraisals and Field Examinations

	
84

	 	 	 	 
	
X

	
EVENTS OF DEFAULT.

	
84

	  	
10.1

	
Nonpayment

	
84

	  	
10.2

	
Breach of Representation

	
84

	  	
10.3

	
Financial Information

	
84

	  	
10.4

	
Judicial Actions

	
84

	  	
10.5

	
Noncompliance

	
84

	  	
10.6

	
Judgments.

	
85

	  	
10.7

	
Bankruptcy.

	
85

	  	
10.8

	
Inability to Pay

	
85

	  	
10.9

	
Affiliate Bankruptcy

	
85

	  	
10.10

	
Material Adverse Effect

	
85

	  	
10.11

	
Lien Priority

	
85

	  	
10.12

	
Enforceability of Intercreditor Agreement

	
85

	  	
10.13

	
Cross Default

	
85

	  	
10.14

	
Breach of Guaranty

	
86

	  	
10.15

	
Change of Control

	
86

	  	
10.16

	
Invalidity

	
86

	  	
10.17

	
Licenses

	
86

	  	
10.18

	
Seizures

	
86

	  	
10.19

	
Pension Plans

	
86

	  	
10.20

	
Caspian Contract

	
86

	 	 	 	 
	
XI

	
LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.

	
86

	  	
11.1

	
Rights and Remedies.

	
87

 

  

iv

  

 

	  	
11.2

	
Agent's Discretion

	
88

	  	
11.3

	
Setoff

	
88

	  	
11.4

	
Rights and Remedies not Exclusive

	
88

	  	
11.5

	
Allocation of Payments After Event of Default

	
88

	 	 	 	 
	
XII

	
WAIVERS AND JUDICIAL PROCEEDINGS.

	
89

	  	
12.1

	
Waiver of Notice

	
89

	  	
12.2

	
Delay

	
90

	  	
12.3

	
Jury Waiver

	
90

	 	 	 	 
	
XIII

	
EFFECTIVE DATE AND TERMINATION.

	
90

	  	
13.1

	
Term

	
90

	  	
13.2

	
Termination

	
90

	 	 	 	 
	
XIV

	
REGARDING AGENT.

	
91

	  	
14.1

	
Appointment

	
91

	  	
14.2

	
Nature of Duties

	
91

	  	
14.3

	
Lack of Reliance on Agent and Resignation

	
91

	  	
14.4

	
Certain Rights of Agent

	
92

	  	
14.5

	
Reliance

	
92

	  	
14.6

	
Notice of Default

	
92

	  	
14.7

	
Indemnification

	
93

	  	
14.8

	
Agent in its Individual Capacity

	
93

	  	
14.9

	
Delivery of Documents

	
93

	  	
14.10

	
Borrowers' Undertaking to Agent

	
93

	  	
14.11

	
No Reliance on Agent's Customer Identification Program

	
93

	  	
14.12

	
Other Agreements

	
94

	 	 	 	 
	
XV

	
BORROWING AGENCY PROVISION AND COMMON ENTERPRISE.

	
94

	  	
15.1

	
Borrowing Agency Provisions.

	
94

	  	
15.2

	
Waiver of Subrogation

	
95

	  	
15.3

	
Common Enterprise

	
95

	 	 	 	 
	
XVI

	
MISCELLANEOUS

	
95

	  	
16.1

	
Governing Law

	
95

	  	
16.2

	
Entire Understanding.

	
96

	  	
16.3

	
Successors and Assigns; Participations; New Lenders

	
98

	  	
16.4

	
Application of Payments

	
100

	  	
16.5

	
Indemnity

	
100

	  	
16.6

	
Notice

	
101

	  	
16.7

	
Survival

	
103

	  	
16.8

	
Severability

	
103

	  	
16.9

	
Expenses

	
103

	  	
16.10

	
Injunctive Relief

	
104

	  	
16.11

	
Consequential Damages

	
104

	  	
16.12

	
Captions

	
104

	  	
16.13

	
Counterparts; Facsimile Signatures

	
104

 

  

v

  

 

	  	
16.14

	
Construction

	
104

	  	
16.15

	
Confidentiality; Sharing Information

	
104

	  	
16.16

	
Publicity

	
105

	  	
16.17

	
Certifications From Banks and Participants; US PATRIOT Act

	
105

	  	
16.18

	
No Advisory or Fiduciary Relationship.

	
105

	  	
16.19

	
Non-Applicability of Chapter 346

	
106

	  	
16.20

	
BORROWERS' WAIVER OF RIGHTS UNDER TEXAS DECEPTIVE TRADE PRACTICES ACT

	
106

  

vi

  

LIST OF EXHIBITS AND SCHEDULES

 

	
Exhibits

	  
	  	  
	
Exhibit 1.2(a)

	
Borrowing Base Certificate

	
Exhibit 1.2(b)

	
Compliance Certificate

	
Exhibit 2.1(a)

	
Revolving Credit Note

	
Exhibit 5.5(b)

	
Financial Projections

	
Exhibit 8.1(1)

	
Financial Condition Certificate

	
Exhibit 16.3

	
Commitment Transfer Supplement

	  	  
	  	  
	
Schedules

	  
	  	  
	
Schedule 1.1

	
Lenders’ Commitments

	
Schedule 1.2

	
Permitted Encumbrances

	
Schedule 1.2(a)

	
Transaction Fees

	
Schedule 4.5

	
Equipment and Inventory Locations

	
Schedule 4.15(h)

	
Deposit and Investment Accounts

	
Schedule 4.19

	
Real Property

	
Schedule 5.1

	
Consents

	
Schedule 5.2(a)

	
States of Qualification and Good Standing

	
Schedule 5.2(b)

	
Subsidiaries

	
Schedule 5.2(c)

	
Accrued and Unpaid Dividends

	
Schedule 5.4

	
Federal Tax Identification Number

	
Schedule 5.6

	
Prior Names

	
Schedule 5.8(b)

	
Litigation

	
Schedule 5.8(d)

	
Plans

	
Schedule 5.9

	
Intellectual Property, Source Code Escrow Agreements

	
Schedule 5.10

	
Licenses and Permits

	
Schedule 5.13

	
Material Contracts

	
Schedule 5.14

	
Labor Disputes

	
Schedule 5.21

	
Business of Borrowers

	
Schedule 6.13

	
Post-Closing Obligations

	
Schedule 7.3

	
Guarantees

	
Schedule 7.12(b)

	
Subsidiaries

  

vii

  

REVOLVING CREDIT

AND

SECURITY AGREEMENT

 

Revolving Credit and Security Agreement dated as of May 29, 2012 among ENGLOBAL CORPORATION, a corporation organized under the laws of the State of Nevada (“Holdings”), ENGLOBAL U.S., INC., a corporation organized under the laws of the State of Texas (“ENGlobal US”), ENGLOBAL INTERNATIONAL, INC., a corporation organized under the BVI Business Companies Act of 2004 (“ENGlobal International”), ENGLOBAL GOVERNMENT SERVICES, INC., a corporation organized under the laws of the State of Texas (“ENGlobal Government”; and together with Holdings, ENGlobal US and ENGlobal International, individually, each a “Borrower” and jointly and severally, “Borrowers”), the financial institutions which are now or which hereafter become a party hereto (collectively, the “Lenders” and individually a “Lender”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as agent for itself and as agent for the other Lenders (PNC, together with its successors and assigns in such capacity, “Agent”).

 

IN CONSIDERATION of the mutual covenants and undertakings herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrowers, Lenders and Agent hereby agree as follows:

 

I DEFINITIONS.

 

1.1 Accounting Terms.  As used in this Agreement, the Other Documents or any certificate, report or other document made or delivered pursuant to this Agreement, accounting terms not defined in Section 1.2 or elsewhere in this Agreement and accounting terms partly defined in Section 1.2 to the extent not defined, shall have the respective meanings given to them under GAAP; provided, however, whenever such accounting terms are used for the purposes of determining compliance with financial covenants in this Agreement, such accounting terms shall be defined in accordance with GAAP as consistently applied in preparation of the audited financial statements of Borrowers for the fiscal year ended December 31, 2011.

 

1.2 General Terms.  For purposes of this Agreement the following terms shall have the following meanings set forth below:

 

“Accountants” shall have the meaning set forth in Section 9.7 hereof.

 

“Adjustment Date” shall have the meaning provided in the definition of “Applicable Margin”.

 

“Advance Rates” shall have the meaning set forth in Section 2.1 hereof.

 

“Advances” shall mean collectively, the Revolving Advances and Letters of Credit.

 

“Affiliate” of any Person shall mean (a) any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with such Person, or (b) any Person who is a director, managing member, general partner or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person described in clause (a) above.  For purposes of 

 

  

1

  

this definition, control of a Person shall mean the power, direct or indirect, (x) to vote (A) ten percent (10%) or more of the Equity Interests having ordinary voting power for the election of directors of such Person or other Persons performing similar functions for any such Person, or (y) to direct or cause the direction of the management and policies of such Person whether by ownership of Equity Interests, contract or otherwise.

 

“Agent” shall have the meaning set forth in the preamble to this Agreement and shall include its successors and assigns.

 

“Agreement” shall mean this Revolving Credit and Security Agreement, as the same may be amended, amended and restated, extended, supplemented and/or otherwise modified from time to time.

 

“Alternate Base Rate” shall mean, for any day, a rate per annum equal to the higher of (i) the Base Rate in effect on such day, (ii) the Federal Funds Open Rate in effect on such day plus 1/2 of 1% and (iii) the Daily LIBOR Rate plus 1%.  For purposes of this definition, “Daily LIBOR Rate” shall mean, for any day, the rate per annum determined by Agent by dividing (x) the Published Rate by (y) a number equal to 1.00 minus the Reserve Percentage.  For the purposes of this definition, “Published Rate” shall mean the rate of interest published each Business Day in The Wall Street Journal “Money Rates” listing under the caption “London Interbank Offered Rates” for a one month period (or, if no such rate is published therein for any reason, then the Published Rate shall be the Eurodollar Rate for a one month period as published in another publication determined by Agent).

 

“Anti-Terrorism Laws” shall mean any Applicable Laws relating to terrorism or money laundering, including Executive Order No. 13224, the USA PATRIOT Act, the Applicable Laws comprising or implementing the Bank Secrecy Act, and the Applicable Laws administered by the United States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing Applicable Laws may from time to time be amended, renewed, extended, or replaced).

 

“Applicable Law” shall mean all laws, rules and regulations applicable to the Person, conduct, transaction, covenant, Other Document or contract in question, including all applicable common law and equitable principles; all provisions of all applicable state, federal and foreign constitutions, statutes, rules, regulations, treaties, directives and orders of any Governmental Body and all orders, judgments and decrees of all courts and arbitrators.

 

“Applicable Margin” shall mean, for the period commencing on the Closing Date through and including the date of the first adjustment described in the immediately succeeding sentence, the applicable percentage specified below:

 

	
APPLICABLE MARGINS FOR

DOMESTIC RATE LOANS

	
APPLICABLE MARGINS FOR

EURODOLLAR RATE LOANS

	
1.75%

	
2.75%

The Applicable Margin will be adjusted (up or down) prospectively on a quarterly basis as determined by Borrowers’ consolidated financial performance, commencing with the first day of the first calendar month that occurs after receipt by Agent of unaudited financial statements of Borrowers on a Consolidated Basis for the two (2) fiscal quarter period ending December 31, 

 

  

2

  

2012 and the related Compliance Certificate, and thereafter upon receipt of the financial statements of Borrowers on a Consolidated Basis required under Sections 9.7 and 9.8 for the previous fiscal quarter periods and the related Compliance Certificates (each day of such delivery, an “Adjustment Date”), the Applicable Margin shall be adjusted on a prospective basis, for each calendar month commencing after the date of the delivery to Agent of the financial statements of Borrowers evidencing the need for adjustment, if necessary, to the applicable percent per annum set forth in the pricing table set forth below corresponding to the Fixed Charge Coverage Ratio for the period specified in Section 6.5(b) ending on the last day of the most recently completed fiscal quarter prior to the applicable Adjustment Date:

 

	
FIXED CHARGE

COVERAGE RATIO

	
APPLICABLE MARGINS FOR

DOMESTIC RATE LOANS

	
APPLICABLE MARGINS FOR

EURODOLLAR RATE LOANS

	  	  	  
	
Less than 1.10 to 1.00

	
1.75%

	
2.75%

	
Greater than or equal to 1.10 to 1.00 but less than 1.25 to 1.00

	
1.50%

	
2.50%

	
Greater than or equal to 1.25 to 1.00

	
1.25%

	
2.25%

 

If Borrowers shall fail to deliver the financial statements, certificates and/or other information required under Sections 9.7 or 9.8 by the dates required pursuant to such sections (subject to any cure periods), each Applicable Margin shall be conclusively presumed to equal the highest Applicable Margin specified in the pricing table set forth above until the date of delivery of such financial statements, certificates and/or other information, at which time the rate will be adjusted based upon the Fixed Charge Coverage Ratio reflected in such statements.

 

If, as a result of any restatement of, or other adjustment to, the financial statements of Borrowers on a Consolidated Basis or for any other reason, Agent determines that (a) the Fixed Charge Coverage Ratio as previously calculated as of any applicable date was inaccurate, and (b) a proper calculation of the Fixed Charge Coverage Ratio would have resulted in different pricing for any period, then (i) if the proper calculation of the Fixed Charge Coverage Ratio would have resulted in higher pricing for such period, Borrowers shall automatically and retroactively be delegated to pay to Agent, promptly upon demand by Agent, an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period; and (ii) if the proper calculation of the Fixed Charge Coverage Ratio would have resulted in lower pricing for such period, Lenders shall have no obligation to repay interest or fees to Borrowers; provided, that, if as a result of any restatement or other event a proper calculation of the Fixed Charge Coverage Ratio would have resulted in higher pricing for one or more periods and lower pricing for one or more other periods (due to the shifting of income or expenses from one period to another period or any similar reason), then the amount payable by Borrowers pursuant to clause (i) above shall be based upon the excess, if any, of the amount of interest and fees that should have been paid for all applicable periods over the amounts of interest and fees actually paid for such periods.

 

  

3

  

“Approved Fixed Price Contracts” shall have the meaning provided in the definition of “Eligible Costs in Excess of Billings”.

 

“Assignment of Claims Act” shall have the meaning provided in the definition of “Eligible Government Receivables”.

 

“Authority” shall have the meaning set forth in Section 4.19(d) hereof.

 

“Authorized Officer” shall mean the President, Executive Vice President, Treasurer, Chief Executive Officer, Chief Financial Officer or other authorized officer approved by Agent.

 

“Average Excess Availability” shall mean, for any calendar month, the sum of Excess Availability for each day of such calendar month, divided by the number of days in such calendar month.

 

“Base Rate” shall mean the base commercial lending rate of PNC as publicly announced to be in effect from time to time, such rate to be adjusted automatically, without notice, on the effective date of any change in such rate.  This rate of interest is determined from time to time by PNC as a means of pricing some loans to its customers and is neither tied to any external rate of interest or index nor does it necessarily reflect the lowest rate of interest actually charged by PNC to any particular class or category of customers of PNC.

 

“Benefited Lender” shall have the meaning set forth in Section 2.20(d) hereof.

 

“Blocked Accounts” shall have the meaning set forth in Section 4.15(h) hereof.

 

“Blocked Account Bank” shall have the meaning set forth in Section 4.15(h) hereof.

 

“Blocked Person” shall have the meaning set forth in Section 5.23(b) hereof.

 

“Borrower” or “Borrowers” shall have the meaning set forth in the introductory paragraph to this Agreement and shall extend to all permitted successors and assigns of such Person.

 

“Borrowers on a Consolidated Basis” shall mean the consolidation in accordance with GAAP of the accounts or other items of the Borrowers and their respective Subsidiaries.

 

“Borrowing Agent” shall mean Holdings.

 

“Borrowers’ Account” shall have the meaning set forth in Section 2.8 hereof.

 

“Borrowing Base Certificate” shall mean a certificate in substantially the form of Exhibit 1.2(a) and in detail satisfactory to Agent in its sole discretion, duly executed by an Authorized Officer of Borrowing Agent and delivered to Agent, appropriately completed, by which such officer shall certify to Agent the Formula Amount, Undrawn Availability, and Borrowers’ Average Excess Availability, and calculations thereof as of the date of such certificate.

 

  

4

  

“Business Day” shall mean any day other than Saturday or Sunday or a legal holiday on which commercial banks are authorized or required by law to be closed for business in East Brunswick, New Jersey and, if the applicable Business Day relates to any Eurodollar Rate Loans, such day must also be a day on which dealings are carried on in the London interbank market.

 

“Capital Expenditures” shall mean expenditures made or 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 year, including the total principal portion of Capitalized Lease Obligations, which, in accordance with GAAP, would be classified as capital expenditures.

 

“Capitalized Lease Obligation” shall mean any Indebtedness of any Borrower or any of its Subsidiaries represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

 

“Caspian Contracts” shall mean (i) that certain Agreement by and among ENGlobal U.S., Inc. and Closed Joint Stock Company Caspian Pipeline Consortium - R, a company organized pursuant to the laws of the Russian Federation dated May 16, 2011, as amended from time to time as permitted by this Agreement and (ii) that certain Agreement by and among ENGlobal U.S., Inc. and Joint Stock Company Caspian Pipeline Consortium – K, a company organized pursuant to the laws of the Republic of Kazakhstan dated May 16, 2011.

 

“CERCLA” shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. §§9601 et seq.

 

“Change of Control” shall mean

 

(a) any Borrower shall fail to employ or engage a Chief Executive Officer acceptable to Agent in its Permitted Discretion for a period in excess of ninety (90) days without the engagement of a replacement Chief Executive Officer acceptable to Agent in its Permitted Discretion;

 

(b) any person or group of persons (within the meaning of the Securities Exchange Act of 1934) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934) (other than the owners of Equity Interests of Holdings on the Closing Date) of fifty percent (50%) or more of the Equity Interests of any Borrower having the right to vote for the election of directors of any Borrower under ordinary circumstances; or

 

(c) during any period of twelve (12) consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of any Borrower (together with any new directors whose election by the board of directors of any Borrower or whose nomination for election by the stockholders of any Borrower was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office.

 

  

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“Charges” shall mean all taxes, charges, fees, imposts, levies or other assessments, including all net income, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation and property taxes, custom duties, fees, assessments, liens, claims and charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts, imposed by any taxing or other authority, domestic or foreign (including the Pension Benefit Guaranty Corporation or any environmental agency or superfund), upon the Collateral, any Borrower or, where applicable, any of its Affiliates.

 

“CIP Regulations” shall have the meaning set forth in Section 14.11 hereof.

 

“Closing Date” shall have the meaning set forth in Section 8.1 hereof.

 

“Code” shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

 

“Collateral” shall mean and include, all personal property assets of Borrowers, including, without limitation:

 

(a) all Receivables;

 

(b) all Equipment;

 

(c) all General Intangibles;

 

(d) all Inventory;

 

(e) all Investment Property;

 

(f) all Subsidiary Stock;

 

(g) all of each Borrower’s right, title and interest in and to, whether now owned or hereafter acquired and wherever located, (i) its respective goods and other property including, but not limited to, all merchandise returned or rejected by Customers, relating to or securing any of the Receivables; (ii) all of each Borrower’s rights as a consignor, a consignee, an unpaid vendor, mechanic, artisan, or other lienor, including stoppage in transit, setoff, detinue, replevin, reclamation and repurchase; (iii) all additional amounts due to any Borrower from any Customer relating to the Receivables; (iv) other property, including warranty claims, relating to any goods securing the Obligations; (v) all of each Borrower’s contract rights, rights of payment which have been earned under a contract right, instruments (including promissory notes), documents, chattel paper (including electronic chattel paper), warehouse receipts, deposit accounts, letters of credit and money; (vi) all commercial tort claims (whether now existing or hereafter arising); (vii) if and when obtained by a Borrower, all real and personal property of third parties in which any Borrower has been granted a lien or security interest as security for the payment or enforcement of Receivables; (viii) all letter of credit rights (whether or not the respective letter of credit is evidenced by a writing); (ix) all supporting obligations; and (x) any 

 

  

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other goods, personal property or real property now owned or hereafter acquired in which a Borrower has expressly granted a security interest or may in the future grant a security interest to Agent (in its capacity as such) hereunder, or in any amendment or supplement hereto or thereto, or under any other agreement between Agent (in its capacity as such) and any Borrower;

 

(h) all of each Borrower’s ledger sheets, ledger cards, files, correspondence, records, books of account, business papers, computers, computer software (owned by any Borrower or in which it has an interest), computer programs, tapes, disks and documents relating to (a), (b), (c), (d), (e), (f), or (g) of this Paragraph; and

 

(i) all proceeds and products of (a), (b), (c), (d), (e), (f), (g), and (h) in whatever form, including, but not limited to:  cash, deposit accounts (whether or not comprised solely of proceeds), certificates of deposit, insurance proceeds (including hazard, flood and credit insurance), negotiable instruments and other instruments for the payment of money, chattel paper, security agreements, documents, eminent domain proceeds, condemnation proceeds and tort claim proceeds;

 

provided, that, notwithstanding the foregoing, the Collateral shall not include any (i) General Intangible, permit, license or other rights under contracts instruments or other documents if (but only to the extent that) the grant of a security interest therein would constitute a violation of a valid and enforceable restriction in favor of a third party (except to the extent such prohibition is unenforceable pursuant to the provisions of Article 9 of the Uniform Commercial Code), unless and until any required consents shall have been obtained, (ii) equipment owned by any Borrower that is subject to a purchase money lien or a capital lease obligation if (but only to the extent that and only for so long as such purchase money Indebtedness or capital lease restricts the granting of a Lien therein to Agent) the grant of a security interest therein would constitute a violation of a valid and enforceable restriction in favor of a third party, unless any required consents shall have been obtained, or (iii) monies, checks, securities or other items on deposit or otherwise held in deposit accounts or trust accounts specifically and exclusively used for payroll, payroll taxes, deferred compensation and other employee wage and benefit payments to or for the direct benefit of such Borrower’s employees (collectively, the “Excluded Property”); provided, that, notwithstanding any of the foregoing, the term “Collateral” shall include any and all proceeds arising from such Excluded Property to the extent that the assignment or encumbering of such proceeds is not subject to the same or similar prohibitions or restrictions.

 

“Commitment Percentage” of any Lender shall mean the percentage set forth below such Lender’s name Schedule 1.1  hereto, as same may be adjusted upon any assignment by a Lender pursuant to Section 16.3(c) or (d) hereof.

 

“Commitment Transfer Supplement” shall mean a document in substantially the form of Exhibit 16.3 hereto, properly completed and otherwise in form and substance satisfactory to Agent by which the Purchasing Lender purchases and assumes a portion of the obligation of Lenders to make Advances under this Agreement.

 

“Compliance Certificate” shall mean a compliance certificate in substantially the form of Exhibit 1.2(b) hereto and in detail satisfactory to Agent in its sole discretion, to be signed by an Authorized Officer of Borrowing Agent, which shall state that, among other things, based on an 

 

  

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examination sufficient to permit such officer to make an informed statement, no Default or Event of Default exists, or if such is not the case, specifying such Default or Event of Default, its nature, when it occurred, whether it is continuing and the steps being taken by Borrowers with respect to such default and, such certificate shall have appended thereto calculations which set forth Borrowers’ compliance with the requirements or restrictions imposed by Sections 6.5, 7.4, 7.5, 7.6, 7.7, 7.8, and 7.10 hereof.

 

“Consents” shall mean all filings and all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Bodies and other third parties, domestic or foreign, necessary to carry on any Borrower’s business or necessary (including to avoid a conflict or breach under any agreement, instrument, other document, license, permit or other authorization) for the execution, delivery or performance of this Agreement, the Other Documents, including any Consents required under all Applicable Laws.

 

“Consigned Inventory” shall mean Inventory of any Borrower that is in the possession of another Person on a consignment, sale or return, or other basis that does not constitute a final sale and acceptance of such Inventory.

 

“Controlled Group” shall mean, at any time, each Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with any Borrower, are treated as a single employer under Section 414 of the Code.

 

“Credit Party” shall mean, at each relevant time of determination, (i) each Borrower, (ii) each Guarantor, and (iii) any other Person that is now or hereafter becomes a party to this Agreement as a “Borrower” or party to any Other Document as a “Guarantor”; and “Credit Parties” means collectively all such Persons.

 

“Customer” shall mean and include the account debtor with respect to any Receivable and/or the prospective purchaser of goods, services or both with respect to any contract or contract right, and/or any party who enters into any contract or other arrangement with any Borrower, pursuant to which such Borrower is to deliver any personal property or perform any services.

 

“Customs” shall have the meaning set forth in Section 2.11(b) hereof.

 

“Default” shall mean an event, circumstance or condition which, with the giving of notice or passage of time or both, would constitute an Event of Default.

 

“Default Rate” shall have the meaning set forth in Section 3.1 hereof.

 

“Defaulting Lender” shall have the meaning set forth in Section 2.23(a) hereof.

 

“Depository Accounts” shall have the meaning set forth in Section 4.15(h) hereof.

 

“Designated Lender” shall have the meaning set forth in Section 16.2(b) hereof.

 

  

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“Dodd-Frank Act” shall mean the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, H.R. 4173) signed into law on July 21, 2010, as amended from time to time.

 

“Dollar” and the sign “$” shall mean lawful money of the United States of America.

 

“Domestic Rate Loan” shall mean any Advance that bears interest based upon the Alternate Base Rate.

 

“Drawing Date” shall have the meaning set forth in Section 2.12(b) hereof.

 

“Earnings Before Interest and Taxes” shall mean for any period the sum of (i) net income (or loss) of Borrowers on a Consolidated Basis for such period (excluding extraordinary and non-recurring gains and losses), plus (ii) all interest expense of Borrowers on a Consolidated Basis for such period, plus (iii) all charges against income of Borrowers on a Consolidated Basis for such period for federal, state and local taxes.

 

“EBITDA” shall mean for any period the sum of (i) Earnings Before Interest and Taxes for such period, plus (ii) depreciation expenses for such period, plus (iii) amortization expenses for such period, (iv) plus (a) all non-cash charges or losses including those resulting from application of FASB 133 and 143, minus (b) all non-cash income resulting from application of FASB 133 and 143.

 

“Eligible CIEB Advance Rate” shall have the meaning set forth in Section 2.1(a)(y)(v) hereof.

 

“Eligible Costs in Excess of Billings” shall mean an amount equal to the positive difference between (x) the aggregate amount of all costs and expenses actually incurred in connection with any Borrower’s performance of its obligations pursuant to any fixed price contract or agreement (other than any Caspian Contracts), which shall be (i) subject to Agent’s first priority perfected security interest and no other Lien (other than any Permitted Encumbrances) and (ii) otherwise in form and substance satisfactory to Agent in its Permitted Discretion (the “Approved Fixed Price Contracts”) less (y) the aggregate amount of annuals actually billed under the Approved Fixed Price Contracts, as evidenced by documentation satisfactory to Agent in its Permitted Discretion, net of the aggregate or revenue recognized and amounts billed for such costs and expenses under the Approved Fixed Price Contracts in excess of the aggregate amount of all costs and expenses incurred in connection with any Borrower’s performance of its obligations pursuant the Approved Fixed Price Contracts.

 

“Eligible Extended Term Receivables” shall mean with respect to any Borrower, each Receivable of such Borrower arising in the Ordinary Course of Business which satisfies the criteria set forth in the definition of “Eligible Receivables” other than clause (c) thereof.  A Receivable shall not be deemed an Eligible Extended Term Receivable unless such Receivable is subject to Agent’s first priority perfected security interest and no other Lien (other than Permitted Encumbrances), and is evidenced by documentation satisfactory to Agent in its Permitted Discretion and has been verified to Agent’s reasonable satisfaction pursuant to field examination and other verifications from time to time performed on behalf of Agent pursuant to 

 

  

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the terms of this Agreement.  In addition, no Receivable shall be an Eligible Extended Term Receivable:

 

(a) it is due or unpaid more than (i) sixty (60) days after the original due date or (ii) one hundred twenty (120) days after the original invoice date; or

 

(b) if fifty percent (50%) or more of the Receivables from such Customer are not deemed Eligible Receivables, Eligible Unbilled Receivables or Eligible Extended Term Receivables hereunder.  Such percentage may, in Agent’s Permitted Discretion, be increased or decreased from time to time.

 

“Eligible Extended Term Receivables Advance Rate” shall have the meaning set forth in Section 2.1(a)(y)(ii) hereof.

 

“Eligible Government Receivables” shall mean with respect to any Borrower, each Receivable of such Borrower arising in the Ordinary Course of Business which satisfies the criteria set forth in the definition of “Eligible Receivables” other than clause (j) thereof.  A Receivable shall not be deemed an Eligible Government Receivable unless such Receivable is subject to Agent’s first priority perfected security interest and no other Lien (other than Permitted Encumbrances), and is evidenced by documentation satisfactory to Agent in its Permitted Discretion and has been verified to Agent’s reasonable satisfaction pursuant to field examination and other verifications from time to time performed on behalf of Agent pursuant to the terms of this Agreement.  In addition, no Receivable shall be an Eligible Government Receivable:

 

(a) unless the applicable Borrower assigns its right to payment of such Receivable to Agent pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.) (“Assignment of Claims Act”) or any similar state statute or regulation, and has otherwise complied with other applicable statutes or ordinances, other than with respect the first $500,000 of Receivables owed by all such Government Customers, unless any receivable with respect the first $500,000 of Receivables is greater than $250,000, in which case Borrower shall assign its right of payment of such receivables in excess of $250,000 to Agent pursuant to the Assignment of Claims Act; or

 

(b) if fifty percent (50%) or more of the Receivables from such Customer are not deemed Eligible Unbilled Receivables or Eligible Government Receivables hereunder.  Such percentage may, in Agent’s Permitted Discretion, be increased or decreased from time to time.

 

“Eligible Government Receivables Advance Rate” shall have the meaning set forth in Section 2.1(a)(y)(iii) hereof.

 

“Eligible Receivables” shall mean and include with respect to Borrower, each Receivable of Borrower arising in the Ordinary Course of Business and which Agent, in its Permitted Discretion, shall deem to be an Eligible Receivable, based on such considerations as Agent may from time to time deem appropriate.  A Receivable shall not be deemed eligible unless such Receivable is subject to Agent’s first priority perfected security interest and no other Lien (other than Permitted Encumbrances), and is evidenced by an invoice or other documentary evidence satisfactory to Agent.  In addition, no Receivable shall be an Eligible Receivable if:

 

  

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(a) it is not evidenced by an invoice or other documentary evidence satisfactory to Agent in its Permitted Discretion, or has not been invoiced and billed to the Customer;

 

(b) it arises out of a sale made by any Borrower to an Affiliate of any Borrower or to a Person controlled by an Affiliate of any Borrower;

 

(c) it is due or unpaid more than (i) sixty (60) days after the original due date or (ii) ninety (90) days after the original invoice date;

 

(d) fifty percent (50%) or more of the Receivables from such Customer are not deemed Eligible Receivables or Eligible Unbilled Receivables hereunder.  Such percentage may, in Agent’s Permitted Discretion, be increased or decreased from time to time;

 

(e) any covenant, representation or warranty contained in this Agreement with respect to such Receivable has been breached in any material manner;

 

(f) the Customer shall (i) apply for, suffer, or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or call a meeting of its creditors, (ii) admit in writing its inability, or be generally unable, to pay its debts as they become due or cease operations of its present business, (iii) make a general assignment for the benefit of creditors, (iv) commence a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated bankrupt or insolvent, (vi) file a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesce to, or fail to have dismissed following a reasonable period, any petition which is filed against it in any involuntary case under such bankruptcy laws, or (viii) take any action for the purpose of effecting any of the foregoing;

 

(g) the sale related to such Receivable is to a Customer with respect to a location outside the United States of America or Canada (other than the Province of Quebec), unless the sale is on letter of credit, guaranty or acceptance terms, in each case acceptable to Agent in its sole discretion;

 

(h) the sale to the Customer is on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is evidenced by chattel paper;

 

(i) Agent believes, in the exercise of its Permitted Discretion and based on supportable information that is shared with Borrowing Agent, that collection of such Receivable is insecure or that such Receivable may not be paid by reason of the Customer’s financial inability to pay;

 

(j) the Customer is the United States of America, any state or any department, agency or instrumentality of any of them (each, a “Government Customer”);

 

(k) the goods giving rise to such Receivable have not been delivered to and accepted by the Customer or the services giving rise to such Receivable have not been fully 

 

  

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performed by the applicable Borrower and accepted by the Customer or the Receivable otherwise does not represent a final sale;

 

(l) the Receivables of the Customer exceed a credit limit determined by Agent, in its Permitted Discretion and based on supportable information that is shared with Borrowing Agent, to the extent such Receivable exceeds such limit;

 

(m) the Receivable is subject to any offset, deduction, defense, dispute, or counterclaim, the Customer is also a creditor or supplier of a Borrower or the Receivable is contingent in any respect or for any reason, but with respect to a Receivable subject to an offset, deduction or claim, only to the extent of the maximum potential amount of such deduction or claim against the applicable Receivable;

 

(n) the applicable Borrower has made any agreement with any Customer for any deduction therefrom, except for discounts or allowances made in the Ordinary Course of Business of Borrower for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice related thereto, but with respect to a Receivable subject to an offset, deduction or claim, only to the extent of the maximum potential amount of such deduction or claim against the applicable Receivable;

 

(o) any return, rejection or repossession of the merchandise has occurred or the rendition of services has been disputed;

 

(p) such Receivable is not payable to a Borrower;

 

(q) such Receivable is generated from or attributable to a written agreement or contract requiring a surety bond, performance bond or similar arrangement; or

 

(r) such Receivable is not otherwise satisfactory to Agent as determined in by Agent in the exercise of its Permitted Discretion.

 

“Eligible Receivables Advance Rate” shall have the meaning set forth in Section 2.1(a)(y)(i) hereof.

 

“Eligible Unbilled Receivables” shall mean with respect to any Borrower, each Receivable of such Borrower arising in the Ordinary Course of Business (i) representing services previously performed by such Borrower and accepted by the Customer, (ii) which in accordance with such Borrower’s written agreement with the Customer, has not yet been fully invoiced and billed to the Customer and (iii) which satisfies the criteria set forth in the definition of “Eligible Receivables” other than clause (a), (c) or (j) thereof.  A Receivable shall not be deemed an Eligible Unbilled Receivable unless such Receivable is subject to Agent’s first priority perfected security interest and no other Lien (other than Permitted Encumbrances), and is evidenced by documentation satisfactory to Agent in its Permitted Discretion and has been verified to Agent’s reasonable satisfaction pursuant to field examination and other verifications from time to time performed on behalf of Agent pursuant to the terms of this Agreement.  In addition, no Receivable shall be an Eligible Unbilled Receivable if:

 

  

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(a) such Receivable has not been invoiced and billed to the Customer within thirty (30) days, as and when contemplated in accordance with such Borrower’s written agreement with the Customer; or

 

(b) fifty percent (50%) or more of the Receivables from such Customer are not deemed Eligible Unbilled Receivables, Eligible Government Receivables, Eligible Extended Term Receivables or Eligible Receivables hereunder.  Such percentage may, in Agent’s Permitted Discretion, be increased or decreased from time to time.

 

 “Eligible Unbilled Receivables Advance Rate” shall have the meaning set forth in Section 2.1(a)(y)(iv) hereof.

 

“ENGlobal Government” shall have the meaning set forth in the introductory paragraph hereto.

 

“ENGlobal International” shall have the meaning set forth in the introductory paragraph hereto.

 

“ENGlobal US” shall have the meaning set forth in the introductory paragraph hereto.

 

“Environmental Complaint” shall have the meaning set forth in Section 4.19(d) hereof.

 

“Environmental Laws” shall mean all federal, state and local environmental, land use, zoning, health, chemical use, safety and sanitation laws, statutes, ordinances and codes relating to the protection of the environment and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Substances and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of federal, state and local governmental agencies and authorities with respect thereto.

 

“Equipment” shall mean and include as to each Borrower, all of such Borrower’s goods (other than Inventory) whether now owned or hereafter acquired and wherever located including all equipment, machinery, apparatus, motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories and all replacements and substitutions therefor or accessions thereto.

 

“Equity Interests” of any Person shall mean any and all shares, rights to purchase, options, warrants, general, limited or limited liability partnership interests, member interests, participation or other equivalents of or interest in (regardless of how designated) equity of such Person, whether voting or nonvoting, including common stock, preferred stock, convertible securities or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and the rules and regulations promulgated thereunder.

 

“Eurodollar Rate” shall mean for any Eurodollar Rate Loan for the then current Interest Period relating thereto the interest rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Agent by dividing (i) the rate which appears on the Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that displays rates at which US dollar deposits are offered by leading banks in the London interbank deposit market), or the rate which is quoted by another source selected by Agent which has been approved by the British Bankers’ Association as an authorized information vendor for the purpose of displaying rates at which US dollar 

 

  

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deposits are offered by leading banks in the London interbank deposit market (an “Alternative Source”), at approximately 11:00 a.m., London time two (2) Business Days prior to the first day of such Interest Period (or if there shall at any time, for any reason, no longer exist a Bloomberg Page BBAM1 (or any substitute page) or any Alternative Source, a comparable replacement rate determined by Agent at such time (which determination shall be conclusive absent manifest error)) for an amount comparable to such Eurodollar Rate Loan and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Reserve Percentage.

 

The Eurodollar Rate shall be adjusted with respect to any Eurodollar Rate Loan that is outstanding on the effective date of any change in the Reserve Percentage as of such effective date.  Agent shall give prompt notice to Borrowing Agent of the Eurodollar Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error.

 

“Eurodollar Rate Loan” shall mean an Advance at any time that bears interest based on the Eurodollar Rate.

 

“Event of Default” shall have the meaning set forth in Article X hereof.

 

“Excess Availability” at a particular date shall mean an amount equal to (a) the lesser of (i) the Formula Amount or (ii) the Maximum Revolving Advance Amount, minus (b) the sum of (i) the outstanding amount of Advances plus (ii) the amount of reserves (if any) established in accordance with Section 2.1(a)(y)(vii).

 

“Exchange Act” shall have the mean the Securities Exchange Act of 1934, as amended.

 

“Excluded Property” shall have the meaning provided in the definition of “Collateral”.

 

“Executive Order No. 13224” shall mean the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

 

“Ex-Im Agent” shall mean Wells Fargo Bank, National Association and its successors and assigns.

 

“Ex-Im Credit Agreement” means that certain Ex-Im Transaction Specific Credit Agreement dated as of July 13, 2011 by and between EnGlobal US and Ex-Im Agent.

 

“Ex-Im Intercreditor Agreement” shall mean that certain Intercreditor Agreement by and among ENGlobal US, Agent and Ex-Im Agent.

 

“Existing Financing Facility” shall have the meaning set forth in Section 8.1(dd) hereof.

 

  

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“Federal Funds Effective Rate” for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the “Federal Funds Effective Rate” as of the date of this Agreement; provided, that if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the “Federal Funds Effective Rate” for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced.

 

“Federal Funds Open Rate” for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed) which is the daily federal funds open rate as quoted by ICAP North America, Inc. (or any successor) as set forth on the Bloomberg Screen BTMM for that day opposite the caption “OPEN” (or on such other substitute Bloomberg Screen that displays such rate), or as set forth on such other recognized electronic source used for the purpose of displaying such rate as selected by PNC (an “Alternate Source”) (or if such rate for such day does not appear on the Bloomberg Screen BTMM (or any substitute screen) or on any Alternate Source, or if there shall at any time, for any reason, no longer exist a Bloomberg Screen BTMM (or any substitute screen) or any Alternate Source, a comparable replacement rate determined by the PNC at such time (which determination shall be conclusive absent manifest error); provided, however, that if such day is not a Business Day, the Federal Funds Open Rate for such day shall be the “open” rate on the immediately preceding Business Day.  If and when the Federal Funds Open Rate changes, the rate of interest with respect to any advance to which the Federal Funds Open Rate applies will change automatically without notice to Borrowers, effective on the date of any such change.

 

“Fee Letter” shall mean that certain Fee Letter, dated the date hereof, among Agent and Borrowers, as the same may be amended, restated, supplemented or modified from time to time.

 

“Fixed Charge Coverage Ratio” shall mean, with respect to any fiscal period, the ratio of (a) EBITDA, plus Transaction Fees, minus Unfinanced Capital Expenditures made during such period minus cash taxes paid during such period, minus all cash distributions and cash dividends made during such period to (b) all Funded Debt payments, made in cash during such period.

 

“Foreign Subsidiary” of any Person, shall mean any Subsidiary of such Person that is not organized or incorporated in the United States or any State or territory thereof.

 

“Formula Amount” shall have the meaning set forth in Section 2.1(a) hereof.

 

“Funded Debt” shall mean, with respect to Borrowers, without duplication, all Indebtedness for borrowed money evidenced by notes, bonds, debentures, or similar evidences of Indebtedness that by its terms matures more than one year from the date of creation thereof, and specifically including Capitalized Lease Obligations, the Indebtedness hereunder and any Guaranty delivered hereunder.

 

  

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“GAAP” shall mean accounting principles generally accepted in the United States of America in effect from time to time.

 

“General Intangibles” shall mean and include as to each Borrower, all of such Borrower’s general intangibles, whether now owned or hereafter acquired, including all payment intangibles, all choses in action, causes of action, corporate or other business records, inventions, designs, patents, patent applications, equipment formulations, manufacturing procedures, quality control procedures, trade names, trademarks, trademark applications, service marks, trade secrets, goodwill, copyrights, design rights, software, computer information, source codes, codes, records and updates, registrations, licenses, franchises, customer lists, tax refunds, tax refund claims, computer programs, all claims under guaranties, security interests or other security held by or granted to a Borrower to secure payment of any of the Receivables by a Customer (other than to the extent covered by Receivables) all rights of indemnification and all other intangible property of every kind and nature (other than Receivables).

 

“Governmental Acts” shall have the meaning set forth in Section 2.17(a) hereof.

 

“Governmental Body” shall mean any nation or government, any state or other political subdivision thereof or any entity, authority, agency, division or department exercising the legislative, judicial, regulatory or administrative functions of or pertaining to a government.

 

“Government Customer” shall have the meaning provided in the definition of “Eligible Receivables”.

 

“Gross-Up Payment” shall have the meaning set forth in Section 3.10 hereof.

 

“Guarantor” shall mean each Subsidiary (other than Foreign Subsidiaries or the Inactive Subsidiary) of Holdings that is not a “Borrower” hereunder and any other Person who may hereafter guarantee payment or performance of the whole or any part of the Obligations; and “Guarantors” means collectively all such Persons.

 

“Guarantor Security Agreement” shall mean any security agreement executed by any Guarantor in favor of Agent securing the Guaranty of such Guarantor, in form and substance satisfactory to Agent.

 

“Guaranty” shall mean any guaranty of the Obligations executed by a Guarantor in favor of Agent for its benefit and for the ratable benefit of the Lenders, in form and substance satisfactory to Agent.

 

“Hazardous Discharge” shall have the meaning set forth in Section 4.19(d) hereof.

 

“Hazardous Substance” shall mean, without limitation, any flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous materials, Hazardous Wastes, hazardous or Toxic Substances or related materials as defined in CERCLA, the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et  seq.), RCRA, Articles 15 and 27 of the New York State Environmental Conservation Law or any other applicable Environmental Law and in the regulations adopted pursuant thereto.

 

  

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“Hazardous Wastes” shall mean all waste materials subject to regulation under CERCLA, RCRA or applicable state law, and any other applicable Federal and state laws now in force or hereafter enacted relating to hazardous waste disposal.

 

“Hedge Liabilities” shall have the meaning provided in the definition of “Lender-Provided Interest Rate Hedge”.

 

“Holdings” shall have the meaning set forth in the introductory paragraph hereto.

 

“Inactive Subsidiary” shall mean ENGlobal Canada ULC, a Nova Scotia unlimited liability company.

 

“Indebtedness” of a Person at a particular date shall mean all obligations of such Person which in accordance with GAAP would be classified upon a balance sheet as liabilities (except capital stock and surplus earned or otherwise) and in any event, without limitation by reason of enumeration, shall include all indebtedness, debt and other similar monetary obligations of such Person whether direct or guaranteed, and all premiums, if any, due at the required prepayment dates of such indebtedness, and  all indebtedness secured by a Lien on assets owned by such Person, whether or not such indebtedness actually shall have been created, assumed or incurred by such Person.  Any indebtedness of such Person resulting from the acquisition by such Person of any assets subject to any Lien shall be deemed, for the purposes hereof, to be the equivalent of the creation, assumption and incurring of the indebtedness secured thereby, whether or not actually so created, assumed or incurred.

 

“Ineligible Security” shall mean any security which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.

 

“Intellectual Property” shall mean property constituting under any Applicable Law a patent, patent application, copyright, trademark, service mark, trade name, mask work, trade secret or license or other right to use any of the foregoing.

 

“Intellectual Property Claim” shall mean the assertion by any Person of a claim (whether asserted in writing, by action, suit or proceeding or otherwise) that any Borrower’s ownership, use, marketing, sale or distribution of any Inventory, Equipment, Intellectual Property or other property or asset is violative of any ownership of or right to use any Intellectual Property of such Person.

 

“Intellectual Property Security Agreement” shall mean that certain Intellectual Property Security Agreement, dated as of the Closing Date between Borrowers and Agent, the terms and conditions of which shall be satisfactory to Agent in its sole discretion.

 

“Interest Period” shall mean the period provided for any Eurodollar Rate Loan pursuant to Section 2.2(b) hereof.

 

“Interest Rate Hedge” shall mean an interest rate exchange, collar, cap, swap, adjustable strike cap, adjustable strike corridor or similar agreements entered into by any Credit Party in 

 

  

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order to provide protection to, or minimize the impact upon, any Credit Party and/or their respective Subsidiaries of increasing floating rates of interest applicable to Indebtedness.

 

“Inventory” shall mean and include as to each Borrower, all of such Borrower’s now owned or hereafter acquired goods, merchandise and other personal property, wherever located, to be furnished under any consignment arrangement, contract of service or held for sale or lease, all raw materials, work in process, finished goods and materials and supplies of any kind, nature or description which are or might be used or consumed in such Borrower’s business or used in selling or furnishing such goods, merchandise and other personal property, and all documents of title or other documents representing them.

 

“Investment Property” shall mean and include as to each Borrower, all of such Borrower’s now owned or hereafter acquired securities (whether certificated or uncertificated), securities entitlements, securities accounts, commodities contracts and commodities accounts.

 

“ISP98 Rules” shall have the meaning set forth in Section 2.10(b) hereof.

 

“Issuer” shall mean any Person who issues a Letter of Credit and/or accepts a draft pursuant to the terms hereof.

 

“Lender” and “Lenders” shall have the meaning ascribed to such term in the preamble to this Agreement and shall include each Person which becomes a transferee, successor or assign of any Lender pursuant to Section 16.3(c) hereof.

 

“Lender Default” shall have the meaning set forth in Section 2.23(a) hereof.

 

“Lender-Provided Interest Rate Hedge” shall mean an Interest Rate Hedge which is provided by any Lender and with respect to which Agent confirms meets the following requirements: such Interest Rate Hedge (i) is documented in a standard International Swap Dealer Association Master Agreement, (ii) provides for the method of calculating the reimbursable amount of the provider’s credit exposure thereunder in a reasonable and customary manner, and (iii) is entered into for hedging (rather than speculative) purposes.  The liabilities of any Borrower to the provider of any Lender-Provided Interest Rate Hedge (the “Hedge Liabilities”) shall be “Obligations” hereunder, guaranteed obligations under any Guaranty and secured obligations under any Guarantor Security Agreement and otherwise treated as Obligations for purposes of each of the Other Documents.  The Liens securing the Hedge Liabilities shall be pari passu with the Liens securing all other Obligations under this Agreement and the Other Documents.

 

“Letter of Credit Application” shall have the meaning set forth in Section 2.10(a) hereof.

 

“Letter of Credit Borrowing” shall have the meaning set forth in Section 2.12(d) hereof.

 

“Letter of Credit Fees” shall have the meaning set forth in Section 3.2 hereof.

 

“Letter of Credit Sublimit” shall mean $8,000,000.

 

“Letters of Credit” shall have the meaning set forth in Section 2.9 hereof.

 

  

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“License Agreement” shall mean any agreement between any Borrower and a Licensor pursuant to which such Borrower is authorized to use any Intellectual Property in connection with the manufacturing, marketing, sale or other distribution of any Inventory of such Borrower or otherwise in connection with such Borrower’s business operations.

 

“Licensor” shall mean any Person from whom any Borrower obtains the right to use (whether on an exclusive or non-exclusive basis) any Intellectual Property in connection with such Borrower’s manufacture, marketing, sale or other distribution of any Inventory or otherwise in connection with such Borrower’s business operations.

 

“Licensor/Agent Agreement” shall mean an agreement between Agent and a Licensor, in form and content satisfactory to Agent, by which Agent is given the unqualified right, vis-a-vis such Licensor, to enforce Agent’s Liens with respect to and to dispose of any Borrower’s Inventory with the benefit of any Intellectual Property applicable thereto, irrespective of such Borrower’s default under any License Agreement with such Licensor.

 

“Lien” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, security interest, lien (whether statutory or otherwise), Charge, claim or encumbrance, or preference, priority or other security agreement or preferential arrangement held or asserted in respect of any asset of any kind or nature whatsoever including any conditional sale or other title retention agreement, any lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction.

 

“Lien Waiver Agreement” shall mean an agreement which is executed in favor of Agent by a Person who owns or occupies premises at which any Collateral may be located from time to time and by which such Person shall waive any Lien (or subordinate its Liens to the Liens in favor of Agent (for the benefit of the Lenders) created by this Agreement and the Other Documents) that such Person may ever have with respect to any of the Collateral and shall authorize Agent from time to time to enter upon the premises, or otherwise have access, to inspect or remove the Collateral from such premises or to use such premises to store or dispose of such Inventory and which agreement shall be in form and substance satisfactory to Agent in its Permitted Discretion.

 

“Material Adverse Effect” shall mean a material adverse effect on (a) the financial condition, results of operations, assets, business or properties of the Credit Parties, taken as a whole, (b) Credit Parties’ (taken as a whole) ability to duly and punctually pay or perform the Obligations in accordance with the terms thereof, (c)  the value of the Collateral, or Agent’s Liens on a material portion of the Collateral or the priority of any such Lien or (d) the practical realization of the benefits of Agent’s and each Lender’s rights and remedies under this Agreement and the Other Documents.

 

“Material Contract” shall mean the Caspian Contracts and any agreement, document, instrument, contract or other arrangement to which Holdings or any of its Subsidiaries is a party (other than this Agreement and the Other Documents) for which the nonperformance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect, together with those agreements and arrangements listed on Schedule 5.13 (if any), as each is 

 

  

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amended, restated, supplemented, renewed, replaced or otherwise modified from time to time to the extent permitted by this Agreement.

 

“Maximum Face Amount” shall mean, with respect to any outstanding Letter of Credit, the face amount of such Letter of Credit including all automatic increases provided for in such Letter of Credit, whether or not any such automatic increase has become effective.

 

“Maximum Revolving Advance Amount” shall mean $35,000,000.

 

“Maximum Undrawn Amount” shall mean with respect to any outstanding Letter of Credit, the amount of such Letter of Credit that is or may become available to be drawn, including all automatic increases provided for in such Letter of Credit, whether or not any such automatic increase has become effective.

 

“Modified Commitment Transfer Supplement” shall have the meaning set forth in Section 16.3(d) hereof.

 

“Multiemployer Plan” shall mean a “multiemployer plan” as defined in Sections 3(37) and 4001(a)(3) of ERISA.

 

“Multiple Employer Plan” shall mean a Plan which has two or more contributing sponsors (including any Borrower or any member of the Controlled Group) at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.

 

“Non-Consenting Lender” shall have the meaning set forth in Section 16.2(c) hereof.

 

“Non-Defaulting Lender” shall have the meaning set forth in Section 2.23(b) hereof.

 

“Notification Event” shall have the meaning set forth in the Ex-Im Intercreditor Agreement.

 

“Obligations” shall mean and include any and all loans, advances, debts, liabilities, including, the liabilities of any Borrower to the provider of any Lender-Provided Interest Rate Hedge, obligations, covenants and duties owing by any Borrower to Lenders or Agent or to any other direct or indirect subsidiary or affiliate of Agent or any Lender of any kind or nature, present or future (including any interest or other amounts accruing thereon after maturity, or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to any Borrower, whether or not a claim for post-filing or post-petition interest or other amounts is allowed in such proceeding), whether or not evidenced by any note, guaranty or other instrument, whether arising under any agreement, instrument or document, (including this Agreement and the Other Documents) whether or not for the payment of money, whether arising by reason of an extension of credit, opening of a letter of credit, loan, equipment lease or guarantee, under any interest or currency swap, future, option or other similar agreement, or in any other manner, any Other Lender Obligations, whether arising out of overdrafts or deposit or other accounts or electronic funds transfers (whether through automated clearing houses or otherwise) or out of Agent’s or any Lenders non-receipt of or inability to collect funds or otherwise not being made whole in connection with depository transfer check or other similar arrangements, whether direct or indirect (including those acquired by assignment or 

 

  

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participation), absolute or contingent, joint or several, due or to become due, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, regardless of how such indebtedness or liabilities arise or by what agreement or instrument they may be evidenced or whether evidenced by any agreement or instrument, including, but not limited to, any and all of each Borrower’s Indebtedness and/or liabilities under this Agreement, the Other Documents or under any other agreement between Agent or Lenders and a Borrower and any amendments, extensions, renewals or increases thereof and all costs and expenses as described in Section 16.9 hereof and all obligations of any Borrower to Agent or Lenders to perform acts or refrain from taking any action.

 

“Order” shall have the meaning set forth in Section 2.18 hereof.

 

“Ordinary Course of Business” shall mean, with respect to any Borrower, the ordinary course of such Borrower’s business as conducted on the Closing Date.

 

“Organizational Documents” means (i) with respect to any corporation, its certificate or articles of incorporation or organization, as amended, and its by-laws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended.  In the event any term or condition of this Agreement or any Other Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such “Organizational Document” shall only be to a document of a type customarily certified by such governmental official.

 

“Other Documents” shall mean, collectively, the Revolving Credit Note, the Fee Letter, the Questionnaire, any Collateral Assignment of Acquisition Agreement, the Pledge Agreements, the Intellectual Property Security Agreement, any Guaranty, any Guarantor Security Agreement, any Lender-Provided Interest Rate Hedge, the Ex-Im Intercreditor Agreement, any lien subordination agreements, and any and all other agreements, instruments and documents, including guaranties, pledges, powers of attorney, consents, interest or currency swap agreements or other similar agreements and all other writings heretofore, now or hereafter executed by any Credit Party and/or delivered to Agent or any Lender in respect of the transactions contemplated by this Agreement (and shall include any amendment, restatement, renewal, supplement, ratification, confirmation, reaffirmation or other modification of any of the foregoing).

 

“Other Lender Obligations” shall mean any and all loans, advances, debts, liabilities, obligations, covenants and duties owing by any Borrower to any Lender or to any other direct or indirect subsidiary of any Lender, of any kind or nature, present or future (including any interest or other amounts accruing thereon, and any costs and expenses of any Person payable by any Borrower and any indemnification obligations payable by any Borrower arising or payable after maturity, or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to any Borrower, whether or not a claim for post-filing or post-petition interest or other amounts is allowable or allowed in such proceeding), arising under any agreement, instrument or document among any Borrower and 

 

  

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such Lender or direct or indirect subsidiary of such Lender (other than the obligations arising under this Agreement and the Other Documents), however evidenced, whether or not for the payment of money, whether arising by reason of an extension of credit, opening of a letter of credit, loan, equipment lease or guarantee, cash management agreements, any Lender-Provided Interest Rate Hedge, any other interest or currency swap, future, option or other similar agreement, or in any other manner.

 

“Out-of-Formula Loans” shall have the meaning set forth in Section 16.2(c) hereof.

 

“Parent” of any Person shall mean a corporation or other entity owning, directly or indirectly at least fifty percent (50%) of the shares of stock or other ownership interests having ordinary voting power to elect a majority of the members of the board of directors of the Person, or any other similar governing body of such Person.

 

“Participant” shall mean each Person who, pursuant to Section 16.3(b) shall be granted the right by any Lender to participate in any of the Advances and who shall have entered into a participation agreement in form and substance satisfactory to such Lender.

 

“Participation Advance” shall have the meaning set forth in Section 2.12(d) hereof.

 

“Participation Commitment” shall mean each Lender’s obligation to buy a participation of the Letters of Credit issued hereunder.

 

“Payee” shall have the meaning set forth in Section 3.10 hereof.

 

“Payment Office” shall mean initially Two Tower Center Boulevard, East Brunswick, New Jersey 08816; thereafter, such other office of Agent, if any, which it may designate by notice to Borrowing Agent and to each Lender to be the Payment Office.

 

“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor.

 

“Pension Benefit Plan” shall mean at any time any employee pension benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained by any member of the Controlled Group for employees of any member of the Controlled Group; or (ii) has at any time within the preceding five years been maintained by any entity which was at such time a member of the Controlled Group for employees of any entity which was at such time a member of the Controlled Group.

 

“Permitted Discretion” shall mean, with respect to any Person, a determination or judgment made by such Person in the exercise of reasonable (in the business of secured asset- based lending) credit or business judgment and in good faith.

 

“Permitted Encumbrances” shall mean:

 

(a) Liens in favor of Agent for the benefit of Agent and Lenders;

 

  

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(b) Liens for taxes, assessments or other governmental charges not delinquent or being Properly Contested;

 

(c) Liens disclosed in the financial statements referred to in Section 5.5;

 

(d) deposits or pledges to secure obligations under worker’s compensation, social security or similar laws, or under unemployment insurance;

 

(e) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the Ordinary Course of Business;

 

(f) Liens arising by virtue of the rendition, entry or issuance against any Borrower or any Subsidiary, or any property of any Borrower or any Subsidiary, of any judgment, writ, order, or decree for so long as each such Lien (x) is in existence for less than thirty (30) consecutive days after it first arises or is being Properly Contested and (y) is at all times junior in priority to any Liens in favor of Agent;

 

(g) mechanics’, workers’, materialmen’s or other like Liens arising in the Ordinary Course of Business with respect to obligations which are not due or which are being Properly Contested;

 

(h) Liens placed upon fixed assets hereafter acquired to secure a portion of the purchase price thereof; provided, that, (x) any such lien shall not encumber any other property of any Borrower and (y) the aggregate amount of Indebtedness secured by such Liens incurred as a result of such purchases during any fiscal year shall not exceed the amount provided for in Section 7.6 hereof;

 

(i) Liens placed upon assets (goods, Receivables and intangibles and the proceeds and products thereof) utilized in connection with or derivative from any Borrower’s performance under any bonded contract; provided, that, the aggregate amount of Indebtedness secured by such Lien shall not exceed the amount provided for in Section 7.8(f)

 

(j) other Liens incidental to the conduct of any Borrower’s business or the ownership of its property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit, and which do not in the aggregate materially detract from Agent’s or Lenders’ rights in and to the Collateral or the value of any Borrower’s property or assets or which do not materially impair the use thereof in the operation of any Borrower’s business;

 

(k) Liens disclosed on Schedule 1.2; provided, that, such Liens shall secure only those obligations which they secure on the Closing Date and shall not subsequently apply to any other property or assets of any Borrower; and

 

(l) Liens securing the Ex-Im Credit Agreement, so long as such Liens are subject to the Ex-Im Intercreditor Agreement; provided, that, the Ex-Im Intercreditor Agreement is in full force and effect and has not been breached or repudiated by the Ex-Im Agent; and

 

  

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“Person” shall mean any individual, sole proprietorship, partnership, corporation, business trust, joint stock company, trust, unincorporated organization, association, limited liability company, limited liability partnership, institution, public benefit corporation, joint venture, entity or Governmental Body (whether federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof).

 

“Plan” shall mean any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Benefit Plan), maintained for employees of any Borrower or any member of the Controlled Group or any such Plan to which any Borrower or any member of the Controlled Group is required to contribute on behalf of any of its employees.

 

“Pledge Agreements” shall mean collectively that certain Pledge Agreement entered into by Holdings on or about the Closing Date in favor of Agent with respect to the Equity Interests issued by its Subsidiaries and any other pledge agreement executed in favor of Agent after the Closing Date, in each case, in form and substance satisfactory to Agent in its sole discretion.

 

“PNC” shall have the meaning set forth in the preamble to this Agreement and shall extend to all of its successors and assigns.

 

“Pro Forma Balance Sheet” shall have the meaning set forth in Section 5.5(a) hereof.

 

“Pro Forma Financial Statements” shall have the meaning set forth in Section 5.5(b) hereof.

 

“Projections” shall have the meaning set forth in Section 5.5(b) hereof.

 

“Properly Contested” shall mean, in the case of any Indebtedness or Lien, as applicable, of any Person (including any taxes) that is not paid as and when due or payable by reason of such Person’s bona fide dispute concerning its liability to pay same or concerning the amount thereof, (i) such Indebtedness or Lien, as applicable, is being properly contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (ii) such Person 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 the forfeiture of any assets of such Person; (iv) no Lien is imposed upon any of such Person’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 Agent (except only with respect to property taxes that have priority as a matter of applicable state law) and enforcement of such Lien is stayed during the period prior to the final resolution or disposition of such dispute; (v) if such Indebtedness or Lien, as applicable, results from, or is determined by the entry, rendition or issuance against a Person or any of its assets of a judgment, writ, order or decree, enforcement of such judgment, writ, order or decree is stayed pending a timely appeal or other judicial review; and (vi) if such contest is abandoned, settled or determined adversely (in whole or in part) to such Person, such Person forthwith pays such Indebtedness and all penalties, interest and other amounts due in connection therewith.

 

“Purchasing CLO” shall have the meaning set forth in Section 16.3(d) hereof.

 

“Purchasing Lender” shall have the meaning set forth in Section 16.3(c) hereof.

 

  

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“Questionnaire” shall mean that certain Questionnaire and Perfection Certificate and the responses thereto provided by Borrowing Agent on behalf of the Credit Parties and delivered to Agent, and all amendments, supplements and modifications to the foregoing.

 

“RCRA” shall mean the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., as same may be amended from time to time.

 

“Real Property” shall mean collectively, each of the owned and leased premises identified on Schedule 4.19 hereto or which is hereafter owned or leased by any Credit Party.

 

“Receivables” shall mean and include, as to any Borrower, all of such Borrower’s accounts, contract rights, instruments (including those evidencing indebtedness owed to a Borrower by its Affiliates), documents, chattel paper (including electronic chattel paper), general intangibles relating to accounts, drafts and acceptances, credit card receivables and all other forms of obligations owing to such Borrower arising out of or in connection with the sale or lease of Inventory or the rendition of services, all supporting obligations, guarantees and other security therefor, whether secured or unsecured, now existing or hereafter created, and whether or not specifically sold or assigned to Agent hereunder.

 

“Register” shall have the meaning set forth in Section 16.3(e) hereof.

 

“Regulations” shall have the meaning set forth in Section 3.11(a) hereof.

 

“Reimbursement Obligation” shall have the meaning set forth in Section 2.12(b)hereof.

 

“Release” shall have the meaning set forth in Section 5.7(c)(i) hereof.

 

“Reportable Event” shall mean a reportable event described in Section 4043(c) of ERISA or the regulations promulgated thereunder.

 

“Required Lenders” shall mean Lenders holding at least fifty-one percent (51%) of the Advances and, if no Advances are outstanding, shall mean Lenders holding at least fifty-one percent (51%) of the Commitment Percentages; provided, however, if there are fewer than three (3) Lenders, Required Lenders shall mean all Lenders.

 

“Reserve Percentage” shall mean as of any day the maximum percentage in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to Eurocurrency funding (currently referred to as “Eurocurrency Liabilities”.

 

“Revolving Advances” shall mean Advances made other than Letters of Credit.

 

“Revolving Credit Note” shall mean the promissory note referred to in Section 2.1(a) hereof.

 

“Revolving Interest Rate” shall mean an interest rate per annum equal to (a) the sum of the Alternate Base Rate plus the Applicable Margin with respect to Domestic Rate Loans and (b) 

 

  

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the sum of the Eurodollar Rate plus the Applicable Margin with respect to Eurodollar Rate Loans.

 

“SEC” shall mean the Securities and Exchange Commission or any successor thereto.

 

“Section 20 Subsidiary” shall mean the Subsidiary of the bank holding company controlling PNC, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities.

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

“Settlement Date” shall mean the Closing Date and thereafter Wednesday or Thursday of each week or more frequently if Agent deems appropriate unless such day is not a Business Day in which case it shall be the next succeeding Business Day.

 

“Subsidiary” of any Person shall mean a corporation or other entity, the Equity Interests of which, having ordinary voting power (other than Equity Interests having such power only by reason of the happening of a contingency) to elect a majority of the members of the board of directors (or other body performing similar functions) of such entity are owned, directly or indirectly, by such Person. References to Subsidiaries of any Borrower in the provisions of this Agreement shall not be construed to imply any consent by Agent or Lenders to the formation or acquisition of any such Subsidiaries other than as expressly permitted hereunder.

 

“Subsidiary Stock” shall mean all of the issued and outstanding Equity Interests of any Subsidiary owned by any Borrower (not to exceed 65% of the Equity Interests with voting rights of any Foreign Subsidiary).

 

“Tangible Net Worth” shall mean, at a particular date, (a) the aggregate amount of all assets of Borrowers on a Consolidated Basis as may be properly classified as such in accordance with GAAP consistently applied excluding such other assets as are properly classified as intangible assets under GAAP, less (b) the aggregate amount of all liabilities of Borrowers on a Consolidated Basis.

 

“Teaming Agreements” shall mean any written or oral agreements among any Borrower and one or more unaffiliated third parties in relation to such parties jointly pursuing business development opportunities with one or more other unaffiliated third parties in the Ordinary Course of Business, which endeavors may or may not ultimately result in the formation of joint ventures, partnerships or contractor-subcontractor arrangements.

 

“Term” shall have the meaning set forth in Section 13.1 hereof.

 

“Termination Event” shall mean (i) a Reportable Event with respect to any Plan or Multiemployer Plan; (ii) the withdrawal of any Borrower or any member of the Controlled Group from a Plan or Multiemployer Plan during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA; (iii) the providing of notice of intent to terminate a Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to terminate a Plan or Multiemployer Plan; (v) any event or condition (a) which might constitute grounds under Section 4042 of ERISA for 

 

  

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the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan, or (b) that may result in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA; or (vi) the partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of any Borrower or any member of the Controlled Group from a Multiemployer Plan.

 

“Toxic Substance” shall mean and include any material present on the Real Property which has been shown to have significant adverse effect on human health or which is subject to regulation under the Toxic Substances Control Act (TSCA), 15 U.S.C. §§ 2601 et seq., applicable state law, or any other applicable Federal or state laws now in force or hereafter enacted relating to toxic substances.  “Toxic Substance” includes but is not limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based paints.

 

“Trading with the Enemy Act” shall mean the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any enabling legislation or executive order relating thereto.

 

“Transaction Fees” shall mean collectively, the fees, costs and expenses that are directly incurred or required to be reimbursed in connection with the Transactions which have been paid within ninety (90) days of the Closing Date, approved by Agent and are listed on Schedule 1.2(a) of this Agreement (as the same may be amended from time to time by Borrowers with the consent and approval of Agent) in an aggregate amount not to exceed $350,000.

 

“Transactions” shall have the meaning set forth in Section 5.5(a) hereof.

 

“Transferee” shall have the meaning set forth in Section 16.3(d) hereof.

 

“UCP” shall have the meaning set forth in Section 2.10(b).

 

“Undrawn Availability” at a particular date shall mean an amount equal to (a) the lesser of (i) the Formula Amount or (ii) the Maximum Revolving Advance Amount, minus the amount of reserves (if any) established in accordance with Section 2.1(a)(y)(vii), minus (b) the sum of (i) the outstanding amount of Advances plus (ii) all amounts due and owing to any Borrower’s trade creditors which are sixty (60) days or more past due, plus (iii) fees and expenses for which Borrowers are liable but which have not been paid or charged to Borrowers’ Account.

 

“Unfinanced Capital Expenditures” shall mean all Capital Expenditures of any Borrower other than those made utilizing financing provided by the applicable seller or third party lenders.  For the avoidance of doubt, Capital Expenditures made by a Borrower utilizing Revolving Advances shall be deemed Unfinanced Capital Expenditures.

 

“Uniform Commercial Code” shall have the meaning set forth in Section 1.3 hereof.

 

“USA PATRIOT Act” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

 

“Website Posting” shall have the meaning set forth in Section 16.6 hereof.

 

  

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“Week” shall mean the time period commencing with the opening of business on a Wednesday and ending on the end of business the following Tuesday.

 

1.3 Uniform Commercial Code Terms.  All terms used herein and defined in the Uniform Commercial Code as adopted in the State of Texas from time to time (the “Uniform Commercial Code”) shall have the meaning given therein unless otherwise defined herein.  Without limiting the foregoing, the terms “accounts”, “chattel paper”, “commercial tort claims”, “instruments”, “general intangibles”, “goods”, “payment intangibles”, “proceeds”, “supporting obligations”, “securities”, “investment property”, “documents”, “deposit accounts”, “software”, “letter of credit rights”, “inventory”, “equipment” and “fixtures”, as and when used in the description of Collateral shall have the meanings given to such terms in Articles 8 or 9 of the Uniform Commercial Code.  To the extent the definition of any category or type of collateral is expanded by any amendment, modification or revision to the Uniform Commercial Code, such expanded definition will apply automatically as of the date of such amendment, modification or revision.

 

1.4 Certain Matters of Construction.  The terms “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision.  All references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement.  Any pronoun used shall be deemed to cover all genders.  Wherever appropriate in the context, terms used herein in the singular also include the plural and vice versa.  All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.  Unless otherwise provided, all references to any instruments or agreements to which Agent is a party, including references to any of the Other Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof.  All references herein to the time of day shall mean the time in New York, New York, unless expressly indicated otherwise.  Unless otherwise provided, all financial calculations shall be performed with Inventory valued on a first-in, first-out basis.  Whenever the words “including” or “include” shall be used, such words shall be understood to mean “including, without limitation” or “include, without limitation”.  A Default or Event of Default shall be deemed to exist at all times during the period commencing on the date that such Default or Event of Default occurs to the date on which such Default or Event of Default is waived in writing pursuant to this Agreement or, in the case of a Default, is cured within any period of cure expressly provided for in this Agreement; and an Event of Default shall “continue” or be “continuing” until such Event of Default has been waived in writing by the Required Lenders.  Any Lien referred to in this Agreement or any of the Other Documents as having been created in favor of Agent, any agreement entered into by Agent pursuant to this Agreement or any of the Other Documents, any payment made by or to or funds received by Agent pursuant to or as contemplated by this Agreement or any of the Other Documents, or any act taken or omitted to be taken by Agent, shall, unless otherwise expressly provided, be created, entered into, made or received, or taken or omitted, for the benefit or account of Agent and Lenders. Wherever the phrase “to the best of Borrowers’ knowledge” or words of similar import relating to the knowledge or the awareness of any Borrower are used in this Agreement or Other Documents, such phrase shall mean and refer to (i) the actual knowledge of an Authorized Officer of any Borrower or (ii) the knowledge that an Authorized Officer would have obtained if he had engaged in good faith and diligent performance of his duties, including the making of such 

 

  

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reasonably specific inquiries as may be necessary of the employees or agents of such Borrower and a good faith attempt to ascertain the existence or accuracy of the matter to which such phrase relates.  All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or otherwise within the limitations of, another covenant shall not avoid the occurrence of a default if such action is taken or condition exists.  In addition, all representations and warranties hereunder shall be given independent effect so that if a particular representation or warranty proves to be incorrect or is breached, the fact that another representation or warranty concerning the same or similar subject matter is correct or is not breached will not affect the incorrectness of a breach of a representation or warranty hereunder.

 

II ADVANCES, PAYMENTS.

 

2.1 Revolving Advances.

 

(a) Amount of Revolving Advances.  Subject to the terms and conditions set forth in this Agreement including Section 2.1(b), each Lender, severally and not jointly, will make Revolving Advances to Borrowers in aggregate amounts outstanding at any time equal to such Lender’s Commitment Percentage of the lesser of (x) the Maximum Revolving Advance Amount less the aggregate Maximum Undrawn Amount of all outstanding Letters of Credit or (y) an amount equal to the sum of:

 

(i) up to eighty-five percent (85%), subject to the provisions of Section 2.1(b) hereof (“Eligible Receivables Advance Rate”), of Eligible Receivables, plus

 

(ii) up to the lesser of (A) up to eighty-five percent (85%), subject to the provisions of Section 2.1(b) hereof, of Eligible Extended Term Receivables or (B) $3,000,000 (“Eligible Extended Term Receivables Advance Rate”), plus

 

(iii) up to the lesser of (A) up to eighty-five percent (85%), subject to the provisions of Section 2.1(b) hereof, of Eligible Government Receivables or (B) $800,000 (“Eligible Government Receivables Advance Rate”), plus

 

(iv) up to the lesser of (A) up to seventy-five percent (75%), subject to the provisions of Section 2.1(b) hereof, of Eligible Unbilled Receivables or (B) $8,500,000 (“Eligible Unbilled Receivables Advance Rate”); provided, however, no more than $800,000 of the amount resulting from the calculation of this clause (iv) shall be attributable to Eligible Unbilled Receivables owed by Government Customers, plus

 

(v) up to the lesser of (A) up to fifty percent (50%), subject to the provisions of Section 2.1(b) hereof, of Eligible Costs in Excess of Billings or (B) $4,000,000 (“Eligible CIEB Advance Rate” and together with the Eligible Receivables Advance Rate, Eligible Extended Term Receivables Advance Rate, Eligible Government Receivables Advance Rate, Eligible Unbilled Receivables Advance Rate, the “Advance Rates”), minus

 

(vi) the aggregate Maximum Undrawn Amount of all outstanding Letters of Credit, minus

 

  

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(vii) such reserves as Agent may deem proper and necessary in the exercise of its Permitted Discretion from time to time.

 

The amount derived from the sum of (x) Sections 2.1(a)(y)(i), (ii), (iii), (iv) and (v) minus (y) Section 2.1 (a)(y)(vii) at any time and from time to time shall be referred to as the “Formula Amount”.  Subject to the provisions of Section 2.1(b), the Formula Amount applicable at any time shall be calculated as set forth in the Borrowing Base Certificate delivered pursuant to Section 9.2 and approved by Agent in its Permitted Discretion.  The Revolving Advances shall be evidenced by one or more secured promissory notes, substantially in the form attached hereto as Exhibit 2.1(a) (as the same may be amended, amended and restated, renewed, replaced, supplemented and/or otherwise modified from time to time, collectively, the “Revolving Credit Note”).

 

(b) Discretionary Rights.  The Advance Rates may be increased or decreased by Agent at any time and from time to time in the exercise of its Permitted Discretion.  Each Borrower consents to any such increases or decreases and acknowledges that decreasing the Advance Rates or increasing or imposing reserves may limit or restrict Advances requested by Borrowing Agent.  Agent shall give Borrower five (5) days prior written notice of its intention to decrease the Advance Rates; provided, however, no Borrower nor any Guarantor shall have any right of action whatsoever against Agent for, and Agent shall not be liable for any damages resulting from, the failure of Agent to provide the prior notice contemplated in this sentence.  The rights of Agent under this subsection are subject to the provisions of Section 16.2(b).

 

2.2 Procedure for Revolving Advances Borrowing.

 

(a) Borrowing Agent on behalf of any Borrower may notify Agent prior to 10:00 a.m. on a Business Day of a Borrower’s request to incur, on that day, a Revolving Advance hereunder.  Should any amount required to be paid as interest hereunder, or as fees or other charges under this Agreement or any other agreement with Agent or Lenders, or with respect to any other Obligation, become due, same shall be deemed a request for a Revolving Advance maintained as a Domestic Rate Loan as of the date such payment is due, in the amount required to pay in full such interest, fee, charge or Obligation under this Agreement or any other agreement with Agent or Lenders, and such request shall be irrevocable.

 

(b) Notwithstanding the provisions of subsection (a) above, in the event any Borrower desires to obtain a Eurodollar Rate Loan, Borrowing Agent shall give Agent written notice by no later than 10:00 a.m. on the day which is three (3) Business Days prior to the date such Eurodollar Rate Loan is to be borrowed, specifying (i) the date of the proposed borrowing (which shall be a Business Day), (ii) the type of borrowing and the amount on the date of such Advance to be borrowed, which amount shall be in an aggregate principal amount that is not less than $500,000 and integral multiples of $250,000 in excess thereof, and (iii) the duration of the first Interest Period therefor.  Interest Periods for Eurodollar Rate Loans shall be for one (1), two (2), three (3) months or, to the extent available, six (6) months; provided, if an Interest Period would end on a day that is not a Business Day, it shall end on the next succeeding Business Day unless such day falls in the next succeeding calendar month in which case the Interest Period shall end on the next preceding Business Day.  No Eurodollar Rate Loan shall be made available to any Borrower during the continuance of a Default or an Event of Default.  After giving effect 

 

  

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to each requested Eurodollar Rate Loan, including those which are converted from a Domestic Rate Loan under Section 2.2(d), there shall not be outstanding more than six (6) Eurodollar Rate Loans, in the aggregate.

 

(c) Each Interest Period of a Eurodollar Rate Loan shall commence on the date such Eurodollar Rate Loan is made and shall end on such date as Borrowing Agent may elect as set forth in subsection (b)(iii) above provided that the exact length of each Interest Period shall be determined in accordance with the practice of the interbank market for offshore Dollar deposits and no Interest Period shall end after the last day of the Term.

 

Borrowing Agent shall elect the initial Interest Period applicable to a Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to Section 2.2(b) or by its notice of conversion given to Agent pursuant to Section 2.2(d), as the case may be.  Borrowing Agent shall elect the duration of each succeeding Interest Period by giving irrevocable written notice to Agent of such duration not later than 10:00 a.m. on the day which is three (3) Business Days prior to the last day of the then current Interest Period applicable to such Eurodollar Rate Loan.  If Agent does not receive timely notice of the Interest Period elected by Borrowing Agent with respect to any Eurodollar Rate Loan, Borrowing Agent shall be deemed to have elected to convert such Eurodollar Rate Loan to a Domestic Rate Loan subject to Section 2.2(d) hereinbelow.

 

(d) Provided that no Default or Event of Default shall have occurred and be continuing, Borrowing Agent may, on the last Business Day of the then current Interest Period applicable to any outstanding Eurodollar Rate Loan, or on any Business Day with respect to Domestic Rate Loans, convert any such loan into a loan of another type in the same aggregate principal amount provided that any conversion of a Eurodollar Rate Loan shall be made only on the last Business Day of the then current Interest Period applicable to such Eurodollar Rate Loan.  If Borrowing Agent desires to convert a loan, Borrowing Agent shall give Agent written notice by no later than 10:00 a.m. (i) on the day which is three (3) Business Days’ prior to the date on which such conversion is to occur with respect to a conversion from a Domestic Rate Loan to a Eurodollar Rate Loan, or (ii) on the day which is one (1) Business Day prior to the date on which such conversion is to occur with respect to a conversion from a Eurodollar Rate Loan to a Domestic Rate Loan, specifying, in each case, the date of such conversion, the loans to be converted and if the conversion is from a Domestic Rate Loan to a Eurodollar Rate Loan, the duration of the first Interest Period therefor.

 

(e) At its option and upon written notice given prior to 10:00 a.m. at least three (3) Business Days’ prior to the date of such prepayment, any Borrower may prepay the Eurodollar Rate Loans in whole at any time or in part from time to time with accrued interest on the principal being prepaid to the date of such repayment.  Such Borrower shall specify the date of prepayment of Advances which are Eurodollar Rate Loans and the amount of such prepayment.  In the event that any prepayment of a Eurodollar Rate Loan is required or permitted on a date other than the last Business Day of the then current Interest Period with respect thereto, such Borrower shall indemnify Agent and Lenders therefor in accordance with Section 2.2(f) hereof.

 

  

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(f) Each Borrower shall indemnify Agent and Lenders and hold Agent and Lenders harmless from and against any and all losses or expenses that Agent and Lenders may sustain or incur as a consequence of any prepayment, conversion of or any default by any Borrower in the payment of the principal of or interest on any Eurodollar Rate Loan or failure by any Borrower to complete a borrowing of, a prepayment of or conversion of or to a Eurodollar Rate Loan after notice thereof has been given, including, but not limited to, any interest payable by Agent or Lenders to lenders of funds obtained by it in order to make or maintain its Eurodollar Rate Loans hereunder.  A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by Agent or any Lender to Borrowing Agent shall be conclusive absent manifest error.

 

(g) Notwithstanding any other provision hereof, if any Applicable Law, or any change therein or in the interpretation or application thereof, shall make it unlawful for any Lender (for purposes of this subsection (g), the term “Lender” shall include any Lender and the office or branch where any Lender or any corporation or bank controlling such Lender makes or maintains any Eurodollar Rate Loans) to make or maintain its Eurodollar Rate Loans, the obligation of Lenders to make Eurodollar Rate Loans hereunder shall forthwith be cancelled and Borrowers shall, if any affected Eurodollar Rate Loans are then outstanding, promptly upon request from Agent, either pay all such affected Eurodollar Rate Loans or convert such affected Eurodollar Rate Loans into loans of another type.  If any such payment or conversion of any Eurodollar Rate Loan is made on a day that is not the last day of the Interest Period applicable to such Eurodollar Rate Loan, Borrowers shall pay Agent, upon Agent’s request, such amount or amounts as may be necessary to compensate Lenders for any loss or expense sustained or incurred by Lenders in respect of such Eurodollar Rate Loan as a result of such payment or conversion, including (but not limited to) any interest or other amounts payable by Lenders to lenders of funds obtained by Lenders in order to make or maintain such Eurodollar Rate Loan.  A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by Lenders to Borrowing Agent shall be conclusive absent manifest error.

 

2.3 Disbursement of Advance Proceeds.  All Advances shall be disbursed from whichever office or other place Agent may designate from time to time and, together with any and all other Obligations of Borrowers to Agent or Lenders, shall be charged to Borrowers’ Account on Agent’s books.  During the Term, Borrowers may use the Revolving Advances by borrowing, prepaying and reborrowing, all in accordance with the terms and conditions hereof.  The proceeds of each Revolving Advance requested by Borrowing Agent on behalf of any Borrower or deemed to have been requested by any Borrower under Section 2.2(a) hereof shall, with respect to requested Revolving Advances to the extent Lenders make such Revolving Advances, be made available to the applicable Borrower on the day so requested by way of credit to such Borrower’s operating account at PNC, or such other bank as Borrowing Agent may designate following notification to Agent, in immediately available federal funds or other immediately available funds or, with respect to Revolving Advances deemed to have been requested by any Borrower, be disbursed to Agent to be applied to the outstanding Obligations giving rise to such deemed request.

 

2.4 [Reserved].

 

  

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2.5 Maximum Advances.  The aggregate balance of Revolving Advances outstanding at any time shall not exceed the lesser of (a) the Maximum Revolving Advance Amount or (b) the Formula Amount less, in each case, the aggregate Maximum Undrawn Amount of all issued and outstanding Letters of Credit.

 

2.6 Repayment of Advances.

 

(a) The Advances shall be due and payable in full on the last day of the Term subject to earlier prepayment as herein provided.

 

(b) Each Borrower recognizes that the amounts evidenced by checks, notes, drafts or any other items of payment relating to and/or proceeds of Collateral may not be collectible by Agent on the date received.  In consideration of Agent’s agreement to conditionally credit Borrowers’ Account as of the next Business Day following the Agent’s receipt of those items of payment, each Borrower agrees that, in computing the charges under this Agreement, all items of payment shall be deemed applied by Agent on account of the Obligations one (1) Business Day after (i) the Business Day following the Agent’s receipt of such payments via wire transfer or electronic depository check or (ii) in the case of payments received by Agent in any other form, the Business Day such payment constitutes good funds in Agent’s account.  Agent is not, however, required to credit Borrowers’ Account for the amount of any item of payment which is unsatisfactory to Agent and Agent may charge Borrowers’ Account for the amount of any item of payment which is returned to Agent unpaid.

 

(c) All payments of principal, interest and other amounts payable hereunder, or under any of the Other Documents shall be made to Agent at the Payment Office not later than 1:00 p.m. on the due date therefor in lawful money of the United States of America in federal funds or other funds immediately available to Agent.  Agent shall have the right to effectuate payment on any and all Obligations due and owing hereunder by charging Borrowers’ Account or by making Advances as provided in Section 2.2 hereof.

 

(d) Borrowers shall pay principal, interest, and all other amounts payable hereunder, or under any related agreement, without any deduction whatsoever, including, but not limited to, any deduction for any setoff or counterclaim.

 

2.7 Repayment of Excess Advances.  The aggregate balance of Advances outstanding at any time in excess of the maximum amount of Advances permitted hereunder shall be immediately due and payable without the necessity of any demand, at the Payment Office, whether or not a Default or Event of Default has occurred.

 

2.8 Statement of Account.  Agent shall maintain, in accordance with its customary procedures, a loan account (“Borrowers’ Account”) in the name of Borrowers in which shall be recorded the date and amount of each Advance made by Agent and the date and amount of each payment in respect thereof; provided, however, the failure by Agent to record the date and amount of any Advance shall not adversely affect Agent or any Lender.  Each month, Agent shall send to Borrowing Agent a statement showing the accounting for the Advances made, payments made or credited in respect thereof, and other transactions between Agent and Borrowers, during such month.  The monthly statements shall be deemed correct and binding 

 

  

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upon Borrowers in the absence of manifest error and shall constitute an account stated between Lenders and Borrowers unless Agent receives a written statement of Borrowers’ specific exceptions thereto within thirty (30) days after such statement is received by Borrowing Agent.  The records of Agent with respect to the loan account shall be conclusive evidence absent manifest error of the amounts of Advances and other charges thereto and of payments applicable thereto.

 

2.9 Letters of Credit.  Subject to the terms and conditions hereof, Agent shall issue or cause the issuance of standby and/or trade letters of credit (“Letters of Credit”) for the account of any Borrower; provided, however, that Agent will not be required to issue or cause to be issued any Letters of Credit to the extent that the issuance thereof would then cause the sum of (i) the outstanding Revolving Advances plus (ii) the Maximum Undrawn Amount of all outstanding Letters of Credit to exceed the lesser of (x) the Maximum Revolving Advance Amount or (y) the Formula Amount.  The Maximum Undrawn Amount of all outstanding Letters of Credit shall not exceed in the aggregate at any time the Letter of Credit Sublimit.  All disbursements or payments related to Letters of Credit shall be deemed to be Domestic Rate Loans consisting of Revolving Advances and shall bear interest at the Revolving Interest Rate for Domestic Rate Loans; Letters of Credit that have not been drawn upon shall not bear interest.

 

2.10 Issuance of Letters of Credit.

 

(a) Borrowing Agent, on behalf of Borrowers, may request Agent to issue or cause the issuance of a Letter of Credit by delivering to Agent, at the Payment Office, prior to 10:00 a.m., at least five (5) Business Days’ prior to the proposed date of issuance, Agent’s form of Letter of Credit Application (the “Letter of Credit Application”) completed to the satisfaction of Agent; and, such other certificates, documents and other papers and information as Agent may reasonably request.  Borrowing Agent, on behalf of Borrowers, also has the right to give instructions and make agreements with respect to any application, any applicable letter of credit and security agreement, any applicable letter of credit reimbursement agreement and/or any other applicable agreement, any letter of credit and the disposition of documents, disposition of any unutilized funds, and to agree with Agent upon any amendment, extension or renewal of any Letter of Credit.

 

(b) Each Letter of Credit shall, among other things, (i) provide for the payment of sight drafts, other written demands for payment, or acceptances of usance drafts when presented for honor thereunder in accordance with the terms thereof and when accompanied by the documents described therein and (ii) have an expiry date not later than twenty-four (24) months after such Letter of Credit’s date of issuance and in no event later than the last day of the Term.  Each standby Letter of Credit shall be subject either to the Uniform Customs and Practice for Documentary Credits as most recently published by the International Chamber of Commerce at the time a Letter of Credit is issued (the “UCP”) or the International Standby Practices (ISP98-International Chamber of Commerce Publication Number 590) (the “ISP98 Rules”)), and any subsequent revision thereof at the time a standby Letter of Credit is issued, as determined by Agent, and each trade Letter of Credit shall be subject to the UCP.

 

(c) Agent shall use its reasonable efforts to notify Lenders of the request by Borrowing Agent for a Letter of Credit hereunder.

 

  

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2.11 Requirements For Issuance of Letters of Credit.

 

(a) Borrowing Agent shall authorize and direct any Issuer to name the applicable Borrower as the “Applicant” or “Account Party” of each Letter of Credit.  If Agent is not the Issuer of any Letter of Credit, Borrowing Agent shall authorize and direct the Issuer to deliver to Agent all instruments, documents, and other writings and property received by the Issuer pursuant to the Letter of Credit and to accept and rely upon Agent’s instructions and agreements with respect to all matters arising in connection with the Letter of Credit, the application therefor or any acceptance therefor.

 

(b) In connection with all Letters of Credit issued or caused to be issued by Agent under this Agreement, each Borrower hereby appoints Agent, or its designee, as its attorney, with full power and authority if an Event of Default shall have occurred, (i) to sign and/or endorse such Borrower’s name upon any warehouse or other receipts, letter of credit applications and acceptances, (ii) to sign such Borrower’s name on bills of lading; (iii) to clear Inventory through the United States of America Customs Department (“Customs”) in the name of such Borrower or Agent or Agent’s designee, and to sign and deliver to Customs officials powers of attorney in the name of such Borrower for such purpose; and (iv) to complete in such Borrower’s name or Agent’s, or in the name of Agent’s designee, any order, sale or transaction, obtain the necessary documents in connection therewith, and collect the proceeds thereof.  Neither Agent nor its attorneys will be liable for any acts or omissions nor for any error of judgment or mistakes of fact or law, except for Agent’s or its attorney’s willful misconduct or gross negligence.  This power, being coupled with an interest, is irrevocable as long as any Letters of Credit remain outstanding.

 

2.12 Disbursements, Reimbursement.

 

(a) Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from Agent a participation in such Letter of Credit and each drawing thereunder in an amount equal to such Lender’s Commitment Percentage of the Maximum Face Amount of such Letter of Credit and the amount of such drawing, respectively.

 

(b) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, Agent will promptly notify Borrowing Agent.  Provided that Borrowing Agent shall have received such notice, Borrowers shall reimburse (such obligation to reimburse Agent shall sometimes be referred to as a “Reimbursement Obligation”) Agent prior to 12:00 noon, on each date that an amount is paid by Agent under any Letter of Credit (each such date, a “Drawing Date”) in an amount equal to the amount so paid by Agent.  In the event Borrowers fail to reimburse Agent for the full amount of any drawing under any Letter of Credit by 12:00 noon, on the Drawing Date, Agent will promptly notify each Lender thereof, and Borrowers shall be deemed to have requested that a Revolving Advance maintained as a Domestic Rate Loan be made by the Lenders to be disbursed on the Drawing Date under such Letter of Credit, subject to the amount of the unutilized portion of the lesser of Maximum Revolving Advance Amount or the Formula Amount, less, in each case, the Maximum Undrawn Amount of all Letters of Credit and subject to Section 8.2 hereof.  Any notice given by Agent pursuant to this Section 2.12(b) may be oral if immediately confirmed in writing; provided that, 

 

  

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the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice; provided that any failure of Borrowers to make a reimbursement hereunder that is satisfied with a Revolving Advance shall not be deemed a Default for any reason.

 

(c) Each Lender shall upon any notice pursuant to Section 2.12(b) make available to Agent an amount in immediately available funds equal to its Commitment Percentage of the amount of the drawing, whereupon the participating Lenders shall (subject to Section 2.12(d)) each be deemed to have made a Revolving Advance maintained as a Domestic Rate Loan to Borrowers in that amount.  If any Lender so notified fails to make available to Agent the amount of such Lender’s Commitment Percentage of such amount by no later than 2:00 p.m., on the Drawing Date, then interest shall accrue on such Lender’s obligation to make such payment, from the Drawing Date to the date on which such Lender makes such payment (i) at a rate per annum equal to the Federal Funds Effective Rate during the first three days following the Drawing Date and (ii) at a rate per annum equal to the rate applicable to Revolving Advances maintained as a Domestic Rate Loans on and after the fourth day following the Drawing Date; provided, however, that Agent’s right to such recovery shall not prejudice or otherwise adversely affect Borrowers’ rights (if any) against such Lender.  Agent will promptly give notice of the occurrence of the Drawing Date, but failure of Agent to give any such notice on the Drawing Date or in sufficient time to enable any Lender to effect such payment on such date shall not relieve such Lender from its obligation under this Section 2.12(c), provided that such Lender shall not be obligated to pay interest as provided in Section 2.12(c) (i) and (ii) until and commencing from the date of receipt of notice from Agent of a drawing.

 

(d) With respect to any unreimbursed drawing that is not converted into a Revolving Advance maintained as a Domestic Rate Loan to Borrowers in whole or in part as contemplated by Section 2.12(b), because of Borrowers’ failure to satisfy the conditions set forth in Section 8.2 (other than any notice requirements) or for any other reason, Borrowers shall be deemed to have incurred from Agent a borrowing (each a “Letter of Credit Borrowing”) in the amount of such drawing. Such Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the rate per annum applicable to a Revolving Advance maintained as a Domestic Rate Loan.  Each Lender’s payment to Agent pursuant to Section 2.12(c) shall be deemed to be a payment in respect of its participation in such Letter of Credit Borrowing and shall constitute a “Participation Advance” from such Lender in satisfaction of its Participation Commitment under this Section 2.12.

 

(e) Each Lender’s Participation Commitment shall continue until the last to occur of any of the following events:  (x) Agent ceases to be obligated to issue or cause to be issued Letters of Credit hereunder; (y) no Letter of Credit issued or created hereunder remains outstanding and uncancelled and (z) all Persons (other than the Borrowers) have been fully reimbursed for all payments made under or relating to Letters of Credit.

 

2.13 Repayment of Participation Advances.

 

(a) Upon (and only upon) receipt by Agent for its account of immediately available funds from Borrowers (i) in reimbursement of any payment made by the Agent under the Letter of Credit with respect to which any Lender has made a Participation Advance to Agent, or (ii) in payment of interest on such a payment made by Agent under such a Letter of 

 

  

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Credit, Agent will pay to each Lender, in the same funds as those received by Agent, the amount of such Lender’s Commitment Percentage of such funds, except Agent shall retain the amount of the Commitment Percentage of such funds of any Lender that did not make a Participation Advance in respect of such payment by Agent.

 

(b) If Agent is required at any time to return to any Borrower, or to a trustee, receiver, liquidator, custodian, or any official in any insolvency proceeding, any portion of the payments made by Borrowers to Agent pursuant to Section 2.13(a) in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Lender shall, on demand of Agent, forthwith return to Agent the amount of its Commitment Percentage of any amounts so returned by Agent plus interest at the Federal Funds Effective Rate.

 

2.14 Documentation.  Each Borrower agrees to be bound by the terms of the Letter of Credit Application and by Agent’s interpretations of any Letter of Credit issued for such Borrower’s account and by Agent’s written regulations and customary practices relating to letters of credit, though Agent’s interpretations may be different from such Borrower’s own.  In the event of a conflict between the Letter of Credit Application and this Agreement, this Agreement shall govern.  It is understood and agreed that, except in the case of gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment), Agent shall not be liable for any error, negligence and/or mistakes, whether of omission or commission (INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR NEGLIGENCE OR STRICT LIABILITY), in following Borrowing Agent’s or any Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments or supplements thereto.

 

2.15 Determination to Honor Drawing Request.  In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, Agent shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit and that any other drawing condition appearing on the face of such Letter of Credit has been satisfied in the manner so set forth.

 

2.16 Nature of Participation and Reimbursement Obligations.  Each Lender’s obligation in accordance with this Agreement to make the Revolving Advances or Participation Advances as a result of a drawing under a Letter of Credit, and the obligations of Borrowers to reimburse Agent upon a draw under a Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Section 2.16 under all circumstances, including the following circumstances:

 

(i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against Agent, any Borrower or any other Person for any reason whatsoever;

 

(ii) the failure of any Borrower or any other Person to comply, in connection with a Letter of Credit Borrowing, with the conditions set forth in this Agreement for the making of a Revolving Advance, it being acknowledged that such conditions are not required 

 

  

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for the making of a Letter of Credit Borrowing and the obligation of the Lenders to make Participation Advances under Section 2.12;

 

(iii) any lack of validity or enforceability of any Letter of Credit;

 

(iv) any claim of breach of warranty that might be made by any Borrower or any Lender against the beneficiary of a Letter of Credit, or the existence of any claim, set-off, recoupment, counterclaim, cross claim, defense or other right which any Borrower or any Lender may have at any time against a beneficiary, any successor beneficiary or any transferee of any Letter of Credit or the proceeds thereof (or any Persons for whom any such transferee may be acting), Agent or any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Borrower or any Subsidiaries of such Borrower and the beneficiary for which any Letter of Credit was procured);

 

(v) the lack of power or authority of any signer of (or any defect in or forgery of any signature or endorsement on) or the form of or lack of validity, sufficiency, accuracy, enforceability or genuineness of any draft, demand, instrument, certificate or other document presented under or in connection with any Letter of Credit, or any fraud or alleged fraud in connection with any Letter of Credit, or the transport of any property or provisions of services relating to a Letter of Credit, in each case even if Agent or any of Agent’s Affiliates has been notified thereof;

 

(vi) payment by Agent under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit (unless such payment is the result of Agent’s gross negligence or willful misconduct);

 

(vii) the solvency of, or any acts or omissions by, any beneficiary of any Letter of Credit, or any other Person having a role in any transaction or obligation relating to a Letter of Credit, or the existence, nature, quality, quantity, condition, value or other characteristic of any property or services relating to a Letter of Credit;

 

(viii) any failure by the Agent or any of Agent’s Affiliates to issue any Letter of Credit in the form requested by Borrowing Agent, unless the Agent has received written notice from Borrowing Agent of such failure within three (3) Business Days after the Agent shall have furnished Borrowing Agent a copy of such Letter of Credit and such error is material and no drawing has been made thereon prior to receipt of such notice;

 

(ix) any Material Adverse Effect on any Credit Party;

 

(x) any breach of this Agreement or any Other Document by any party thereto;

 

(xi) the occurrence or continuance of an insolvency proceeding with respect to any Borrower or any Guarantor;

 

  

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(xii) the fact that a Default or Event of Default shall have occurred and be continuing;

 

(xiii) the fact that the Term shall have expired or this Agreement or the Obligations hereunder shall have been terminated; and

 

(xiv) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

 

2.17 Indemnity.

 

(a) In addition to amounts payable as provided in Section 16.5, each Borrower hereby agrees to protect, indemnify, pay and save harmless Agent and any of Agent’s Affiliates that have issued a Letter of Credit from and against any and all claims, demands, liabilities, damages, taxes, penalties, interest, judgments, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel) which the Agent or any of Agent’s Affiliates may incur or be subject to as a consequence, direct or indirect, of the issuance of any Letter of Credit, other than as a result of (A) the gross negligence or willful misconduct of the Agent as determined by a final and non-appealable judgment of a court of competent jurisdiction or (b) the wrongful dishonor by the Agent or any of Agent’s Affiliates of a proper demand for payment made under any Letter of Credit, (INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR INACTION ARISING FROM AGENT’S NEGLIGENCE OR STRICT LIABILITY), except if such dishonor resulted from any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental Body (all such acts or omissions herein called “Governmental Acts”).

 

(b) In addition, each Borrower hereby agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (i) default by any Borrower in payment when due of the principal amount of or interest on any Eurodollar Rate Loan, (ii) default by any Borrower in making a borrowing of, conversion into or continuation of Eurodollar Rate Loans after Borrowing Agent has given a notice requesting the same in accordance with the provisions of this Agreement, (iii) default by any Borrower in making any prepayment after Borrowing Agent has given a notice thereof in accordance with the provisions of this Agreement or (iv) the making of a prepayment (whether voluntary, mandatory, as a result of acceleration or otherwise) of Eurodollar Rate Loans on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, in each case, any such loss or expense arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained.  A certificate as to any amounts that a Lender is entitled to receive under this Section 2.17 submitted by such Lender, through the Agent, to Borrowing Agent shall be conclusive in the absence of clearly demonstrable error and all such amounts shall be paid by Borrowers promptly upon demand by such Lender.  This covenant shall survive the termination of this Agreement and the payment of the Revolving Credit Note and all other amounts payable hereunder.

 

2.18 Liability for Acts and Omissions.  As between Borrowers and Agent and Lenders, each Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit (INCLUDING, WITHOUT 

 

  

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LIMITATION, WITH RESPECT TO ANY ACT OR INACTION ARISING FROM AGENT’S NEGLIGENCE OR STRICT LIABILITY). In furtherance and not in limitation of the respective foregoing, Agent shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for an issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged (even if Agent shall have been notified thereof); (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) the failure of the beneficiary of any such Letter of Credit, or any other party to which such Letter of Credit may be transferred, to comply fully with any conditions required in order to draw upon such Letter of Credit or any other claim of any Borrower against any beneficiary of such Letter of Credit, or any such transferee, or any dispute between or among any Borrower and any beneficiary of any Letter of Credit or any such transferee; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, facsimile, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of Agent, including any governmental acts, and none of the above shall affect or impair, or prevent the vesting of, any of Agent’s rights or powers hereunder. Nothing in the preceding sentence shall relieve Agent from liability for Agent’s gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment) in connection with actions or omissions described in such clauses (i) through (viii) of such sentence.  In no event shall Agent or Agent’s Affiliates be liable to any Borrower for any indirect, consequential, incidental, punitive, exemplary or special damages or expenses (including without limitation attorneys’ fees), or for any damages resulting from any change in the value of any property relating to a Letter of Credit.

 

Without limiting the generality of the foregoing, Agent and each of its Affiliates (i) may rely on any oral or other communication believed in good faith by Agent or such Affiliate to have been authorized or given by or on behalf of the applicant for a Letter of Credit, (ii) may honor any presentation if the documents presented appear on their face substantially to comply with the terms and conditions of the relevant Letter of Credit; (iii) may honor a previously dishonored presentation under a Letter of Credit, whether such dishonor was pursuant to a court order, to settle or compromise any claim of wrongful dishonor, or otherwise, and shall be entitled to reimbursement to the same extent as if such presentation had initially been honored, together with any interest paid by Agent or its Affiliates; (iv) may honor any drawing that is payable upon presentation of a statement advising negotiation or payment, upon receipt of such statement (even if such statement indicates that a draft or other document is being delivered separately), and shall not be liable for any failure of any such draft or other document to arrive, or to conform in any way with the relevant Letter of Credit; (v) may pay any paying or negotiating bank claiming that it rightfully honored under the laws or practices of the place where such bank is located; and (vi) may settle or adjust any claim or demand made on Agent or its Affiliate in any way related to any order issued at the applicant’s request to an air carrier, a letter of guarantee or of indemnity issued to a carrier or any similar document (each an “Order”) and honor any 

 

  

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drawing in connection with any Letter of Credit that is the subject of such Order, notwithstanding that any drafts or other documents presented in connection with such Letter of Credit fail to conform in any way with such Letter of Credit.

 

In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by Agent under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith and without gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment), shall not put Agent under any resulting liability to any Borrower or any Lender.

 

2.19 Additional Payments.  Any sums expended by Agent or any Lender due to any Borrower’s failure to perform or comply with its obligations under this Agreement or any Other Document including any Borrower’s obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to Borrowers’ Account as a Revolving Advance and added to the Obligations.

 

2.20 Manner of Borrowing and Payment.

 

(a) Each borrowing of Revolving Advances shall be advanced according to the applicable Commitment Percentages of Lenders.

 

(b) Each payment (including each prepayment) by any Borrower on account of the principal of and interest on the Revolving Advances, shall be applied to the Revolving Advances pro rata according to the applicable Commitment Percentages of Lenders.  Except as expressly provided herein, all payments (including prepayments) to be made by any Borrower on account of principal, interest and fees shall be made without set off or counterclaim and shall be made to Agent on behalf of the Lenders to the Payment Office, in each case on or prior to 1:00 p.m., in Dollars and in immediately available funds.

 

(c)           (i) Notwithstanding anything to the contrary contained in Sections 2.20(a) and (b) hereof, commencing with the first Business Day following the Closing Date, each borrowing of Revolving Advances shall be advanced by Agent and each payment by any Borrower on account of Revolving Advances shall be applied first to those Revolving Advances advanced by Agent.  On or before 1:00 p.m., on each Settlement Date commencing with the first Settlement Date following the Closing Date, Agent and Lenders shall make certain payments as follows: (I) if the aggregate amount of new Revolving Advances made by Agent during the preceding Week (if any) exceeds the aggregate amount of repayments applied to outstanding Revolving Advances during such preceding Week, then each Lender shall provide Agent with funds in an amount equal to its applicable Commitment Percentage of the difference between (w) such Revolving Advances and (x) such repayments and (II) if the aggregate amount of repayments applied to outstanding Revolving Advances during such Week exceeds the aggregate amount of new Revolving Advances made during such Week, then Agent shall provide each Lender with funds in an amount equal to its applicable Commitment Percentage of the difference between (y) such repayments and (z) such Revolving Advances.

 

  

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(ii) Each Lender shall be entitled to earn interest at the applicable Revolving Interest Rate on outstanding Advances which it has funded.

 

(iii) Promptly following each Settlement Date, Agent shall submit to each Lender a certificate with respect to payments received and Advances made during the Week immediately preceding such Settlement Date.  Such certificate of Agent shall be conclusive in the absence of manifest error.

 

(d) If any Lender or Participant (a “Benefited Lender”) shall at any time receive any payment of all or part of its Advances, or interest thereon, or receive any Collateral in respect thereof (whether voluntarily or involuntarily or by set-off) in a greater proportion than any such payment to and Collateral received by any other Lender, if any, in respect of such other Lender’s Advances, or interest thereon, and such greater proportionate payment or receipt of Collateral is not expressly permitted hereunder, such Benefited Lender shall purchase for cash from the other Lenders a participation in such portion of each such other Lender’s Advances, or shall provide such other Lender with the benefits of any such Collateral, or the proceeds thereof, as shall be necessary to cause such Benefited Lender to share the excess payment or benefits of such Collateral or proceeds ratably with each of the other Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest.  Each Lender so purchasing a portion of another Lender’s Advances may exercise all rights of payment (including rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion.

 

(e) Unless Agent shall have been notified by telephone, confirmed in writing, by any Lender that such Lender will not make the amount which would constitute its applicable Commitment Percentage of the Advances available to Agent, Agent may (but shall not be obligated to) assume that such Lender shall make such amount available to Agent on the next Settlement Date and, in reliance upon such assumption, make available to Borrowers a corresponding amount.  Agent will promptly notify Borrowing Agent of its receipt of any such notice from a Lender.  If such amount is made available to Agent on a date after such next Settlement Date, such Lender shall pay to Agent on demand an amount equal to the product of (i) the daily average Federal Funds Open Rate (computed on the basis of a year of 360 days) during such period as quoted by Agent, times (ii) such amount, times (iii) the number of days from and including such Settlement Date to the date on which such amount becomes immediately available to Agent.  A certificate of Agent submitted to any Lender with respect to any amounts owing under this paragraph (e) shall be conclusive, in the absence of manifest error.  If such amount is not in fact made available to Agent by such Lender within three (3) Business Days after such Settlement Date, Agent shall be entitled to recover such an amount, with interest thereon at the rate per annum then applicable to such Revolving Advances hereunder, on demand from Borrowers; provided, however, that Agent’s right to such recovery shall not prejudice or otherwise adversely affect Borrowers’ rights (if any) against such Lender.

 

2.21 Mandatory Prepayments.

 

(a) Subject to Section 4.3 hereof, when any Borrower sells or otherwise disposes of any Collateral other than Inventory in the Ordinary Course of Business, Borrowers 

 

  

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shall repay the Advances in an amount equal to the net proceeds of such sale (i.e., gross proceeds less the reasonable costs of such sales or other dispositions), such repayments to be made promptly but in no event more than one (1) Business Day following receipt of such net proceeds, and until the date of payment, such proceeds shall be held in trust for Agent.  The foregoing shall not be deemed to be implied consent to any such sale otherwise prohibited by the terms and conditions hereof.  Such repayments shall be applied to the outstanding Advances in such order as Agent may determine, subject to Borrowers’ ability to reborrow Revolving Advances in accordance with the terms hereof.

 

(b) Except for (i) the issuance of the Equity Interests in any Borrower, Holdings or their respective Subsidiaries for which Holdings or Borrowers have provided notice to Agent that such issuance is not to be made subject to this Section 2.21(b) or (ii) the incurrence of convertible debt by any such Persons, in each case so long as the net cash proceeds resulting therefrom are held in an account with Agent, in the event of any other issuance or other incurrence of Indebtedness or Equity Interests (including any capital contribution by Holdings, Borrowers or any of their respective Subsidiaries), Borrowers shall, no later than one (1) Business Day after the receipt by such Borrower, Holdings or any of their respective Subsidiaries of (a) the net cash proceeds from any such issuance or incurrence of Indebtedness and (b) the net cash proceeds of any issuance of Equity Interests, as the case may be, repay the Advances in an amount equal to such net cash proceeds, as applicable. Such repayments will be applied to the outstanding Advances in such order as Agent may determine in its Permitted Discretion, subject to Borrowers’ ability to reborrow Revolving Advances in accordance with the terms hereof.  The foregoing shall not be deemed to be implied consent to any such issuance or incurrence of Indebtedness or Equity Interest prohibited by the terms and conditions hereof.

 

2.22 Use of Proceeds.

 

(a) Borrowers shall apply the proceeds of Advances to (i) repay existing Indebtedness owed to Wells Fargo Bank, National Association, other than in its capacity as Ex-Im Agent, (ii) pay fees and expenses relating to this transaction, and (iii) provide for its working capital needs and reimburse drawings under Letters of Credit.

 

(b) Without limiting the generality of Section 2.22(a) above, none of the Credit Parties, nor any other Person which may in the future become party to this Agreement or the Other Documents as a Credit Party, intends to use nor shall they use any portion of the proceeds of the Advances, directly or indirectly, for any purpose in violation of the Trading with the Enemy Act.

 

2.23 Defaulting Lender.

 

(a) Notwithstanding anything to the contrary contained herein, in the event any Lender (x) has refused (which refusal constitutes a breach by such Lender of its obligations under this Agreement) to make available its portion of any Advance or (y) notifies either Agent or Borrowing Agent that it does not intend to make available its portion of any Advance (if the actual refusal would constitute a breach by such Lender of its obligations under this Agreement) (each, a “Lender Default”), all rights and obligations hereunder of such Lender (a “Defaulting Lender”) as to which a Lender Default is in effect and of the other parties hereto shall be 

 

  

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modified to the extent of the express provisions of this Section 2.23 while such Lender Default remains in effect.

 

(b) Advances shall be incurred pro rata from Lenders (the “Non-Defaulting Lenders”) which are not Defaulting Lenders based on their respective Commitment Percentages, and no Commitment Percentage of any Lender or any pro rata share of any Advances required to be advanced by any Lender shall be increased as a result of such Lender Default.  Amounts received in respect of principal of any type of Advances shall be applied to reduce the applicable Advances of each Lender (other than any Defaulting Lender) pro rata based on the aggregate of the outstanding Advances of that type of all Lenders at the time of such application; provided, that, Agent shall not be obligated to transfer to a Defaulting Lender any payments received by Agent for the Defaulting Lender’s benefit, nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder (including any principal, interest or fees).  Amounts payable to a Defaulting Lender shall instead be paid to or retained by Agent.  Agent may hold and, in its discretion, re-lend to Borrowers the amount of such payments received or retained by it for the account of such Defaulting Lender.

 

(c) A Defaulting Lender shall not be entitled to give instructions to Agent or to approve, disapprove, consent to or vote on any matters relating to this Agreement and the Other Documents.  All amendments, waivers and other modifications of this Agreement and the Other Documents may be made without regard to a Defaulting Lender and, for purposes of the definition of “Required Lenders”, a Defaulting Lender shall be deemed not to be a Lender and not to have either Advances outstanding or a Commitment Percentage.

 

(d) Other than as expressly set forth in this Section 2.23, the rights and obligations of a Defaulting Lender (including the obligation to indemnify Agent) and the other parties hereto shall remain unchanged.  Nothing in this Section 2.23 shall be deemed to release any Defaulting Lender from its obligations under this Agreement and the Other Documents, shall alter such obligations, shall operate as a waiver of any default by such Defaulting Lender hereunder, or shall prejudice any rights which any Borrower, Agent or any Lender may have against any Defaulting Lender as a result of any default by such Defaulting Lender hereunder.

 

(e) In the event a Defaulting Lender retroactively cures to the satisfaction of Agent the breach which caused a Lender to become a Defaulting Lender, such Defaulting Lender shall no longer be a Defaulting Lender and shall be treated as a Lender under this Agreement.

 

III INTEREST AND FEES.

 

3.1 Interest»

 

.  Interest on Advances shall be payable in arrears on the first day of each month with respect to Domestic Rate Loans and, with respect to Eurodollar Rate Loans, at the end of each Interest Period or, for Eurodollar Rate Loans with an Interest Period in excess of three months, at the earlier of (a) each three months from the commencement of such Eurodollar Rate Loan or (b) the end of the Interest Period.  Interest charges shall be computed on the actual principal amount of Advances outstanding during the month at a rate per annum equal to the applicable Revolving Interest Rate.  Whenever, subsequent to the date of this Agreement, the Alternate Base Rate is increased or decreased, the Revolving Interest Rate for Domestic Rate Loans shall be similarly changed without notice or demand of any kind by an amount equal to 

 

  

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the amount of such change in the Alternate Base Rate during the time such change or changes remain in effect.  The Eurodollar Rate shall be adjusted with respect to Eurodollar Rate Loans without notice or demand of any kind on the effective date of any change in the Reserve Percentage as of such effective date.  Upon and after the occurrence of an Event of Default, and during the continuation thereof, (i) at the option of Agent or at the direction of Required Lenders, the Obligations other than Eurodollar Rate Loans shall bear interest at the Revolving Interest Rate for Domestic Rate Loans plus two percent (2%) per annum and (ii) Eurodollar Rate Loans shall bear interest at the Revolving Interest Rate for Eurodollar Rate Loans plus two percent (2%) per annum (as applicable, the “Default Rate”).

 

3.2 Letter of Credit Fees.  Borrowers shall pay (x) to Agent, for the ratable benefit of Lenders, fees for each Letter of Credit for the period from and excluding the date of issuance of same to and including the date of expiration or termination, equal to the average daily face amount of each outstanding Letter of Credit multiplied by the Applicable Margin for Eurodollar Rate Loans, such fees to be calculated on the basis of a 360-day year for the actual number of days elapsed and to be payable quarterly in arrears on the first day of each quarter and on the last day of the Term, and (y) to the Issuer, a fronting fee of one quarter of one percent (0.25%) per annum, together with any and all administrative, issuance, amendment, payment and negotiation charges with respect to Letters of Credit and all fees and expenses as agreed upon by the Issuer and Borrowing Agent in connection with any Letter of Credit, including in connection with the opening, amendment or renewal of any such Letter of Credit and any acceptances created thereunder and shall reimburse Agent for any and all fees and expenses, if any, paid by Agent to the Issuer (all of the foregoing fees, the “Letter of Credit Fees”).  All such charges shall be deemed earned in full on the date when the same are due and payable hereunder and shall not be subject to rebate or pro-ration upon the termination of this Agreement for any reason.  Any such charge in effect at the time of a particular transaction shall be the charge for that transaction, notwithstanding any subsequent change in the Issuer’s prevailing charges for that type of transaction.  All Letter of Credit payable hereunder shall be deemed earned in full on the date when the same are due and payable hereunder and shall not be subject to rebate or pro-ration upon the termination of this Agreement for any reason.  Upon and after the occurrence of an Event of Default, and during the continuation thereof, at the option of Agent or at the direction of Required Lenders, the Letter of Credit Fees described in clause (x) of this Section 3.2 shall be increased by an additional two percent (2%) per annum.

 

Upon and after the occurrence of an Event of Default, and during the continuation thereof, Agent may demand that Borrowers will cause cash to be deposited and maintained in an account with Agent, as cash collateral, in an amount equal to one hundred and five percent (105%) of the Maximum Undrawn Amount of all outstanding Letters of Credit for which Agent has not fully implemented the deduction from the Formula Amount contemplated by Section 2.1(a)(y)(vi) hereof, and each Borrower hereby irrevocably authorizes Agent, in its discretion, on such Borrower’s behalf and in such Borrower’s name, to open such an account and to make and maintain deposits therein, or in an account opened by such Borrower, in the amounts required to be made by such Borrower, out of the proceeds of Receivables or other Collateral or out of any other funds of such Borrower coming into any Lender’s possession at any time.  Agent will invest such cash collateral (less applicable reserves) in such short-term money-market items as to which Agent and such Borrower mutually agree and the net return on such investments shall be credited to such account and constitute additional cash collateral.  No Borrower may withdraw 

 

  

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amounts credited to any such account except upon the occurrence of all of the following: (x) payment and performance in full of all Obligations, (y) expiration of all Letters of Credit and (z) termination of this Agreement.

 

3.3 [Reserved].

 

3.4 Fee Letter.  Borrowers shall pay the amounts required to be paid in the Fee Letter in the manner and at the times required by the Fee Letter, as such Fee Letter may be amended and restated from time to time.

 

3.5 Computation of Interest and Fees.  Interest and fees hereunder shall be computed on the basis of a year of 360 days and for the actual number of days elapsed.  If any payment to be made hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the Revolving Interest Rate for Domestic Rate Loans during such extension.

 

3.6 Maximum Charges.  In no event whatsoever shall interest and other charges charged hereunder exceed the highest rate permissible under law.  In the event interest and other charges as computed hereunder would otherwise exceed the highest rate permitted under law, such excess amount shall be first applied to any unpaid principal balance owed by Borrowers, and if the then remaining excess amount is greater than the previously unpaid principal balance, Lenders shall promptly refund such excess amount to Borrowers and the provisions hereof shall be deemed amended to provide for such permissible rate.  Notwithstanding anything to the contrary contained in this Agreement or in any Other Document, all agreements which either now are or which shall become agreements among Credit Parties, Agent and the Lenders are hereby limited so that in no contingency or event whatsoever shall the total liability for payments in the nature of interest, additional interest and other charges exceed the applicable limits imposed by any applicable usury laws.  If any payments in the nature of interest, additional interest and other charges made under this Agreement or any Other Document are held to be in excess of the limits imposed by any applicable usury laws, it is agreed that any such amount held to be in excess shall be considered payment of principal hereunder, and the indebtedness evidenced hereby shall be reduced by such amount so that the total liability for payments in the nature of interest, additional interest and other charges shall not exceed the applicable limits imposed by any applicable usury laws, in compliance with the desires of Credit Parties and Agent.  In addition, unless preempted by federal law, the Revolving Interest Rate or Default Rate, as applicable, from time to time in effect hereunder may not exceed the “weekly ceiling” from time to time in effect under Chapter 303 of the Texas Finance Code, as amended from time to time.  The foregoing provisions shall never be superseded or waived and shall control every other provision of this Agreement or any Other Document and all agreements among Borrowers and Agent and the Lenders, or their respective successors and assigns.  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 3.1 of this Agreement.  If by operation of this provision, Borrowers would be entitled to a refund of interest paid pursuant to this Agreement, each Lender agrees that 

 

  

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it shall pay to Borrowers upon Agent’s request such Lender’s Revolving Advance Commitment Percentage, of such interest to be refunded, as determined by Agent.

 

3.7 Increased Costs.  In the event that any Applicable Law or any change therein or in the interpretation or application thereof, or compliance by any Lender (for purposes of this Section 3.7, the term “Lender” shall include Agent or any Lender and any corporation or bank controlling Agent or any Lender) and the office or branch where Agent or any Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any request or directive (whether or not having the force of law) from any central bank or other financial, monetary or other authority, shall:

 

(a) subject Agent or any Lender to any tax of any kind whatsoever with respect to this Agreement or any Other Document or change the basis of taxation of payments to Agent or any Lender of principal, fees, interest or any other amount payable hereunder or under any Other Documents (except for changes in the rate of tax on the overall net income of Agent or any Lender by the jurisdiction in which it maintains its principal office);

 

(b) impose, modify or hold applicable any reserve, special deposit, assessment or similar requirement against assets held by, or deposits in or for the account of, advances or loans by, or other credit extended by, any office of Agent or any Lender, including pursuant to Regulation D of the Board of Governors of the Federal Reserve System; or

 

(c) impose on Agent or any Lender or the London interbank Eurodollar market any other condition with respect to this Agreement or any Other Document;

 

and the result of any of the foregoing is to increase the cost to Agent or any Lender of making, renewing or maintaining its Advances hereunder by an amount that Agent or such Lender deems to be material or to reduce the amount of any payment (whether of principal, interest or otherwise) in respect of any of the Advances by an amount that Agent or such Lender deems to be material, then, in any case Borrowers shall promptly pay Agent or such Lender, upon its demand, such additional amount as will compensate Agent or such Lender for such additional cost or such reduction, as the case may be; provided, that, the foregoing shall not apply to increased costs which are reflected in the Eurodollar Rate, as the case may be.  Agent or such Lender shall certify the amount of such additional cost or reduced amount to Borrowing Agent contemporaneously with any demand thereof, and such certification shall be conclusive absent manifest error.

 

3.8 Basis For Determining Interest Rate Inadequate or Unfair.  In the event that Agent or any Lender shall have determined that:

 

(a) reasonable means do not exist for ascertaining the Eurodollar Rate applicable pursuant to Section 2.2 hereof for any Interest Period; or

 

(b) Dollar deposits in the relevant amount and for the relevant maturity are not available in the London interbank Eurodollar market, with respect to an outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate Loan, or a proposed conversion of a Domestic Rate Loan into a Eurodollar Rate Loan,

 

  

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then Agent shall give Borrowing Agent prompt written or telephonic notice of such determination.  If such notice is given, (i) any such requested Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless Borrowing Agent shall notify Agent no later than 10:00 a.m. two (2) Business Days prior to the date of such proposed borrowing, that its request for such borrowing shall be cancelled or made as an unaffected type of Eurodollar Rate Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which was to have been converted to an affected type of Eurodollar Rate Loan shall be continued as or converted into a Domestic Rate Loan, or, if Borrowing Agent shall notify Agent, no later than 10:00 a.m. two (2) Business Days prior to the proposed conversion, shall be maintained as an unaffected type of Eurodollar Rate Loan, and (iii) any outstanding affected Eurodollar Rate Loans shall be converted into a Domestic Rate Loan, or, if Borrowing Agent shall notify Agent, no later than 10:00 a.m. two (2) Business Days prior to the last Business Day of the then current Interest Period applicable to such affected Eurodollar Rate Loan, shall be converted into an unaffected type of Eurodollar Rate Loan, on the last Business Day of the then current Interest Period for such affected Eurodollar Rate Loans.  Until such notice has been withdrawn, Lenders shall have no obligation to make an affected type of Eurodollar Rate Loan or maintain outstanding affected Eurodollar Rate Loans and no Borrower shall have the right to convert a Domestic Rate Loan or an unaffected type of Eurodollar Rate Loan into an affected type of Eurodollar Rate Loan.

 

3.9 Capital Adequacy.

 

(a) In the event that Agent or any Lender shall have determined that any Applicable Law or guideline regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Body, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Agent or any Lender (for purposes of this Section 3.9, the term “Lender” shall include Agent or any Lender and any corporation or bank controlling Agent or any Lender) and the office or branch where Agent or any Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on Agent or any Lender’s capital as a consequence of its obligations hereunder to a level below that which Agent or such Lender could have achieved but for such adoption, change or compliance (taking into consideration Agent’s and each Lender’s policies with respect to capital adequacy) by an amount deemed by Agent or any Lender to be material, then, from time to time, Borrowers shall pay upon demand to Agent or such Lender such additional amount or amounts as will compensate Agent or such Lender for such reduction.  In determining such amount or amounts, Agent or such Lender may use any reasonable averaging or attribution methods.  The protection of this Section 3.9 shall be available to Agent and each Lender regardless of any possible contention of invalidity or inapplicability with respect to the Applicable Law or condition.

 

(b) A certificate of Agent or such Lender setting forth such amount or amounts as shall be necessary to compensate Agent or such Lender with respect to Section 3.9(a) hereof when delivered contemporaneously with any demand thereof to Borrowing Agent shall be conclusive absent manifest error.

 

  

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3.10 Gross Up for Taxes.  If any Borrower shall be required by Applicable Law to withhold or deduct any taxes from or in respect of any sum payable under this Agreement or any of the Other Documents to Agent, or any Lender, assignee of any Lender, or Participant (each, individually, a “Payee” and collectively, the “Payees”), (a) the sum payable to such Payee or Payees, as the case may be, shall be increased as may be necessary so that, after making all required withholding or deductions, the applicable Payee or Payees receives an amount equal to the sum it would have received had no such withholding or deductions been made (the “Gross-Up Payment”), (b) such Borrower shall make such withholding or deductions, and (c) such Borrower shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with Applicable Law.  Notwithstanding the foregoing, no Borrower shall be obligated to make any portion of the Gross-Up Payment that is attributable to any withholding or deductions that would not have been paid or claimed had the applicable Payee or Payees properly claimed a complete exemption with respect thereto pursuant to Section 3.11 hereof.

 

3.11 Withholding Tax Exemption.

 

(a) Each Payee that is not incorporated under the Laws of the United States of America or a state thereof (and, upon the written request of Agent, each other Payee) agrees that it will deliver to Borrowing Agent and Agent two (2) duly completed appropriate valid Withholding Certificates (as defined under §1.1441-1(c)(16) of the Income Tax Regulations (“Regulations”)) certifying its status (i.e., U.S. or foreign person) and, if appropriate, making a claim of reduced, or exemption from, U.S. withholding tax on the basis of an income tax treaty or an exemption provided by the Code.  The term “Withholding Certificate” means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and the related statements and certifications as required under §1.1441-1(e)(2) and/or (3) of the Regulations; a statement described in §1.871-14(c)(2)(v) of the Regulations; or any other certificates under the Code or Regulations that certify or establish the status of a payee or beneficial owner as a U.S. or foreign person.

 

(b) Each Payee required to deliver to Borrowing Agent and Agent a valid Withholding Certificate pursuant to Section 3.11(a) hereof shall deliver such valid Withholding Certificate as follows:  (A) each Payee which is a party hereto on the Closing Date shall deliver such valid Withholding Certificate at least five (5) Business Days prior to the first date on which any interest or fees are payable by any Borrower hereunder for the account of such Payee; (B) each Payee shall deliver such valid Withholding Certificate at least five (5) Business Days before the effective date of such assignment or participation (unless Agent in its Permitted Discretion shall permit such Payee to deliver such Withholding Certificate less than five (5) Business Days before such date in which case it shall be due on the date specified by Agent).  Each Payee which so delivers a valid Withholding Certificate further undertakes to deliver to Borrowing Agent and Agent two (2) additional copies of such Withholding Certificate (or a successor form) on or before the date that such Withholding Certificate expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent Withholding Certificate so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by Borrowing Agent or Agent.

 

  

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(c) Notwithstanding the submission of a Withholding Certificate claiming a reduced rate of or exemption from U.S. withholding tax required under Section 3.11(b) hereof, Agent shall be entitled to withhold United States federal income taxes at the full 30% withholding rate if in its reasonable judgment it is required to do so under the due diligence requirements imposed upon a withholding agent under §1.1441-7(b) of the Regulations.  Further, Agent is indemnified under §1.1461-1(e) of the Regulations against any claims and demands of any Payee for the amount of any tax it deducts and withholds in accordance with regulations under §1441 of the Code.

 

3.12 Communications; Substitution Lender.  In the event any Lender (other than PNC) (i) gives notice under Section 2.2(g), (ii) requests compensation under Sections 3.7 or 3.9, (iii) requires Borrowers to pay any additional amount pursuant to any Lender’s status based on Section 3.11 hereof, (iii) is a Defaulting Lender or (iv) is a Non-Consenting Lender, then in any such event Borrowers may, at their sole expense, upon notice to such Lender and Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 16.3), all of its interests, rights and obligations under this Agreement and the Other Documents to an assignee acceptable to Agent and (and if no Default or Event of Default has occurred and is continuing, Borrowing Agent) that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

 

(a) Borrowers shall have paid to Agent the assignment fee specified in Section 16.3(e) hereof;

 

(b) such Lender shall have received payment of an amount equal to the outstanding principal of its outstanding Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the Other Documents (including any amounts under Section 2.17) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or Borrowers (in the case of all other amounts);

 

(c) in the case of any such assignment resulting from a claim for compensation under Sections 3.7 or 3.9, such assignment will result in a reduction in such compensation or payments thereafter; and

 

(d) such assignment does not conflict with Applicable Law.

 

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling Borrowers to require such assignment and delegation cease to apply.

 

IV COLLATERAL:  GENERAL TERMS

 

4.1 Security Interest in the Collateral.  To secure the prompt payment and performance to Agent and each Lender of the Obligations, each Borrower hereby assigns, pledges and grants to Agent for its benefit and for the ratable benefit of each Lender a continuing security interest in and to and Lien on all of its Collateral, whether now owned or existing or hereafter acquired or arising and wheresoever located.  Each Borrower shall mark its books and records as may be necessary or appropriate to evidence, protect and perfect Agent’s security 

 

  

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interest and shall cause its financial statements to reflect such security interest to the extent provided by GAAP.  Each Borrower shall promptly provide Agent with written notice of all commercial tort claims, such notice to contain the case title together with the applicable court and a brief description of the claim(s).  Upon delivery of each such notice, such Borrower shall be deemed to hereby grant to Agent a security interest and lien in and to such commercial tort claims and all proceeds thereof.

 

4.2 Perfection of Security Interest.  Each Borrower shall take all action that may be necessary or desirable, or that Agent may request, so as at all times to maintain the validity, perfection, enforceability and priority of Agent’s security interest in and Lien on the Collateral or to enable Agent to protect, exercise or enforce its rights hereunder and in the Collateral, including, but not limited to, (i) immediately discharging all Liens other than Permitted Encumbrances, (ii) obtaining Lien Waiver Agreements, (iii) delivering to Agent, endorsed or accompanied by such instruments of assignment as Agent may specify, and stamping or marking, in such manner as Agent may specify, any and all chattel paper, instruments, letters of credits and advices thereof and documents evidencing or forming a part of the Collateral, (iv) entering into warehousing, lockbox and other custodial arrangements satisfactory to Agent, and (v) executing and delivering financing statements, control agreements, instruments of pledge, mortgages, notices and assignments, in each case in form and substance satisfactory to Agent, relating to the creation, validity, perfection, maintenance or continuation of Agent’s security interest and Lien in the Collateral (including in respect of all Collateral acquired by any Borrower after the Closing Date) under the Uniform Commercial Code or other Applicable Law.  By its signature hereto, each Borrower hereby authorizes Agent to file against such Borrower, one or more financing, continuation or amendment statements pursuant to the Uniform Commercial Code in form and substance satisfactory to Agent (which statements may have a description of collateral which is broader than that set forth herein).  All charges, expenses and fees Agent may incur in doing any of the foregoing, and any local taxes relating thereto, shall be charged to Borrowers’ Account as a Revolving Advance of a Domestic Rate Loan and added to the Obligations, or, at Agent’s option, shall be paid to Agent for its benefit and for the ratable benefit of Lenders immediately upon demand.

 

4.3 Disposition of Assets.  Each Borrower will safeguard and protect all Collateral for Agent’s general account and make no disposition thereof whether by sale, lease or otherwise except (a) in connection with the discontinued operations of any Borrower, not otherwise in violation of this Agreement, (b) the sale of Inventory in the Ordinary Course of Business and (c) the disposition or transfer of obsolete and worn out Equipment in the Ordinary Course of Business during any fiscal year having an aggregate fair market value of not more than $1,000,000 and only to the extent that (i) the net proceeds of any such disposition of Equipment are used to acquire replacement or other Equipment reasonably related to any Borrower’s business which is subject to Agent’s first priority security interest or (ii) the net proceeds of which are remitted to Agent to be applied pursuant to Section 2.21.

 

4.4 Preservation of Collateral.  In addition to the rights and remedies set forth in Section 11.1 hereof, Agent: (a) may at any time take such steps as Agent deems necessary to protect Agent’s interest in and to preserve the Collateral, including the hiring of such security guards or the placing of other security protection measures as Agent may deem appropriate; (b) may employ and maintain at any of any Borrower’s premises a custodian who shall have full 

 

  

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authority to do all acts necessary to protect Agent’s interests in the Collateral; (c) after the occurrence and during the continuation of a Default or an Event of Default, may lease warehouse facilities to which Agent may move all or part of the Collateral; (d) may use any Borrower’s owned or leased lifts, hoists, trucks and other facilities or equipment for handling or removing the Collateral; and (e) shall have, and is hereby granted, a right of ingress and egress to the places where the Collateral is located, and may proceed over and through any of Borrowers’ owned or leased property.  Each Borrower shall cooperate fully with all of Agent’s efforts to preserve the Collateral and will take such actions to preserve the Collateral as Agent may direct.  All of Agent’s expenses of preserving the Collateral, including any expenses relating to the bonding of a custodian, shall be charged to Borrowers’ Account as a Revolving Advance maintained as a Domestic Rate Loan and added to the Obligations.

 

4.5 Ownership of Collateral.

 

(a) With respect to the Collateral, at the time the Collateral becomes subject to Agent’s security interest:  (i) each Borrower is, and shall remain the sole owner of and fully authorized and able to sell, transfer, pledge and/or grant a first priority security interest in each and every item of its respective Collateral to Agent; and, except for Permitted Encumbrances the Collateral shall be free and clear of all Liens and encumbrances whatsoever; (ii) each document and agreement executed by each Borrower or delivered to Agent or any Lender in connection with this Agreement shall be true and correct in all material respects; (iii) all signatures and endorsements of each Borrower that appear on such documents and agreements shall be genuine and such Borrower shall have full capacity to execute same; and (iv) each Borrower’s Equipment and Inventory shall be located as set forth on Schedule 4.5 and shall not be removed from such location(s) without the prior written consent of Agent except with respect to the sale of Inventory in the Ordinary Course of Business and Equipment to the extent permitted in Section 4.3 hereof.

 

(b) (i) There is no location at which any Borrower has any Inventory (except for Inventory in transit) other than those locations listed on Schedule 4.5; (ii) Schedule 4.5 hereto contains a correct and complete list, as of the Closing Date, of the legal names and addresses of each warehouse at which Inventory of any Borrower is stored; none of the receipts received by any Borrower from any warehouse states that the goods covered thereby are to be delivered to bearer or to the order of a named Person or to a named Person and such named Person’s assigns; (iii) Schedule 4.5 hereto sets forth a correct and complete list as of the Closing Date of (A) each place of business of each Borrower and (B) the chief executive office of each Borrower; and (iv) Schedule 4.5 hereto sets forth a correct and complete list as of the Closing Date of the location, by state and street address, of all Real Property owned or leased by any Borrower, together with the names and addresses of any landlords.

 

4.6 Defense of Agent’s and Lenders’ Interests.  Until (a) payment and performance in full of all of the Obligations and (b) termination of this Agreement and the Other Documents, Agent’s interests in the Collateral shall continue in full force and effect.  During such period no Borrower shall, without Agent’s prior written consent, pledge, sell (except Inventory in the Ordinary Course of Business and Equipment to the extent permitted in Section 4.3 hereof), assign, transfer, create or suffer to exist a Lien upon or encumber or allow or suffer to be encumbered in any way except for Permitted Encumbrances, any part of the Collateral.  Each Borrower shall defend Agent’s interests in the Collateral against any and all Persons whatsoever.  

 

  

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At any time following demand by Agent for payment of all Obligations, Agent shall have the right to take possession of the indicia of the Collateral and the Collateral in whatever physical form contained, including:  labels, stationery, documents, instruments and advertising materials.  If Agent exercises this right to take possession of the Collateral, Borrowers shall, upon demand, assemble it in the best manner possible and make it available to Agent at a place reasonably convenient to Agent.  In addition, with respect to all Collateral, Agent and Lenders shall be entitled to all of the rights and remedies set forth herein and further provided by the Uniform Commercial Code or other Applicable Law.  Each Borrower shall, and Agent may, at its option and using its Permitted Discretion, instruct all suppliers, carriers, forwarders, warehousers or others receiving or holding cash, checks, Inventory, documents or instruments in which Agent holds a security interest to deliver same to Agent and/or subject to Agent’s order and if they shall come into any Borrower’s possession, they, and each of them, shall be held by such Borrower in trust as Agent’s trustee, and such Borrower will immediately deliver them to Agent in their original form together with any necessary endorsement.

 

4.7 Books and Records.  Each Borrower shall (a) keep proper books of record and account in which full, true and correct entries will be made of all dealings or transactions of or in relation to its business and affairs; (b) set up on its books accruals with respect to all taxes, assessments, charges, levies and claims; (c) on a reasonably current basis set up on its books, from its earnings, allowances against doubtful Receivables, advances and investments and all other proper accruals (including by reason of enumeration, accruals for premiums, if any, due on required payments and accruals for depreciation, obsolescence, or amortization of properties), which should be set aside from such earnings in connection with its business; and (d) obtain Lien Waiver Agreements with respect to all premises leased by a Borrower where books and records are stored.  All determinations pursuant to this subsection shall be made in accordance with, or as required by, GAAP consistently applied in the opinion of such independent public accountant as shall then be regularly engaged by Borrowers.

 

4.8 Financial Disclosure.  Each Borrower hereby irrevocably authorizes and directs all accountants and auditors employed by such Borrower at any time during the Term to exhibit and deliver to Agent and each Lender copies of any of such Borrower’s financial statements, trial balances or other accounting records of any sort in the accountant’s or auditor’s possession, and to disclose to Agent and each Lender any information such accountants may have concerning such Borrower’s financial status and business operations; provided, that, Agent and Lenders shall provide Borrowers with prior notice of communications with such accountants or auditors so long as no Default or Event of Default shall have occurred and is continuing and shall provide contemporaneous or subsequent notice of such communications if a Default or an Event of Default has occurred. Each Borrower hereby authorizes all Governmental Bodies to furnish to Agent and each Lender copies of reports or examinations relating to such Borrower, whether made by such Borrower or otherwise; however, Agent and each Lender will attempt to obtain such information or materials directly from such Borrower prior to obtaining such information or materials from such accountants or Governmental Bodies.

 

4.9 Compliance with Laws.  Each Borrower shall comply in all material respects with all Applicable Laws with respect to the Collateral or any part thereof or to the operation of such Borrower’s business the non-compliance with which could reasonably be expected to have a Material Adverse Effect.  Each Borrower may, however, contest or dispute any Applicable Laws 

 

  

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in any reasonable manner; provided, that, any related Lien is inchoate or stayed and sufficient reserves are established to the reasonable satisfaction of Agent to protect Agent’s Lien on or security interest in the Collateral.  The assets of Borrowers at all times shall be maintained in accordance with the requirements of all insurance carriers which provide insurance with respect to the assets of Borrowers so that such insurance shall remain in full force and effect.

 

4.10 Inspection of Premises.  At all reasonable times and upon advance notice (except that no notice shall be required upon the occurrence and continuance of a Default or Event of Default), Agent and each Lender shall have full access to and the right to audit, check, inspect and make abstracts and copies from each Borrower’s books, records, audits, correspondence and all other papers relating to the Collateral and the operation of each Borrower’s business.  Agent, any Lender and their agents may enter upon any premises of any Borrower at any time during business hours and at any other reasonable time, and from time to time, for the purpose of inspecting the Collateral and any and all records pertaining thereto and the operation of such Borrower’s business.

 

4.11 Insurance.  The assets and properties of each Borrower at all times shall be maintained in accordance with the requirements of all insurance carriers which provide insurance with respect to the assets and properties of such Borrower so that such insurance shall remain in full force and effect.  Each Borrower shall bear the full risk of any loss of any nature whatsoever with respect to the Collateral.  At each Borrower’s own cost and expense in amounts and with carriers acceptable to Agent, each Borrower shall (a) keep all its insurable properties and properties in which such Borrower has an interest insured against the hazards of fire, flood, sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and for such amounts, as is customary in the case of companies engaged in businesses similar to such Borrower’s including business interruption insurance; (b) maintain a bond in such amounts as is customary in the case of companies engaged in businesses similar to such Borrower insuring against larceny, embezzlement or other criminal misappropriation of insured’s officers and employees who may either singly or jointly with others at any time have access to the assets or funds of such Borrower either directly or through authority to draw upon such funds or to direct generally the disposition of such assets; (c) maintain public and product liability insurance against claims for personal injury, death or property damage suffered by others; (d) maintain all such worker’s compensation or similar insurance as may be required under the laws of any state or jurisdiction in which such Borrower is engaged in business; and (e) furnish Agent with (i) copies of all policies and evidence of the maintenance of such policies by the renewal thereof at least thirty (30) days before any expiration date, and (ii) appropriate lender loss payable endorsements in form and substance satisfactory to Agent, naming Agent as an additional insured and lender loss payee as its interests may appear with respect to all insurance coverage referred to in clauses (a), and (c) above, and providing (A) that all proceeds thereunder shall be payable to Agent, (B) no such insurance shall be affected by any act or neglect of the insured or owner of the property described in such policy, and (C) that such policy and loss payable clauses may not be cancelled, amended or terminated unless at least thirty (30) days’ prior written notice is given to Agent.  In the event of any loss thereunder, the carriers named therein hereby are directed by Agent and the applicable Borrower to make payment for such loss to Agent and not to such Borrower and Agent jointly.  If any insurance losses are paid by check, draft or other instrument payable to any Borrower and Agent jointly, Agent may endorse such Borrower’s name thereon and do such other things as Agent may deem advisable to reduce the same to cash.  

 

  

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Agent is hereby authorized to adjust and compromise claims under insurance coverage referred to in clauses (a), and (b) above.  All loss recoveries received by Agent upon any such insurance may be applied to the Obligations, in such order as Agent in its Permitted Discretion shall determine.  Any surplus shall be paid by Agent to Borrowers or applied as may be otherwise required by law.  Any deficiency thereon shall be paid by Borrowers to Agent, on demand.

 

4.12 Failure to Pay Insurance.  If any Borrower fails to obtain insurance as hereinabove provided, or to keep the same in force, Agent, if Agent so elects, may obtain such insurance and pay the premium therefor on behalf of such Borrower, and charge Borrowers’ Account therefor as a Revolving Advance of a Domestic Rate Loan and such expenses so paid shall be part of the Obligations.

 

4.13 Payment of Taxes.  Each Borrower will pay, when due, all taxes, assessments and other Charges lawfully levied or assessed upon such Borrower or any of the Collateral including real and personal property taxes, assessments and charges and all franchise, income, employment, social security benefits, withholding, and sales taxes (unless such taxes, assessments and other Charges are being Properly Contested).  If any tax by any Governmental Body is or may be imposed on or as a result of any transaction between any Borrower and Agent or any Lender which Agent or any Lender may be required to withhold or pay or if any taxes, assessments, or other Charges remain unpaid after the date fixed for their payment, or if any claim shall be made which, in Agent’s or any Lender’s opinion, may possibly create a valid Lien on the Collateral, Agent may without notice to Borrowers pay the taxes, assessments or other Charges and each Borrower hereby indemnifies and holds Agent and each Lender harmless in respect thereof.  Agent will not pay any taxes, assessments or Charges to the extent that any applicable Borrower has Properly Contested those taxes, assessments or Charges.  The amount of any payment by Agent under this Section 4.13 shall be charged to Borrowers’ Account as a Revolving Advance maintained as a Domestic Rate Loan and added to the Obligations and, until Borrowers shall furnish Agent with an indemnity therefor (or supply Agent with evidence satisfactory to Agent that due provision for the payment thereof has been made), Agent may hold without interest any balance standing to Borrowers’ credit and Agent shall retain its security interest in and Lien on any and all Collateral held by Agent.

 

4.14 Payment of Leasehold Obligations.  Each Borrower shall at all times pay, when and as due, its rental obligations under all leases under which it is a tenant, and shall otherwise comply, in all material respects, with all other material terms of such leases and keep them in full force and effect and, at Agent’s specific request will provide evidence of having done so.

 

4.15 Receivables.

 

(a) Nature of Receivables.  Each of the Receivables shall be a bona fide and valid account representing a bona fide indebtedness incurred by the Customer therein named, for a fixed sum as set forth in the invoice relating thereto (provided, that, immaterial or unintentional invoice errors shall not be deemed to be a breach hereof) with respect to an absolute sale or lease and delivery of goods upon stated terms of a Borrower, or work, labor or services theretofore rendered by a Borrower as of the date each Receivable is created.  Same shall be due and owing in accordance with the applicable Borrower’s standard terms of sale without dispute, setoff or 

 

  

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counterclaim except as may be stated on the accounts receivable schedules delivered by Borrowers to Agent.

 

(b) Solvency of Customers.  Each Customer, to the best of each Borrower’s knowledge, as of the date each Receivable is created, is and will be solvent and able to pay all Receivables on which the Customer is obligated in full when due or with respect to such Customers of any Borrower who are not solvent such Borrower has set up on its books and in its financial records bad debt reserves adequate to cover such Receivables.

 

(c) Location of Borrowers.  Borrowers’ chief executive office is located at 654 N. Sam Houston Parkway – Suite 400, Houston, TX 77060.  Until written notice is given to Agent by Borrowing Agent of any other office at which any Borrower keeps its records pertaining to Receivables, all such records shall be kept at such executive office or other location that is the subject of a Lien Waiver Agreement.

 

(d) Collection of Receivables.  Until any Borrower’s authority to do so is terminated by Agent (which notice Agent may give at any time following the occurrence of an Event of Default or a Default or when Agent in its Permitted Discretion deems it to be in Lenders’ best interest to do so), each Borrower will, at such Borrower’s sole cost and expense, but on Agent’s behalf and for Agent’s account, collect as Agent’s property and in trust for Agent all amounts received on Receivables and shall not commingle such collections with any Borrower’s funds or use the same except to pay Obligations.  Each Borrower shall deposit in the Blocked Account or, upon request by Agent, deliver to Agent, in original form and on the date of receipt thereof, all checks, drafts, notes, money orders, acceptances, cash and other evidences of Indebtedness.

 

(e) Notification of Assignment of Receivables.  At any time following the occurrence and continuation of an Event of Default, Agent shall have the right to send notice of the assignment of, and Agent’s security interest in and Lien on, the Receivables to any and all Customers or any third party holding or otherwise concerned with any of the Collateral.  Thereafter, Agent shall have the sole right to collect the Receivables, take possession of the Collateral, or both.  Agent’s actual, collection expenses, including, but not limited to, stationery and postage, telephone and telegraph, secretarial and clerical expenses and the salaries of any collection personnel used for collection, may be charged to Borrowers’ Account and added to the Obligations.

 

(f) Power of Agent to Act on Borrowers’ Behalf.  Agent shall have the right to receive, endorse, assign, and/or deliver in the name of Agent or any Borrower any and all checks, drafts and other instruments for the payment of money relating to the Receivables, and each Borrower hereby waives notice of presentment, protest and non-payment of any instrument so endorsed.  Each Borrower hereby constitutes Agent or Agent’s designee as such Borrower’s attorney with power (i) to endorse such Borrower’s name upon any notes, acceptances, checks, drafts, money orders or other evidences of payment or Collateral; (ii) to sign such Borrower’s name on any invoice or bill of lading relating to any of the Receivables, drafts against Customers, assignments and verifications of Receivables, in each case, upon and during the continuance of an Event of Default; (iii) to send verifications of Receivables to any Customer; (iv) to authorize the filing of financing statements and to sign such Borrower’s name on any 

 

  

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documents or instruments deemed necessary or appropriate by Agent to preserve, protect, or perfect Agent’s interest in the Collateral and to file same; (v) to demand payment of the Receivables upon and during the continuance of an Event of Default; (vi) to enforce payment of the Receivables by legal proceedings or otherwise upon and during the continuance of an Event of Default; (vii) to exercise all of such Borrower’s rights and remedies with respect to the collection of the Receivables and any other Collateral upon and during the continuance of an Event of Default; (viii) to settle, adjust, compromise, extend or renew the Receivables upon and during the continuance of an Event of Default; (ix) to settle, adjust or compromise any legal proceedings brought to collect Receivables upon and during the continuance of an Event of Default; (x) to prepare, file and sign such Borrower’s name on a proof of claim in bankruptcy or similar document against any Customer upon and during the continuance of an Event of Default; (xi) to prepare, file and sign such Borrower’s name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the Receivables upon and during the continuance of an Event of Default; and (xii) to do all other acts and things necessary to carry out this Agreement.  All acts of said attorney or designee are hereby ratified and approved, and said attorney or designee shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or of law (INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR INACTION ARISING FROM AGENT’S OR LENDER’S NEGLIGENCE OR STRICT LIABILITY), unless done by willful misconduct or with gross (not mere) negligence (as determined by a court of competent jurisdiction in a final non-appealable judgment); this power being coupled with an interest is irrevocable while any of the Obligations remain unpaid.  Agent shall have the right at any time following the occurrence of an Event of Default, to change the address for delivery of mail addressed to any Borrower to such address as Agent may designate and to receive, open and dispose of all mail addressed to any Borrower.

 

(g) No Liability.  Neither Agent nor any Lender shall, under any circumstances or in any event whatsoever, have any liability for any error or omission or delay of any kind (INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR INACTION ARISING FROM AGENT’S OR ANY LENDER’S NEGLIGENCE OR STRICT LIABILITY) occurring in the settlement, collection or payment of any of the Receivables or any instrument received in payment thereof, or for any damage resulting therefrom.  Following the occurrence of an Event of Default Agent may, without notice or consent from any Borrower, sue upon or otherwise collect, extend the time of payment of, compromise or settle for cash, credit or upon any terms any of the Receivables or any other securities, instruments or insurance applicable thereto and/or release any obligor thereof.  Agent is authorized and empowered to accept following the occurrence of an Event of Default the return of the goods represented by any of the Receivables, without notice to or consent by any Borrower, all without discharging or in any way affecting any Borrower’s liability hereunder.

 

(h) Establishment of a Lockbox Account, Dominion Account.  All proceeds of Collateral shall be deposited by Borrowers into either (i) a lockbox account, dominion account or such other “blocked account” (“Blocked Accounts”) established at a bank or banks (each such bank, a “Blocked Account Bank”) pursuant to an arrangement with such Blocked Account Bank as may be selected by Borrowing Agent and be acceptable to Agent or (ii) depository accounts (“Depository Accounts”) established at Agent for the deposit of such proceeds.  Each applicable Borrower, Agent and each Blocked Account Bank shall enter into a deposit account control 

 

  

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agreement in form and substance satisfactory to Agent directing such Blocked Account Bank to transfer such funds so deposited to Agent, either to any account maintained by Agent at said Blocked Account Bank or by wire transfer to appropriate account(s) of Agent.  For the avoidance of doubt, payments in respect of the Receivables generated from the Caspian Contracts securing the Ex-Im Credit Agreement shall be paid into the Blocked Account or Depository Account in favor of Agent in accordance with this subsection (h) and the Ex-Im Intercreditor Agreement.  All funds deposited in such Blocked Accounts shall immediately become the property of Agent and Borrowing Agent shall obtain the agreement by such Blocked Account Bank to waive any offset rights against the funds so deposited.  Neither Agent nor any Lender assumes any responsibility for such blocked account arrangement, including any claim of accord and satisfaction or release with respect to deposits accepted by any Blocked Account Bank thereunder.  Borrowing Agent shall notify each Customer of any Borrower to send all future payments owed to a Borrower by such Customer, including, but not limited to, payments on any Receivable, to a Blocked Account or Depository Account, (i) with respect to any Person that is a Customer of any Borrower on the Closing Date, within sixty (60) days of the Closing Date and (ii) with respect to any Person that is not a Customer on the Closing Date, promptly upon such Person becoming a Customer of a Borrower.  If any Borrower shall receive any collections or other proceeds of the Collateral, such Borrower shall hold such collections or proceeds in trust for the benefit of Agent and deposit such collections or proceeds into a Blocked Account or Depository Account within one (1) Business Day following such Borrower’s receipt thereof.  All Deposit Accounts, investment accounts and other bank accounts of any Credit Party, including, without limitation, all Blocked Accounts and Depository Accounts are described and set forth on Schedule 4.15(h) hereto.

 

(i) Adjustments.  No Borrower will, without Agent’s consent, compromise or adjust any Receivables (or extend the time for payment thereof) or accept any returns of merchandise or grant any additional discounts, allowances or credits thereon except for those compromises, adjustments, returns, discounts, credits and allowances as have been heretofore customary in the business of such Borrower.

 

4.16 Inventory.  To the extent Inventory held for sale or lease has been produced by any Borrower, it has been and will be produced by such Borrower in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations and orders thereunder.

 

4.17 Maintenance of Equipment.  The Equipment shall be maintained in good operating condition and repair (reasonable wear and tear excepted) 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.  No Borrower shall use or operate the Equipment in violation of any law, statute, ordinance, code, rule or regulation.  Each Borrower shall have the right to sell Equipment to the extent set forth in Section 4.3 hereof.

 

4.18 Exculpation of Liability.  Nothing herein contained shall be construed to constitute Agent or any Lender as any Borrower’s agent for any purpose whatsoever, nor shall Agent or any Lender be responsible or liable for any shortage, discrepancy, damage, loss or destruction of any part of the Collateral wherever the same may be located and regardless of the cause thereof (INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR INACTION ARISING FROM AGENT’S OR ANY LENDER’S NEGLIGENCE OR 

 

  

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STRICT LIABILITY).  Neither Agent nor any Lender, whether by anything herein or in any assignment or otherwise, assume any of any Borrower’s obligations under any contract or agreement assigned to Agent or such Lender, and neither Agent nor any Lender shall be responsible in any way for the performance by any Borrower of any of the terms and conditions thereof.

 

4.19 Environmental Matters.

 

(a) Borrowers shall ensure that the Real Property and all operations and businesses conducted thereon remains in material compliance with all Environmental Laws and they shall not place or permit to be placed any Hazardous Substances on any Real Property except in accordance with Applicable Law or appropriate governmental authorities.

 

(b) Borrowers shall establish and maintain a system to assure and monitor continued compliance with all applicable Environmental Laws which system shall include periodic reviews of such compliance.

 

(c) Borrowers shall (i) employ in connection with the use of the Real Property appropriate technology necessary to maintain compliance with any applicable Environmental Laws and (ii) to the extent required by any applicable Environmental Laws, dispose of any and all Hazardous Waste generated at the Real Property only at facilities and with carriers that maintain valid permits under RCRA and any other applicable Environmental Laws.

 

(d) In the event any Borrower or any of their respective Subsidiaries obtains, gives or receives written notice of any Release or threat of Release of a reportable quantity of any Hazardous Substances at the Real Property (any such event being hereinafter referred to as a “Hazardous Discharge”) or receives with respect to Environmental Laws or Hazardous Discharge, any written notice of violation, written request for information or notification that it is potentially responsible for investigation or cleanup of Hazardous Discharge at the Real Property, demand letter or complaint, order, citation, or other written notice with regard to any Hazardous Discharge or violation of Environmental Laws affecting the Real Property or such Borrower’s interest therein (any of the foregoing is referred to herein as an “Environmental Complaint”) from any Person, including any state agency responsible in whole or in part for environmental matters in the state in which the Real Property is located or the United States Environmental Protection Agency (any such person or entity hereinafter the “Authority”), then Borrowing Agent shall, and shall cause such Subsidiary, as applicable, within five (5) Business Days, give written notice of same to Agent detailing facts and circumstances of which any Borrower is aware giving rise to the Hazardous Discharge or Environmental Complaint.  Such information is to be provided to allow Agent to protect its security interest in and Lien on the Real Property and the Collateral and is not intended to create nor shall it create any obligation upon Agent or any Lender with respect thereto.

 

(e) Borrowing Agent shall promptly forward to Agent copies of any request for information, notification of potential liability, demand letter relating to potential responsibility with respect to the investigation or cleanup of Hazardous Substances at any other site owned, operated or used by any Borrower to dispose of Hazardous Substances and shall continue to forward copies of material correspondence between any Borrower and the Authority 

 

  

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regarding such claims to Agent until the claim is settled.  Borrowing Agent shall promptly forward to Agent copies of all documents and reports concerning a Hazardous Discharge at the Real Property that any Borrower is required to file under any Environmental Laws.  Such information is to be provided solely to allow Agent to protect Agent’s security interest in and Lien on the Real Property and the Collateral.

 

(f) As required by Environmental Law, Borrowers shall respond promptly to any Hazardous Discharge or Environmental Complaint and take all necessary in order to comply with Environmental Laws.  If any Borrower shall fail to respond promptly to any Hazardous Discharge or Environmental Complaint or any Borrower shall fail to comply with any of the material requirements of any Environmental Laws, Agent on behalf of Lenders may, but without the obligation to do so, for the sole purpose of protecting Agent’s interest in the Collateral:  (A) give such notices or (B) enter onto the Real Property (or authorize third parties to enter onto the Real Property) and take such actions as Agent (or such third parties as directed by Agent) deem reasonably necessary or advisable, to clean up, remove, mitigate or otherwise deal with any such Hazardous Discharge or Environmental Complaint.  All reasonable costs and expenses incurred by Agent and Lenders (or such third parties) in the exercise of any such rights, including any sums paid in connection with any judicial or administrative investigation or proceedings, fines and penalties, together with interest thereon from the date expended at the Default Rate for Domestic Rate Loans constituting Revolving Advances shall be paid upon demand by Borrowers, and until paid shall be added to and become a part of the Obligations secured by the Liens created by the terms of this Agreement or any other agreement between Agent, any Lender and any Borrower.

 

(g) Promptly upon the written request of Agent from time to time, Borrowers shall provide Agent, at Borrowers’ expense, with an environmental site assessment or environmental audit report prepared by an environmental engineering firm acceptable in the reasonable opinion of Agent, to assess with a reasonable degree of certainty the existence of a Hazardous Discharge based on supportable information regarding the potential existence thereof and the potential costs in connection with abatement, cleanup and removal of any Hazardous Substances found on, under, at or within the Real Property.  Any report or investigation of such Hazardous Discharge proposed and acceptable to an appropriate Authority that is charged to oversee the clean-up of such Hazardous Discharge shall be acceptable to Agent.  If such estimates, individually or in the aggregate, exceed $500,000, Agent shall have the right to require Borrowers to post a bond, letter of credit or other security reasonably satisfactory to Agent to secure payment of these costs and expenses.

 

(h) Borrowers shall defend and indemnify Agent and Lenders and hold Agent, Lenders and their respective employees, agents, directors and officers harmless from and against all loss, liability (INCLUDING, WITHOUT LIMITATION, ANY STRICT LIABILITY), damage and expense, claims, costs, fines and penalties, including attorney’s fees, suffered or incurred by Agent or Lenders under or on account of any Environmental Laws, including the assertion of any Lien thereunder, with respect to any Hazardous Discharge, the presence of any Hazardous Substances affecting the Real Property, whether or not the same originates or emerges from the Real Property or any contiguous real estate, including any loss of value of the Real Property as a result of the foregoing (INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR INACTION ARISING FROM AGENT’S OR LENDER’S 

 

  

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NEGLIGENCE OR STRICT LIABILITY), except to the extent such loss, liability , damage and expense is attributable to any Hazardous Discharge resulting from actions on the part of Agent or any Lender.  Borrowers’ obligations under this Section 4.19 shall arise upon the discovery of the material presence of any Hazardous Substances at the Real Property, whether or not any federal, state, or local environmental agency has taken or threatened any action in connection with the presence of any Hazardous Substances.  Borrowers’ obligation and the indemnifications hereunder shall survive the termination of this Agreement.

 

(i) For purposes of Section 4.19 and 5.7, all references to Real Property shall be deemed to include all of each Borrower’s right, title and interest in and to its owned and leased premises.

 

4.20 Financing Statements.  Except as respect to the financing statements filed by Agent and the financing statements described on Schedule 1.2, no financing statement covering any of the Collateral or any proceeds thereof is on file in any public office.

 

V REPRESENTATIONS AND WARRANTIES.

 

Each Borrower represents and warrants as follows:

 

5.1 Authority.  Each Borrower has full power, authority and legal right to enter into this Agreement and the Other Documents and to perform all its respective Obligations hereunder and thereunder.  This Agreement, the Ex-Im Intercreditor Agreement and the Other Documents have been duly executed and delivered by each Borrower, and this Agreement, the Ex-Im Intercreditor Agreement and the Other Documents constitute the legal, valid and binding obligation of such Borrower, enforceable in accordance with their terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors’ rights generally.  The execution, delivery and performance of this Agreement and of the Other Documents (a) are within the applicable Borrower’s corporate, or limited liability company powers, as the case may be, have been duly authorized by all necessary corporate or company action, as applicable, are not in contravention of law or the terms of such Borrower’s Organizational Documents or of any material agreement or undertaking to which such Borrower is a party or by which such Borrower is bound, (b) will not conflict with or violate any law or regulation, or any judgment, order or decree of any Governmental Body, (c) will not require the Consent of any Governmental Body or any other Person, except those Consents set forth on Schedule 5.1 hereto, all of which will have been duly obtained, made or compiled prior to the Closing Date and which are in full force and effect and (d) will not conflict with, nor result in any breach in any of the provisions of or constitute a default under or result in the creation of any Lien except Permitted Encumbrances upon any asset of such Borrower under the provisions of any agreement, charter document, instrument, by-law, operating agreement or other instrument to which such Borrower is a party or by which it or its property is a party or by which it may be bound.

 

5.2 Formation and Qualification.

 

(a) Each Borrower is duly incorporated or formed, as applicable, and in good standing under the laws of the state listed on Schedule 5.2(a), and is qualified to do business and 

 

  

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is in good standing in the states listed on Schedule 5.2(a) which constitute all states in which qualification and good standing are necessary for such Borrower to conduct its business and own its property and where the failure to so qualify could reasonably be expected to have a Material Adverse Effect on such Borrower.  Each Borrower has delivered to Agent true and complete copies of its Organizational Documents and will promptly notify Agent of any amendment or changes thereto.

 

(b) The only Subsidiaries of Holdings and each Borrower are listed on Schedule 5.2(b).  The Equity Interests of each Borrower are presently held by the Persons identified on Schedule 5.2(b), in the numbers of interests set forth thereon.

 

(c) All accrued but unpaid dividends owing on account of the Equity Interests of each Borrower as of the Closing Date are set forth on Schedule 5.2(c).

 

5.3 Survival of Representations and Warranties.  All representations and warranties of the Credit Parties contained in this Agreement and the Other Documents shall be true at the time of such Borrower’s execution of this Agreement and the Other Documents, and shall survive the execution, delivery and acceptance thereof by the parties thereto and the closing of the transactions described therein or related thereto.

 

5.4 Tax Returns.  Each Borrower’s federal tax identification number is set forth on Schedule 5.4.  Each Borrower has filed all federal, state, local and foreign (if applicable) tax returns and other reports or proper extensions thereof that each is required by law to file and, except with any properly obtained extensions, has paid all taxes, assessments, fees and other governmental charges that are due and payable.  Federal, state and local income tax returns of each Borrower have been examined and reported upon by the appropriate taxing authority or closed by applicable statute and satisfied for all fiscal years prior to and including the fiscal year ending 2011.  The provision for taxes on the books of each Borrower is adequate for all years not closed by applicable statutes, and for its current fiscal year, and no Borrower has knowledge of any deficiency or additional assessment in connection therewith not provided for on its books, and the charges, accruals and reserves on the books of Holdings and its Subsidiaries in respect of federal, state and local and/or foreign taxes for all such years and for the current fiscal year.

 

5.5 Financial Statements.

 

(a) The pro forma balance sheet of Holdings and its Subsidiaries on a consolidated basis (the “Pro Forma Balance Sheet”) furnished to Agent on the Closing Date reflects the consummation of the transactions contemplated under this Agreement (collectively, the “Transactions”) and is accurate, complete and correct and fairly reflects the financial condition of Borrowers on a Consolidated Basis as of the Closing Date after giving effect to the Transactions, and has been prepared in accordance with GAAP, consistently applied.  The Pro Forma Balance Sheet has been certified as accurate, complete and correct in all material respects by the President and Chief Financial Officer of Borrowing Agent.  All financial statements referred to in this subsection 5.5(a), including the related schedules and notes thereto, have been prepared, in accordance with GAAP, except as may be disclosed in such financial statements.

 

  

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(b) The twelve-month cash flow projections of Borrowers on a Consolidated Basis and their projected balance sheets as of the Closing Date, copies of which are annexed hereto as Exhibit 5.5(b) (the “Projections”) were prepared by an Authorized Officer of Holdings, are based on underlying assumptions which provide a reasonable basis for the projections contained therein and reflect Holdings’ judgment based on present circumstances of the most likely set of conditions and course of action for the projected period.  The cash flow Projections together with the Pro Forma Balance Sheet, are referred to as the “Pro Forma Financial Statements”.

 

(c) The consolidated and consolidating balance sheets of Holdings, its Subsidiaries and such other Persons described therein (including the accounts of all Subsidiaries for the respective periods during which a subsidiary relationship existed) as of December 31, 2011, and the related statements of income, changes in stockholder’s equity, and changes in cash flow for the period ended on such date, all accompanied by reports thereon containing opinions without qualification by independent certified public accountants, copies of which have been delivered to Agent, have been prepared in accordance with GAAP, consistently applied (except for changes in application in which such accountants concur) and present fairly the financial position of Holdings and its Subsidiaries at such date and the results of their operations for such period.  Since December 31, 2011 there has been no change in the condition, financial or otherwise, of Holdings or its Subsidiaries as shown on the consolidated balance sheet as of such date and no change in the aggregate value of machinery, equipment and Real Property owned by Holdings and its Subsidiaries, except changes which could not reasonably be expected to cause a Material Adverse Effect or changes in the Ordinary Course of Business, none of which individually or in the aggregate could reasonably be expected to cause a Material Adverse Effect.

 

5.6 Entity Name.  No Borrower has been known by any other corporate name in the past five years and no Borrower sells Inventory or provides services under any other name except as set forth on Schedule 5.6, nor has any Borrower been the surviving Person of a merger or consolidation or acquired all or substantially all of the assets of any Person during the preceding five (5) years except as set forth on Schedule 5.6.

 

5.7 O.S.H.A. and Environmental Compliance.

 

(a) Each Borrower has duly complied with, and its facilities, business, assets, property, leaseholds, Real Property and Equipment are in compliance in all material respects with, the provisions of the Federal Occupational Safety and Health Act, the Environmental Protection Act, RCRA and all other Environmental Laws; there have been no outstanding citations, written notices or orders of non-compliance issued to any Borrower or relating to its business, assets, property, leaseholds or Equipment under any such laws, rules or regulations.

 

(b) Each Borrower has been issued all required federal, state and local licenses, certificates or permits relating to all applicable Environmental Laws.

 

(c) (i) There are no visible signs of releases, spills, discharges, leaks or disposal (collectively referred to as “Releases”) of Hazardous Substances at, upon, under or within any Real Property or any premises leased by any Borrower which could reasonably be expected to cause or give rise to a Material Adverse Effect; (ii) to the best of Borrowers’ 

 

  

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knowledge, there are no underground storage tanks or polychlorinated biphenyls on the Real Property; (iii) to the best of Borrowers’ knowledge, the Real Property has never been used as a treatment, storage or disposal facility of Hazardous Waste; and (iv) to the best of Borrowers’ knowledge, no Hazardous Substances are present on the Real Property, excepting such quantities as are (x) handled in accordance with all applicable manufacturer’s instructions and Environmental Laws and in proper storage containers and as are necessary for the operation of the commercial business of Borrowers or their respective tenants or (y) in material compliance with all applicable Environmental Laws.

 

5.8 Solvency; No Litigation, Violation, Indebtedness or Default.

 

(a) Each Borrower is, and after giving effect to the Transactions, will be solvent, able to pay its debts as they mature, and has, and after giving effect to the Transactions, will have capital sufficient to carry on its business and all businesses in which it is about to engage, and (i) as of the Closing Date, the fair present saleable value of its assets, calculated on a going concern basis, is in excess of the amount of its liabilities and (ii) subsequent to the Closing Date, the fair saleable value of its assets (calculated on a going concern basis) will be in excess of the amount of its liabilities.

 

(b) Except as disclosed in Schedule 5.8(b), no Borrower has (i) any pending or threatened litigation, arbitration, actions or proceedings which could reasonably be expected to cause or result in a Material Adverse Effect, or (ii) any liabilities or indebtedness for borrowed money other than the Obligations.

 

(c) No Borrower is in violation of any Applicable Law in any respect which could reasonably be expected to have a Material Adverse Effect, nor is any Borrower in violation of any order of any court, Governmental Body or arbitration board or tribunal.

 

(d) No Borrower, nor any member of the Controlled Group, maintains or contributes to any Plan other than (i) as of the Closing Date, those listed on Schedule 5.8(d) hereto and (ii) thereafter, as permitted under this Agreement.  Except as set forth on Schedule 5.8(d), (i) no Plan has incurred any “accumulated funding deficiency,” as defined in Section 302(a)(2) of ERISA and Section 412(a) of the Code, whether or not waived, and each Borrower and each member of the Controlled Group has met all applicable minimum funding requirements under Section 302 of ERISA in respect of each Plan; (ii) each Plan which is intended to be a qualified plan under Section 401(a) of the Code as currently in effect has been determined by the Internal Revenue Service to be qualified under Section 401(a) of the Code and the trust related thereto is exempt from federal income tax under Section 501(a) of the Code; (iii) neither any Borrower nor any member of the Controlled Group has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due which are unpaid; (iv) no Plan has been terminated by the plan administrator thereof nor by the PBGC, and there is no occurrence which would cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Plan; (v) at this time, the current value of the assets of each Plan exceeds the present value of the accrued benefits and other liabilities of such Plan and neither any Borrower nor any member of the Controlled Group knows of any facts or circumstances which would materially change the value of such assets and accrued benefits and other liabilities; (vi) neither any Borrower nor any member of the Controlled Group has breached 

 

  

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any of the responsibilities, obligations or duties imposed on it by ERISA with respect to any Plan; (vii) neither any Borrower nor any member of a Controlled Group has incurred any liability for any excise tax arising under Section 4972 or 4980B of the Code, and no fact exists which could give rise to any such liability; (viii) neither any Borrower nor any member of the Controlled Group nor any fiduciary of, nor any trustee to, any Plan, has engaged in a “prohibited transaction” described in Section 406 of the ERISA or Section 4975 of the Code nor taken any action which would constitute or result in a Termination Event with respect to any such Plan which is subject to ERISA; (ix) each Borrower and each member of the Controlled Group has made all contributions due and payable with respect to each Plan; (x) there exists no event described in Section 4043(b) of ERISA, for which the thirty (30) day notice period has not been waived; (xi) neither any Borrower nor any member of the Controlled Group has any fiduciary responsibility for investments with respect to any plan existing for the benefit of persons other than employees or former employees of any Borrower and any member of the Controlled Group; (xii) neither any Borrower nor any member of the Controlled Group maintains or contributes to any Plan which provides health, accident or life insurance benefits to former employees, their spouses or dependents, other than in accordance with Section 4980B of the Code; (xiii) neither any Borrower nor any member of the Controlled Group has withdrawn, completely or partially, from any Multiemployer Plan so as to incur liability under the Multiemployer Pension Plan Amendments Act of 1980 and there exists no fact which would reasonably be expected to result in any such liability; and (xiv) no Plan fiduciary (as defined in Section 3(21) of ERISA) has any liability for breach of fiduciary duty or for any failure in connection with the administration or investment of the assets of a Plan.

 

5.9 Patents, Trademarks, Copyrights and Licenses.  All material patents, patent applications, trademarks, trademark applications, service marks, service mark applications, copyrights, copyright applications, design rights, trade names, trade name applications, domain names, domain name applications, assumed names, trade secrets and licenses (except for ‘shrink wrap’ licenses in respect of mass-marketed software licenses generally commercially available) owned or utilized by any Borrower are set forth on Schedule 5.9, are valid and have been duly registered or filed with all appropriate Governmental Bodies and constitute all of the intellectual property rights which are necessary for the material operation of its business; to the best of Borrowers’ knowledge, there is no objection to or pending challenge to the validity of any such patent, trademark, copyright, design rights, trade name, trade name application, trade secret, domain name, domain name applications or license (except for ‘shrink wrap’ licenses in respect of mass-marketed software licenses generally commercially available) and no Borrower is aware of any grounds for any challenge, except as set forth in Schedule 5.9 hereto.  Each to the best of Borrowers’ knowledge, each patent, patent application, patent license, trademark, trademark application, trademark license, service mark, service mark application, service mark license, trade name, trade name application, domain name, domain name application, design rights, copyright, copyright application and copyright license owned or held by any Borrower and all trade secrets used by any Borrower consist of original material or property developed by such Borrower or was lawfully acquired by such Borrower from the proper and lawful owner or agent thereof.  Each of such items has been maintained so as to preserve the value thereof from the date of creation or acquisition thereof.  With respect to all software used by any Borrower, which is the property of such Borrower, such Borrower is in possession of all source and object codes related to each piece of software or is the beneficiary of a source code escrow agreement, each such source code escrow agreement being listed on Schedule 5.9 hereto.

 

  

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5.10 Licenses and Permits.  Except as set forth in Schedule 5.10, each Borrower (a) is in material compliance with and (b) has procured and is now in possession of, all material licenses or permits required by any applicable federal, state, provincial or local law, rule or regulation for the operation of its business in each jurisdiction wherein it is now conducting or proposes to conduct business and where such noncompliance or failure to procure such licenses or permits could have a Material Adverse Effect.

 

5.11 Default of Indebtedness.  No Borrower is in default in the payment of the principal of or interest on any Indebtedness or under any instrument or agreement under or subject to which any Indebtedness has been issued and no event has occurred under the provisions of any such instrument or agreement which with or without the lapse of time or the giving of notice, or both, constitutes or would constitute an event of default thereunder.

 

5.12 No Default.  No Borrower is in material default in the payment or performance of any of its contractual obligations under any Material Contract.

 

5.13 No Burdensome Restrictions.  No Borrower is party to any contract or agreement the performance of which could have a Material Adverse Effect.  Each Borrower has heretofore delivered to Agent true and complete copies of all Material Contracts to which it is a party or to which it or any of its properties is subject.  No Borrower has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien which is not a Permitted Encumbrance.

 

5.14 No Labor Disputes.  No Borrower is involved in any labor dispute; there are no strikes or walkouts or union organization of any Borrower’s employees threatened or in existence and no labor contract is scheduled to expire during the Term other than as set forth on Schedule 5.14 hereto.

 

5.15 Margin Regulations.  No Borrower is engaged, nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect.  No part of the proceeds of any Advance will be used for “purchasing” or “carrying” “margin stock” as defined in Regulation U of such Board of Governors.

 

5.16 Investment Company Act.  No Borrower is an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended, nor is it controlled by such a company.

 

5.17 Disclosure.  No representation or warranty made by any Borrower in this Agreement, or in any financial statement, report, certificate or any other document furnished in connection herewith or therewith contains any untrue statement of fact or omits to state any fact necessary to make the statements herein or therein not materially misleading.  There is no fact known to any Borrower or which reasonably should be known to any Borrower which such 

 

  

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Borrower has not disclosed to Agent in writing with respect to the transactions contemplated by this Agreement which could reasonably be expected to have a Material Adverse Effect.

 

5.18 Swaps.  No Borrower is a party to, nor will it be a party to, any swap agreement whereby such Borrower has agreed or will agree to swap interest rates or currencies unless same provides that damages upon termination following an event of default thereunder are payable on an unlimited “two-way basis” without regard to fault on the part of either party.

 

5.19 Conflicting Agreements.  No provision of any mortgage, indenture, contract, agreement, judgment, decree or order binding on any Borrower or affecting the Collateral conflicts with, or requires any Consent (which has not already been obtained to or which are generally obtained on a post-closing basis), or would in any way prevent the execution, delivery or performance of, the terms of this Agreement or the Other Documents.

 

5.20 Application of Certain Laws and Regulations.  Neither any Borrower nor any Affiliate of any Borrower is subject to any law, statute, rule or regulation which regulates the incurrence of any Indebtedness, including laws, statutes, rules or regulations relative to common or interstate carriers or to the sale of electricity, gas, steam, water, telephone, telegraph or other public utility services.

 

5.21 Business and Property of Borrowers.  Upon and after the Closing Date, Borrowers do not propose to engage in any business other than those described on Schedule 5.21.  On the Closing Date, each Borrower will own all the property and possess all of the rights and Consents necessary for the conduct of the business of such Borrower.

 

5.22 Section 20 Subsidiaries.  Borrowers do not intend to use and shall not use any portion of the proceeds of the Advances, directly or indirectly, to purchase during the underwriting period, or for thirty (30) days thereafter, Ineligible Securities being underwritten by a Section 20 Subsidiary.

 

5.23 Anti-Terrorism Laws.

 

(a) General.  No Borrower nor any Affiliate of any Borrower is in violation of any Anti-Terrorism Law or engages in or conspires to engage in any transaction  that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

 

(b) Executive Order No. 13224.  No Borrower nor any Affiliate of a Borrower or their respective agents acting or benefiting in any capacity in connection with the Advances or other transactions hereunder, is any of the following (each a “Blocked Person”):

 

(i) a Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

 

(ii) a Person owned or  controlled  by, or acting for or on behalf  of,  any  Person  that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

 

  

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(iii) a Person or entity with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

 

(iv) a Person or entity that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order No. 13224;

 

(v) a Person or entity that is named as a “specially designated national” on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list, or

 

(vi) a Person or entity who is affiliated or associated with a Person or entity listed above.

 

No Borrower nor to the knowledge of any Borrower, any of its agents acting in any capacity in connection with the Advances or other transactions hereunder (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order No. 13224.

 

5.24 Trading with the Enemy.  No Borrower has engaged, nor does any Borrower intend to engage, in any business or activity prohibited by the Trading with the Enemy Act.

 

5.25 Inactive Subsidiary.  Inactive Subsidiary (i) does not own or hold any assets, (ii) has no liabilities, and (iii) does not conduct any business operations, and will not do any of the foregoing after the Closing Date without the prior written consent of Agent.

 

5.26 Material Contracts.  Subject to the confidentiality provisions of Section 16.15, Borrowers have provided Agent with true, correct and complete copy of each base form of each Material Contract, other than the Caspian Contracts, and Borrowers have provided Agent with true, correct and complete copy of each Caspian Contract, each in full force and effect on and as of the Closing Date.  No actions have been taken to amend, modify or terminate any Material Contract in any way that would (i) impair or be materially adverse to the interests of any Borrower thereunder or (ii) cause the terms and provisions thereof to be more restrictive than any term or provisions in effect on the Closing Date; and no Borrower has received notice of any such actions on the part of any counterparty to such Material Contract.

 

VI AFFIRMATIVE COVENANTS.

 

Each Borrower hereby covenants and agrees that on the Closing Date and thereafter, until all of the Obligations (other than indemnification and other contingent Obligations, in each case, not yet due and payable or in respect of which no assertion of liability and no claim or demand for payment has been made) incurred hereunder, are indefeasibly paid in full, termination of this Agreement and all Letters of Credit issued hereunder have expired, terminated or been fully collateralized in cash in an amount and manner satisfactory to Agent in its Permitted Discretion (and as applicable shall cause its Subsidiaries) to:

 

6.1 Payment of Fees.  Pay to Agent on demand all usual and customary fees and expenses which Agent incurs in connection with (a) the forwarding of Advance proceeds and (b) 

 

  

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the establishment and maintenance of any Blocked Accounts or Depository Accounts as provided for in Section 4.15(h).  Agent may, without making demand, charge Borrowers’ Account for all such fees and expenses.

 

6.2 Conduct of Business and Maintenance of Existence and Assets.  (a) Conduct continuously and operate actively its business according to good business practices and maintain all of its properties useful or necessary in its business in good working order and condition (reasonable wear and tear excepted and except as may be disposed of in accordance with the terms of this Agreement), including all licenses, patents, copyrights, design rights, trade names, domain names, trade secrets and trademarks and take all actions necessary to enforce and protect the validity of any intellectual property right or other right included in the Collateral; (b) keep in full force and effect its existence and comply in all material respects with the laws and regulations governing the conduct of its business where the failure to do so could reasonably be expected to have a Material Adverse Effect; and (c) make all such reports and pay all such franchise and other taxes and license fees and do all such other acts and things as may be lawfully required to maintain its rights, licenses, leases, powers and franchises under the laws of the United States or any political subdivision thereof where the failure to do so could reasonably be expected to have a Material Adverse Effect.

 

6.3 Violations.  Promptly notify Agent in writing of any violation of any law, statute, regulation or ordinance of any Governmental Body, or of any agency thereof, applicable to any Borrower which could reasonably be expected to cause a Material Adverse Effect.

 

6.4 Government Receivables.  Take all steps necessary to protect Agent’s interest in the Collateral under the Assignment of Claims Act, the Uniform Commercial Code and all other applicable state or local statutes or ordinances and deliver to Agent appropriately endorsed, any instrument or chattel paper connected with any Receivable arising out of contracts between any Borrower and the United States, any state or any department, agency or instrumentality of any of them.

 

6.5 Financial Covenants.

 

(a) Tangible Net Worth.  Cause to be maintained as of the last day of each period in the table below, a Tangible Net Worth at least equal to the applicable amount set forth in the table below for such period.

 

	
Period

	 	
Minimum Tangible Net Worth

	
Each of the fiscal quarters ending June 30, 2012, September 30, 2012 and December 31, 2012

	 	
90% of the Tangible Net Worth of Borrowers on Consolidated Basis as of the Closing Date

	 	 	 
	
Fiscal quarter ending March 31, 2012, and as of the last day of each fiscal quarter thereafter

	 	
The minimum Tangible Net Worth required pursuant to this Section 6.5(a) as of December 31 of the immediately preceding fiscal year, plus (i) seventy-five percent (75%) of Borrowers’ after tax net income (and after deductions for discontinued operations) for such year if such after tax net income is greater than $0, or (ii) $0, if Borrowers’ after tax net income for such year is less than or equal to $0.

 

  

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(b) Fixed Charge Coverage Ratio.  Cause to be maintained a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00, measured as of (a) June 30, 2012, for the fiscal quarter then most recently ended; (b) September 30, 2012, for the two fiscal quarter period then most recently ended; (c) December 31, 2012, for the three fiscal quarter period then most recently ended; (d) March 31, 2013 and as of the last day of each fiscal quarter thereafter, for the four fiscal quarter period then most recently ended.

 

(c) Average Excess Availability.  Cause to be maintained at all times Average Excess Availability of not less than $3,500,000 measured monthly as of the last day of the month.

 

(d) Net Cash Flow.  Not permit (x) the aggregate amount of all costs and expenses incurred in connection with Borrowers’ performance of its Caspian Project obligations to exceed (y) the aggregate amount of cash receipts attributable to the Caspian Contracts by more than the applicable amount set forth in the table below for such period.

 

	
Period

	
Amount

	
For month ending: June 30, 2012

	
($6,500,000)

	
For month ending: September 30, 2012

	
($1,000,000)

	
For month ending: December 31, 2012

	
$0

 

6.6 Execution of Supplemental Instruments.  Execute and deliver to Agent from time to time, upon demand, such supplemental agreements, statements, assignments and transfers, or instructions or documents relating to the Collateral, and such other instruments as Agent may request, in order that the full intent of this Agreement may be carried into effect.

 

6.7 Payment of Indebtedness.  Pay, discharge or otherwise satisfy at or before maturity (subject, where applicable, to specified grace periods and, in the case of the trade payables, to normal payment practices) all its obligations and liabilities of whatever nature, except when the failure to do so could not reasonably be expected to have a Material Adverse Effect or when the amount or validity thereof is currently being contested in good faith by appropriate proceedings and each Borrower shall have provided for such reserves as Agent may reasonably deem proper and necessary in the exercise of its Permitted Discretion, subject at all times to any applicable subordination arrangement in favor of Lenders.

 

6.8 Standards of Financial Statements.  Cause all financial statements referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 and 9.13 as to which GAAP is applicable to be complete and correct in all material respects (subject, in the case of interim financial statements, to normal year-end audit adjustments) and be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as concurred in by such reporting accountants or officer, as the case may be, and disclosed therein).

 

6.9 [Reserved].

 

  

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6.10 Nature of Business.  Carry on its business in substantially the same manner and in substantially the same fields of enterprise as set forth in Section 5.21.

 

6.11 Subsidiaries.  Holdings agrees that it shall cause each of its Subsidiaries existing as of the Closing Date (other than those Subsidiaries that are “Borrowers” hereunder or Foreign Subsidiaries) to guarantee the payment and performance of the Obligations and to assign, pledge and grant to Agent for its benefit and for the ratable benefit of each Lender a continuing security interest and Lien in and to all of its personal property as security for the payment and performance of the Obligations.  Contemporaneously with the creation or acquisition of any Subsidiary after the Closing Date, Holdings agrees that it shall cause such Subsidiary to join this Agreement as a “Borrower” hereunder or guarantee the payment and performance of the Obligations (to be determined in Agent’s Permitted Discretion) and grant to Agent for its benefit and for the ratable benefit of each Lender a continuing security interest and Lien in and to all of its property as security for the payment and performance of the Obligations.  Holdings shall not permit any of its domestic Subsidiaries existing as of the Closing Date, or permit any Subsidiary created or acquired after the Closing Date, to be or become a Foreign Subsidiary without the prior written consent of Agent and Required Lenders.

 

6.12 Post-Closing Obligations.  Borrowers shall cause the conditions set forth on Schedule 6.12 hereto to be satisfied in full, on or before the date specified for each such condition, time being of the essence, in a manner satisfactory, in form and substance as applicable, to Agent in its Permitted Discretion.

 

VII NEGATIVE COVENANTS.

 

Each Borrower hereby covenants and agrees that on the Closing Date and thereafter, until all of the Obligations (other than indemnification and other contingent Obligations, in each case, not yet due and payable or in respect of which no assertion of liability and no claim or demand for payment has been made) incurred hereunder, are indefeasibly paid in full, termination of this Agreement and all Letters of Credit issued hereunder have expired, terminated or been fully collateralized in cash in an amount and manner satisfactory to Agent in its Permitted Discretion, it shall not (and as applicable shall not permit any Subsidiary to):

 

7.1 Merger, Consolidation, Acquisition and Sale of Assets.

 

(a) Enter into any merger, consolidation or other reorganization with or into any other Person or acquire all or a substantial portion of the assets or Equity Interests of any Person or permit any other Person to consolidate with or merge with it.  Notwithstanding the foregoing, and in each case (a) any Borrower may merge or be consolidated into any other Borrower, (b) any Guarantor may merge or be consolidated into any other Guarantor or any Borrower (provided in the case of a Guarantor merging or consolidating into any Borrower, such Borrower shall be the continuing or surviving person).

 

(b) Sell, lease, transfer or otherwise dispose of any of its properties or assets, except (i) dispositions of Inventory and Equipment to the extent expressly permitted by Section 4.3, (ii) transfers among Guarantors and any transfer from a Guarantor to a Borrower, (iii) transfers among Borrowers, and (iv) any other sales or dispositions expressly permitted by this Agreement.

 

  

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7.2 Creation of Liens.  Create or suffer to exist any Lien or transfer upon or against any of its property or assets now owned or hereafter acquired, except Permitted Encumbrances.

 

7.3 Guarantees.  Become liable or permit any of their respective Subsidiaries to become liable upon the obligations or liabilities of any Person by assumption, endorsement or guaranty thereof or otherwise (other than to Lenders) except (a) as disclosed on Schedule 7.3, (b) guaranties of the type disclosed on Schedule 7.3 entered into in the Ordinary Course of Business and (b) the endorsement of checks in the Ordinary Course of Business.

 

7.4 Investments.  Purchase or acquire obligations or Equity Interests of, or any other interest in, any Person, except:

 

(a) obligations issued or guaranteed by the United States of America or any agency thereof;

 

(b) commercial paper with maturities of not more than 180 days and a published rating of not less than A-1 or P-1 (or the equivalent rating);

 

(c) certificates of time deposit and bankers’ acceptances having maturities of not more than 180 days and repurchase agreements backed by United States government securities of a commercial bank if (i) such bank has a combined capital and surplus of at least $500,000,000, or (ii) its debt obligations, or those of a holding company of which it is a Subsidiary, are rated not less than A (or the equivalent rating) by a nationally recognized investment rating agency;

 

(d) U.S. money market funds that invest solely in obligations issued or guaranteed by the United States of America or an agency thereof; and

 

(e) investments in any Credit Party to the extent permitted by Section 7.8(d) hereof.

 

7.5 Loans.  Make advances, loans or extensions of credit to any Person, including any Parent, Subsidiary or Affiliate, except with respect to (a) the extension of commercial trade credit in connection with the sale of Inventory in the Ordinary Course of Business, (b) loans to its employees in the Ordinary Course of Business not to exceed the aggregate amount of $100,000 at any time outstanding and (c) loans to Credit Parties to the extent permitted by Section 7.8(e).

 

7.6 Capital Expenditures.  Contract for, purchase or make any expenditure or commitments for Capital Expenditures (a) in the fiscal year ending December 31, 2012, in an aggregate amount in excess of $3,500,000, and (b) in any fiscal year thereafter, in an aggregate amount in excess of $3,500,000.  For purposes of this Section 7.6, the amount of “lost in hole” revenue of Borrowers shall be subtracted from the amounts deemed or paid for Capital Expenditures.

 

7.7 Dividends.  Declare, pay or make any dividend or distribution on any shares of the common stock or preferred stock of  any Borrower that is a corporation (other than dividends or distributions payable in its stock, or split-ups or reclassifications of its stock) or apply any of 

 

  

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its funds, property or assets to the purchase, redemption or other retirement of any common or preferred stock, or of any options to purchase or acquire any such shares of common or preferred stock of any Borrower that is a corporation, other than dividends paid to another Borrower.

 

7.8 Indebtedness.  Create, incur, assume or suffer to exist any Indebtedness (exclusive of trade debt) except in respect of (a) Indebtedness to Lenders (including any Lender-Provided Interest Rate Hedge); (b) Indebtedness incurred for Capital Expenditures permitted under Section 7.6 hereof; (c) purchase money Indebtedness in an amount, when aggregated with Indebtedness permitted pursuant to subsection 7.8(d) hereof, not to exceed $3,500,000 in the aggregate; (d) unsecured Indebtedness in an amount, when aggregated with purchase money Indebtedness permitted pursuant to subsection 7.8(c) hereof, not to exceed $3,500,000 in the aggregate, so long as such Indebtedness is  unsecured, on terms and conditions satisfactory to Agent in its sole discretion, and subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of a Subordination Agreement; (e) Indebtedness of any Credit Party to any other Credit Party in an aggregate amount not to exceed $500,000; (f) Indebtedness in respect of surety bonds, performance bonds and similar obligations not in connection with money borrowed, in each case provided in the Ordinary Course of Business not to exceed $30,000,000 and (g) Indebtedness in respect of the Ex-Im Credit Agreement.

 

7.9 Nature of Business.  Substantially change the nature of the business in which it is presently engaged, nor except as specifically permitted hereby purchase or invest, directly or indirectly, in any assets or property other than in the Ordinary Course of Business for assets or property which are useful in, necessary for and are to be used in its business as presently conducted.

 

7.10 Transactions with Affiliates.  Directly or indirectly, purchase, acquire or lease any property from, or sell, transfer or lease any property to, or otherwise enter into any transaction or deal with, any Affiliate, except transactions, which are in the Ordinary Course of Business, on an arm’s-length basis on terms and conditions no less favorable than terms and conditions which would have been obtainable from a Person other than an Affiliate.

 

7.11 [Reserved].

 

7.12 Subsidiaries.

 

(a) Form any Subsidiary unless (i) such Subsidiary (A) expressly joins in this Agreement as a “Borrower” and becomes jointly and severally liable for the obligations of Borrowers hereunder, under the Revolving Credit Note, and under any other agreement among Borrowers and Lenders, or (B) becomes a “Guarantor” by executing a Guaranty and Guarantor Security Agreement, and (ii) Agent shall have received all documents, including legal opinions, it may reasonably require to establish compliance with each of the foregoing conditions.

 

(b) Except for those (i) joint ventures or partnerships listed or described on Schedule 7.12(b), (ii) Teaming Agreements and any resulting contractor-subcontractor arrangements among any Borrower and such other parties to the Teaming Agreements so long as (i) on an arm’s length basis and in the Ordinary Course of Business, and (ii) no such agreement or arrangement would directly or indirectly provide any basis (contractual or otherwise) for any 

 

  

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Persons party to such agreements or arrangements to claim any interest in any Receivables (or the proceeds thereto) of Borrowers, or (iii) other joint ventures or partnerships or similar arrangements that are formed by any Borrower after the Closing Date with the consent of the Agent in its Permitted Discretion, enter into any partnership, joint venture or similar arrangement.

 

7.13 Fiscal Year and Accounting Changes.  Change its fiscal year from December 31 or make any change (i) in accounting treatment and reporting practices except as required by GAAP or (ii) in tax reporting treatment except as required by law.

 

7.14 Pledge of Credit.  Now or hereafter pledge Agent’s or any Lender’s credit on any purchases or for any purpose whatsoever or use any portion of any Advance in or for any business other than such Borrower’s business as conducted on the date of this Agreement.

 

7.15 Amendment of Organizational Documents.  Amend, modify or waive any term or material provision of its Organizational Documents in any manner that adversely affects Agent or any Lender, unless required by law.

 

7.16 Material Contracts.  Amend, modify or waive any material term or material provision of any Material Contract in any way that would (i) impair or be adverse to the interests of any Borrower thereunder or (ii) cause the terms and provisions thereof to be more restrictive than any term or provisions in effect on the Closing Date, as determined by Agent in its Permitted Discretion, without the consent of Agent in its Permitted Discretion, unless required by law.

 

7.17 Compliance with ERISA.  (i) (x) Maintain, or permit any member of the Controlled Group to maintain, or (y) become obligated to contribute, or permit any member of the Controlled Group to become obligated to contribute, to any Plan, other than those Plans disclosed on Schedule 5.8(d) or any other Plan for which Agent has provided its prior written consent, (ii) engage, or permit any member of the Controlled Group to engage, in any non-exempt “prohibited transaction”, as that term is defined in section 406 of ERISA and Section 4975 of the Code, (iii) incur, or permit any member of the Controlled Group to incur, any “accumulated funding deficiency”, as that term is defined in Section 302 of ERISA or Section 412 of the Code, (iv) terminate, or permit any member of the Controlled Group to terminate, any Plan where such event could result in any liability of any Borrower or any member of the Controlled Group or the imposition of a lien on the property of any Borrower or any member of the Controlled Group pursuant to Section 4068 of ERISA, (v) assume, or permit any member of the Controlled Group to assume, any obligation to contribute to any Multiemployer Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit any member of the Controlled Group to incur, any withdrawal liability to any Multiemployer Plan; (vii) fail promptly to notify Agent of the occurrence of any Termination Event, (viii) fail to comply, or permit a member of the Controlled Group to fail to comply, with the requirements of ERISA or the Code or other Applicable Laws in respect of any Plan, (ix) fail to meet, or permit any member of the Controlled Group to fail to meet, all minimum funding requirements under ERISA or the Code or postpone or delay or allow any member of the Controlled Group to postpone or delay any funding requirement with respect of any Plan.

 

  

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7.18 Prepayment of Indebtedness.  At any time, directly or indirectly, prepay any Indebtedness (other than to Lenders), or repurchase, redeem, retire or otherwise acquire any Indebtedness of any Credit Party.

 

7.19 Anti-Terrorism Laws.  No Borrower shall, until satisfaction in full of the Obligations and termination of this Agreement, nor shall it permit any Affiliate or agent to:

 

(a) Conduct any business or engage in any transaction or dealing with any Blocked Person, including the making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person.

 

(b) Deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order No. 13224.

 

(c) Engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in the Executive Order No. 13224, the USA PATRIOT Act or any other Anti-Terrorism Law.  Each Borrower shall deliver to Lenders any certification or other evidence requested from time to time by any Lender in its sole discretion, confirming such Borrower’s compliance with this Section.

 

7.20 Membership/Partnership Interests.  Elect to treat or permit any of its Subsidiaries to (x) treat its limited liability company membership interests or partnership interests, as the case may be, as securities as contemplated by the definition of “security” in Section 8-102(15) and by Section 8-103 of Article 8 of Uniform Commercial Code or (y) certificate its limited liability company membership interests or partnership interests, as the case may be.

 

7.21 Trading with the Enemy Act.  Engage in any business or activity in violation of the Trading with the Enemy Act.

 

7.22 Inactive Subsidiaries.  Cause the Inactive Subsidiary at any time to (a) own any assets, (b) incur or suffer to exist any liabilities, or (c) engage in any business activity.

 

VIII CONDITIONS PRECEDENT.

 

8.1 Conditions to Initial Advances. Lenders shall not be required to make the initial Advances or otherwise extend credit to Borrowers hereunder, until the date that each of the following conditions precedent have been satisfied or waived in a manner and pursuant to documentation satisfactory to Agent in its sole discretion (the first date all such conditions having been satisfied being herein called the “Closing Date”):

 

(a) Pledge Agreements.  Agent shall have received the Pledge Agreements, each in form and substance satisfactory to Agent and duly executed by the parties named therein;

 

(b) Pledged Membership Interests; Unit Powers; Pledged Notes.  Receipt by Agent of (i) any certificates representing the membership interests of Equity Interests pledged pursuant to the Pledge Agreements, together with an undated unit (or analogous) power for each such membership interest executed in blank by a duly authorized officer of the pledgor thereof, 

 

  

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and (ii) each promissory note (if any) pledged to Agent pursuant to the Pledge Agreements endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof;

 

(c) Intellectual Property Security Agreement.  Agent shall have received the Intellectual Property Security Agreement, in form and substance satisfactory to Agent and duly executed by the parties named therein;

 

(d) Revolving Credit Note.  Agent shall have received the Revolving Credit Note duly executed and delivered by an authorized officer of each Borrower;

 

(e) Filings, Registrations and Recordings.  Agent shall have received (i) a completed Questionnaire, duly executed by an Authorized Officer of each Credit Party, together with all attachments contemplated thereby, and (ii) each document (including any Uniform Commercial Code financing statement) required by this Agreement, any related agreement or under law or reasonably requested by Agent to be filed, registered or recorded in order to create, in favor of Agent, a perfected security interest in or lien upon the Collateral shall have been properly filed, registered or recorded in each jurisdiction in which the filing, registration or recordation thereof is so required or requested, and Agent shall have received an acknowledgment copy, or other evidence satisfactory to it, of each such filing, registration or recordation and satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto;

 

(f) Organizational Proceedings of the Credit Parties.  Agent shall have received a copy of the resolutions in form and substance reasonably satisfactory to Agent, of the Board of Directors or other governing body of each Credit Party authorizing (i) the execution, delivery and performance of this Agreement and the Other Documents to which such Credit Party is a party, and (ii) the granting by such Credit Party of the security interests in and liens upon the Collateral in each case certified by the Secretary or an Assistant Secretary of each Credit Party as of the Closing Date; and, such certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded as of the date of such certificate;

 

(g) Incumbency Certificates of the Credit Parties.  Agent shall have received a certificate of the Secretary or an Assistant Secretary of each Credit Party, dated the Closing Date, as to the incumbency and signature of the officers of each Credit Party executing this Agreement, the Other Documents to which such Credit Party is a party, any certificate or other documents to be delivered by it pursuant hereto, together with evidence of the incumbency of such Secretary or Assistant Secretary;

 

(h) Certificates.  Agent shall have received a copy of each Credit Party’s Organizational Documents, and all amendments thereto, certified by the Secretary of State or other appropriate official of its jurisdiction of incorporation or formation, as the case may be, and all agreements of the Credit Parties’ shareholders or members, as applicable, certified as accurate and complete by the Secretary of such Credit Party;

 

  

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(i) Good Standing Certificates.  Agent shall have received good standing certificates for each Credit Party dated not more than thirty (30) days prior to the Closing Date, issued by the Secretary of State or other appropriate official of each Credit Party’s jurisdiction of incorporation or formation, as the case may be, and each jurisdiction where the conduct of each Credit Party’s business activities or the ownership of its properties necessitates qualification except where the failure to so qualify could not reasonably be expected to result in a Material Adverse Effect;

 

(j) Legal Opinion.  Agent shall have received the executed legal opinion of Porter Hedges LLP in form and substance satisfactory to Agent, which opinions shall cover such matters incident to the transactions contemplated by this Agreement, the Revolving Credit Note, the Other Documents, and related agreements as Agent may reasonably require and Borrowers hereby authorize and direct such counsel to deliver such opinions to Agent and Lenders;

 

(k) No Litigation.  (i) No litigation, investigation or proceeding before or by any arbitrator or Governmental Body shall be continuing or threatened against any Credit Party or against the officers or directors of any Credit Party (A) in connection with this Agreement, the Other Documents or any of the transactions contemplated thereby and which, in the reasonable opinion of Agent, is deemed material or (B) which could, in the reasonable opinion of Agent, have a Material Adverse Effect; and (ii) no injunction, writ, restraining order or other order of any nature materially adverse to any Credit Party or the conduct of its business or inconsistent with the due consummation of the Transactions shall have been issued by any Governmental Body;

 

(l) Financial Condition Certificates.  Agent shall have received an executed Financial Condition Certificate in the form of Exhibit 8.1(l).

 

(m) Collateral Examination.  Agent shall have completed Collateral examinations and received appraisals, the results of which shall be satisfactory in form and substance to Lenders, of the Receivables, Inventory, General Intangibles, and Equipment of each Borrower and all books and records in connection therewith;

 

(n) Fees.  Agent shall have received all fees payable to Agent and Lenders on or prior to the Closing Date hereunder, including pursuant to Article III hereof;

 

(o) Pro Forma Financial Statements.  Agent shall have received a copy of the Pro Forma Financial Statements which shall be satisfactory in all respects to Lenders;

 

(p) Intercreditor Agreement.  Agent shall have entered into the Ex-Im Intercreditor Agreement; which shall be in form and substance satisfactory to Agent in its sole discretion;

 

(q) Insurance.  Agent shall have received in form and substance satisfactory to Agent, certified copies of Borrowers’ casualty insurance policies, together with loss payable endorsements on Agent’s standard form of loss payee endorsement naming Agent as lender loss payee, and certified copies of Borrowers’ liability insurance policies, together with endorsements naming Agent as an additional insured;

 

  

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(r) Payment Instructions.  Agent shall have received written instructions from Borrowing Agent directing the application of proceeds of the initial Advances made pursuant to this Agreement;

 

(s) Blocked Accounts.  Agent shall have received duly executed agreements establishing the Blocked Accounts or Depository Accounts with financial institutions acceptable to Agent for the collection or servicing of the Receivables and proceeds of the Collateral;

 

(t) Consents.  Agent shall have received any and all Consents reasonably necessary to permit the effectuation of the transactions contemplated by this Agreement and the Other Documents; and, Agent shall have received such Consents and waivers of such third parties as might legitimately be entitled assert claims with respect to the Collateral, as Agent and its counsel shall deem reasonably necessary;

 

(u) No Adverse Material Change.  (i) since December 31, 2011, there shall not have occurred any event, condition or state of facts which could reasonably be expected to have a Material Adverse Effect and (ii) no representations made or information supplied to Agent or Lenders shall have been proven to be inaccurate or misleading in any material respect;

 

(v) Lien Waiver Agreements.  Agent shall have received a Lien Waiver Agreement satisfactory to Agent in its sole discretion with respect to all premises leased by any Credit Party at which Inventory and/or books and records are located;

 

(w) Other Documents.  Agent shall have received all Other documents, duly executed by the parties named therein and in form and substance satisfactory to Agent in is sole discretion;

 

(x) Contract and Diligence Review.  Agent shall have (i) reviewed all Material Contracts of the Credit Parties including, without limitation, books and records, Organizational Documents, third party financing agreements, leases, union contracts, labor contracts, vendor supply contracts, representation/agency agreements, license agreements and distributorship agreements, (ii) performed background checks on members of each Credit Party’s management team, (iii) received and reviewed all OFAC due diligence, and (iv) reviewed each Credit Party’s corporate and legal structure, and such contracts, agreements, background checks and review shall be satisfactory in all respects to Agent;

 

(y) Closing Certificate.  Agent shall have received a closing certificate signed by an Authorized Officer of each Credit Party dated as of the date hereof, stating that (i) all representations and warranties set forth in this Agreement and the Other Documents are true and correct on and as of such date, (ii) each Credit Party on such date in compliance with all the terms and provisions set forth in this Agreement and the Other Documents to which it is a party (iii) on such date no Default or Event of Default has occurred or is continuing and no default under any document or agreement pursuant to which a Credit Party has been extended credit or other financial accommodation or is a guarantor of same has occurred or is continuing;

 

(z) Borrowing Base.  Agent shall have received evidence from Borrowers that the aggregate amount of Eligible Receivables, Eligible Extended Receivables, Eligible Government Receivable, Eligible Unbilled Receivables and Eligible Costs in Excess of Billings 

 

  

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is sufficient in value and amount to support Advances in the amount requested by Borrowers on the Closing Date;

 

(aa) Undrawn Availability.  After giving effect to the initial Advances hereunder, Borrowers shall have Undrawn Availability of at least $5,000,000, as evidenced by a Borrowing Base Certificate satisfactory to Agent in is sole discretion; and

 

(bb) Prefund Examination.  Agent shall have completed a prefunding examination of the Collateral, which examination shall be satisfactory to Agent in its sole discretion;

 

(cc) Compliance with Laws.  Agent shall be reasonably satisfied that each Credit Party is in compliance with all pertinent federal, state, local or territorial regulations, including those with respect to the Federal Occupational Safety and Health Act, the Environmental Protection Act, ERISA and the Trading with the Enemy Act;

 

(dd) Existing Financings.  (i) all loans and obligations of any Borrower with respect to any financing facility (other than any financing facility that would otherwise be permitted pursuant to Section 7.8 hereof with respect to Capital Expenditures) of any Borrower (each an “Existing Financing Facility”) shall be terminated or paid or satisfied in full utilizing the proceeds of the Advances, (ii) each creditor’s commitments to lend or make other extensions of credit under the Existing Financing Facilities shall be terminated; (iii) Agent shall have received all documents or instruments necessary to release and/or terminate all security interests and liens securing indebtedness evidenced by the Existing Financing Facilities; (iv) Borrowers shall have made arrangements satisfactory to Agent in its sole discretion to cancel any letters of credit outstanding under any of the Existing Financing Facilities; and (v) Agent shall have been authorized by all creditors to terminate and/or release all liens and security interests in favor of such creditor in connection with the Existing Financing Facilities; and

 

(ee) Other.  All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the Transactions shall be satisfactory in form and substance to Agent and its counsel.

 

8.2 Conditions to Each Advance.  The agreement of Lenders to make any Advance requested to be made on any date (including the initial Advance), is subject to the satisfaction of the following conditions precedent as of the date such Advance is made:

 

(a) Representations and Warranties.  Each of the representations and warranties made by the Credit Parties in or pursuant to this Agreement, the Other Documents and any related agreements to which it is a party, and each of the representations and warranties contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement, the Other Documents or any related agreement shall be true and correct in all material respects on and as of such date as if made on and as of such date;

 

(b) No Default.  No Event of Default shall have occurred and be continuing on such date, or would exist after giving effect to the Advances requested to be made, on such date; provided, however that Agent, in its sole discretion, may continue to make Advances 

 

  

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notwithstanding the existence of an Event of Default and that any Advances so made shall not be deemed a waiver of any such Event of Default; and

 

(c) Maximum Advances.  In the case of any type of Advance requested to be made, after giving effect thereto, the aggregate amount of such type of Advance shall not exceed the maximum amount of such type of Advance permitted under this Agreement.

 

Each request for an Advance by any Borrower hereunder shall constitute a representation and warranty by each Borrower as of the date of such Advance that the conditions contained in this subsection shall have been satisfied.

 

IX INFORMATION AS TO CREDIT PARTIES.

 

Borrowers shall, and shall cause their respective Subsidiaries to, until satisfaction in full of the Obligations and the termination of this Agreement:

 

9.1 Disclosure of Material Matters.  Immediately upon learning thereof, report to Agent all matters materially affecting the value, enforceability or collectability of any portion of the Collateral, including any Borrower’s reclamation or repossession of, or the return to any Borrower of, a material amount of goods or claims or disputes asserted by any Customer or other obligor or any Lien, other than any Permitted Encumbrance, placed upon or asserted against any Borrower or any Collateral.

 

9.2 Schedules.

 

(a) Deliver to Agent on or before the twentieth (20th) day of each month as and for the prior month (i) accounts receivable agings inclusive of reconciliations to the general ledger, (ii) accounts payable schedules inclusive of reconciliations to the general ledger, (iii) unbilled accounts receivable report, (iv) report of cost in excess of billings, (v) reports of estimated remaining cost by project and projected income by project, (vi) updated backlog report and (vii) cumulative cash flow (costs and expenses and billings) of the Caspian Project.

 

(b) No less than once every other week, deliver to Agent on or before each Wednesday of such week as of the last Business Day of the previous week for the two weeks then ended, or such other intervals and for such periods as Agent may require, a Borrowing Base Certificate in form and substance satisfactory to Agent, that shall be calculated as of the last day of the prior week for the two weeks then ended (which shall not be binding upon Agent or restrictive of Agent’s rights under this Agreement), and shall include in each instance, detailed description of collections, credits and any bonded contracts entered into by any Borrower, and shall include, if requested by Agent: (i) confirmatory assignment schedules, (ii) copies of Customer’s invoices, (iii) evidence of shipment or delivery, (iv) Inventory reports and (v) such further schedules, documents, and/or information regarding the Collateral as Agent may require including, but not limited to, trial balances and test verifications.  Agent shall have the right to confirm and verify all Receivables by any manner and through any medium it considers advisable and do whatever it may deem reasonably necessary to protect its interests hereunder.  The items to be provided under this Section are to be in form satisfactory to Agent and executed by Borrowers and delivered to Agent from time to time solely for Agent’s convenience in maintaining records of the Collateral, and any Borrower’s failure to deliver any of such items to 

 

  

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Agent shall not affect, terminate, modify, or otherwise limit Agent’s Lien with respect to the Collateral.

 

9.3 Environmental Reports.  Furnish Agent, concurrently with the delivery of the financial statements referred to in Sections 9.7 and 9.8, with a Compliance Certificate signed by an Authorized Officer of Borrowing Agent stating, to the best of his knowledge, that the Credit Parties are in compliance in all material respects with all federal, state and local Environmental Laws.  To the extent any Credit Party is not in compliance with the foregoing laws, the certificate shall set forth with specificity all areas of non-compliance and the proposed action Borrowers’ will implement in order to achieve full compliance.

 

9.4 Litigation.  Promptly notify Agent in writing of any claim, litigation, suit or administrative proceeding affecting any Credit Party, whether or not the claim is covered by insurance, and of any litigation, suit or administrative proceeding, which in any such case affects the Collateral or which could reasonably be expected to have a Material Adverse Effect.

 

9.5 Material Occurrences.  Promptly notify Agent in writing upon the occurrence of (a) any Event of Default or Default; (b) any event, development or circumstance whereby any financial statements or other reports furnished to Agent fail in any material respect to present fairly, in accordance with GAAP consistently applied, the financial condition or operating results of any Borrower as of the date of such statements; (c) any accumulated retirement plan funding deficiency which, if such deficiency continued for two plan years and was not corrected as provided in Section 4971 of the Code, could subject any Borrower to a tax imposed by Section 4971 of the Code; (d) each and every default by any Borrower which might result in the acceleration of the maturity of any Indebtedness, including the names and addresses of the holders of such Indebtedness with respect to which there is a default existing or with respect to which the maturity has been or could be accelerated, and the amount of such Indebtedness; and (e) any other development in the business or affairs of any Credit Party which could reasonably be expected to have a Material Adverse Effect; in each case describing the nature thereof and the action Borrowers’ propose to take with respect thereto.

 

9.6 Government Receivables.  Notify Agent promptly if any of its Receivables arise out of contracts between any Borrower and the United States, any state, or any department, agency or instrumentality of any of them.

 

9.7 Annual Financial Statements.  Furnish Agent, as soon as available and in any event no later than the earlier of (i) the date Holdings is required to file its Form 10-K with the SEC for any fiscal year and (ii) ninety (90) days after the end of Holdings fiscal year, financial statements of Holdings and its Subsidiaries on a consolidated and consolidating basis in each case, including, but not limited to, statements of income and stockholders’ equity and cash flow from the immediately prior fiscal year to the end of such prior fiscal year and the balance sheet as at the end of such prior fiscal year, all prepared in accordance with GAAP applied on a basis consistent with prior practices, and in reasonable detail and reported upon without qualification by an independent certified public accounting firm selected by Holdings and satisfactory to Agent (the “Accountants”).  The financial statements required to be delivered above shall be accompanied by a Compliance Certificate.

 

  

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9.8 Quarterly Financial Statements.  Furnish Agent, as soon as available and in any event no later than the earlier of (i) the date Holdings is required to file its Form 10-Q with the SEC for any fiscal quarter (other than the fiscal quarter ending December 31) and (ii) forty-five (45) days after the end of each fiscal quarter, an unaudited balance sheet of Holdings and its Subsidiaries on a consolidated and consolidating basis and unaudited (or, in the case of the fourth fiscal quarter, audited) statements of income and stockholders’ equity and cash flow of Holdings and its Subsidiaries on a consolidated and consolidating basis, in each case reflecting results of operations from the beginning of the fiscal year to the end of such quarter and for such quarter, prepared on a basis consistent with prior practices and in accordance with GAAP, subject to normal and recurring year end adjustments that individually and in the aggregate are not material to the business of Holdings or its Subsidiaries.  The reports shall be accompanied by a Compliance Certificate.

 

9.9 Monthly Financial Statements.  Furnish Agent within thirty (30) days after the end of each month, an unaudited balance sheet of Holdings and its Subsidiaries on a consolidated and consolidating basis and unaudited statements of income and stockholders’ equity and cash flow of Holdings and its Subsidiaries on a consolidated and consolidating basis reflecting results of operations from the beginning of the fiscal year to the end of such calendar month and for such month, prepared on a basis consistent with prior practices and complete and correct in all material respects, subject to normal and recurring year end adjustments that individually and in the aggregate are not material to the business of Holdings or its Subsidiaries.  The reports shall be accompanied by a Compliance Certificate.

 

9.10 Other Reports.  At Agent’s request, furnish Agent as soon as available, but in any event within ten (10) days after the issuance thereof and (i) with copies of such financial statements, reports and returns as each Borrower shall send to its stockholders or members, as applicable.

 

9.11 Additional Information. Furnish Agent with such additional information as Agent shall reasonably request in order to enable Agent to determine whether the terms, covenants, provisions and conditions of this Agreement and the Other Documents have been complied with by the applicable Credit Party including, (a) copies of all environmental audits and reviews, (b) at least thirty (30) days prior thereto, notice of any Credit Party’s opening of any new office or place of business or any Credit Party’s closing of any existing office or place of business, and (c) promptly upon any Credit Party’s learning thereof, notice of any labor dispute to which such Credit Party may become a party, any strikes or walkouts relating to any of its plants or other facilities, and the expiration of any labor contract to which any Credit Party is a party or by which any Credit Party is bound.

 

9.12 Projected Operating Budget.  Furnish Agent, no later the last day of February of each of Holding’s fiscal years commencing with fiscal year 2012, a month by month projected operating budget and cash flow of Holdings and its Subsidiaries on a consolidated and consolidating basis for such fiscal year (including an income statement for each month and a balance sheet as at the end of the last month in each fiscal quarter), such projections to be accompanied by a certificate signed by an Authorized Officer of Holdings to the effect that such projections have been prepared on the basis of sound financial planning practice consistent with 

 

  

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past budgets and financial statements and that such officer has no reason to question the reasonableness of any material assumptions on which such projections were prepared.

 

9.13 Variances From Operating Budget.  At Agent’s request, furnish Agent, concurrently with the delivery of the financial statements referred to in Section 9.7 and each quarterly report, a written report summarizing all material variances from budgets submitted by Holdings pursuant to Section 9.12 and a discussion and analysis by management with respect to such variances.

 

9.14 Notice of Suits, Adverse Events.  Furnish Agent with prompt written notice of (i) any lapse or other termination of any material Consent issued to any Credit Party by any Governmental Body or any other Person that is material to the operation of such Credit Party’s business, (ii) any refusal by any Governmental Body or any other Person to renew or extend any such Consent; and (iii) copies of any periodic or special reports filed by any Credit Party with any Governmental Body or Person, if such reports indicate any material change in the business, operations, affairs or condition of any Credit Party, or if copies thereof are requested by Lender, and (iv) copies of any material notices and other communications from any Governmental Body or Person which specifically relate to any Credit Party.

 

9.15 ERISA Notices and Requests.  Furnish Agent with immediate written notice in the event that (i) any Borrower or any member of the Controlled Group knows or has reason to know that a Termination Event has occurred, together with a written statement describing such Termination Event and the action, if any, which Borrowers or any member of the Controlled Group has taken, is taking, or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, Department of Labor or PBGC with respect thereto, (ii) any Borrower or any member of the Controlled Group knows or has reason to know that a prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the Code) has occurred together with a written statement describing such transaction and the action which such Borrower or any member of the Controlled Group has taken, is taking or proposes to take with respect thereto, (iii) a funding waiver request has been filed with respect to any Plan together with all communications received by any Borrower or any member of the Controlled Group with respect to such request, (iv) any increase in the benefits of any existing Plan or the establishment of any new Plan or the commencement of contributions to any Plan to which Borrowers or any member of the Controlled Group was not previously contributing shall occur, (v) any Borrower or any member of the Controlled Group shall receive from the PBGC a notice of intention to terminate a Plan or to have a trustee appointed to administer a Plan, together with copies of each such notice, (vi) any Borrower or any member of the Controlled Group shall receive any favorable or unfavorable determination letter from the Internal Revenue Service regarding the qualification of a Plan under Section 401(a) of the Code, together with copies of each such letter; (vii) any Borrower or any member of the Controlled Group shall receive a notice regarding the imposition of withdrawal liability, together with copies of each such notice; (viii) any Borrower or any member of the Controlled Group shall fail to make a required installment or any other required payment under Section 412 of the Code on or before the due date for such installment or payment; or (ix) any Borrower or any member of the Controlled Group knows that (a) a Multiemployer Plan has been terminated, (b) the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan.

 

  

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9.16 Additional Documents.  Execute and deliver to Agent, upon request, such documents and agreements as Agent may, from time to time, reasonably request to carry out the purposes, terms or conditions of this Agreement.

 

9.17 Appraisals and Field Examinations.  Permit Agent or Agent’s representatives to (a) perform desktop Collateral appraisals in form and substance satisfactory to Agent at Borrowers’ cost and expense, if an Event of Default has occurred and is continuing, as Agent deems appropriate in Agent’s Permitted Discretion, (b) perform full Collateral appraisals and business valuations, each in form and substance satisfactory to Agent at Borrower’s cost and expense as Agent deems appropriate in Agent’s Permitted Discretion and in no event more frequently than annually prior to the occurrence and continuation of an Event of Default and thereafter, on an unlimited basis, in either case to determine, among other things, the net orderly liquidation value of the Collateral, and (c) conduct field examinations at Borrower’s cost and expense as Agent deems appropriate in Agent’s Permitted Discretion.

 

X EVENTS OF DEFAULT.

 

The occurrence of any one or more of the following events shall constitute an “Event of Default”:

 

10.1 Nonpayment. Failure by any Borrower to pay (i) any principal or interest on the Obligations (other than Other Lender Obligations) when due, or (ii) pay principal or interest on any Other Lender Obligations within three (3) Business Days of the date such payment is due, in each case, whether at maturity or by reason of acceleration pursuant to the terms of this Agreement or by notice of intention to prepay, or by required prepayment or failure to pay when due any other liabilities or make any other payment, fee or charge provided for herein when due or in any Other Document;

 

10.2 Breach of Representation.  Any representation or warranty made or deemed made by any Credit Party in this Agreement, any Other Document or any related agreement or in any certificate, document or financial or other statement furnished at any time in connection herewith or therewith shall prove to have been misleading in any material respect on the date when made or deemed to have been made;

 

10.3 Financial Information.  Failure by any Borrower to (i)(x) furnish financial information when due and such failure continues for ten (10) Business Days, or (y) when requested or (ii) permit the inspection of its books or records in accordance with this Agreement and such failure continues for ten (10) Business Days;

 

10.4 Judicial Actions.  Issuance of a notice of Lien, levy, assessment, injunction or attachment against any Borrower’s Inventory or Receivables or against a material portion of any Borrower’s other property which is not stayed or lifted within thirty (30) days;

 

10.5 Noncompliance.  Except as otherwise provided for in Sections 10.1, 10.3 and 10.5(ii), (i) failure or neglect of any Credit Party to perform, keep or observe any term, provision, condition, covenant herein contained, or contained in any Other Document or any other agreement or arrangement, now or hereafter entered into any Credit Party and Agent or any Lender, or (ii) failure or neglect of any Credit Party to perform, keep or observe any term, 

 

  

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provision, condition or covenant, contained in Sections 4.5(b), 4.6, 4.7, 4.9, 4.13, 4.14, 4.17, 6.1, 6.2, 6.3, 6.4, 6.6, 6.11, 7.2 (for purposes of the cure period contemplated by this clause (ii) only, with respect to Liens incurred without any Borrowers’ consent so long as such Liens do not exceed $100,000 in the aggregate and are being Properly Contested), 9.4 or 9.6 hereof which is not cured within thirty (30) days from the occurrence of such failure or neglect;

 

10.6 Judgments.  Any judgment or judgments are rendered against any Credit Party for an aggregate amount in excess of $1,000,000 and (i) enforcement proceedings shall have been commenced by a creditor upon such judgment, (ii) there shall be any period of thirty (30) consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, shall not be in effect, or (iii) any such judgment results in the creation of a Lien upon any of the Collateral (other than a Permitted Encumbrance);

 

10.7 Bankruptcy.  Any Credit Party shall (i) apply for, consent to or suffer the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of creditors, (iii) commence a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition seeking to take advantage of any other law providing for the relief of debtors, (vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any petition filed against it in any involuntary case under such bankruptcy laws,  or (vii) take any action for the purpose of effecting any of the foregoing;

 

10.8 Inability to Pay.  Any Credit Party shall admit in writing its inability, or be generally unable, to pay its debts as they become due or cease operations of its present business;

 

10.9 Affiliate Bankruptcy.  Any Affiliate or any Subsidiary of any Credit Party shall (i) apply for, consent to or suffer the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of itself or of all or a substantial part of its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as they become due or cease operations of its present business, (iii) make a general assignment for the benefit of creditors, (iv) commence a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesce to, or fail to have dismissed, within thirty (30) days, any petition filed against it in any involuntary case under such bankruptcy laws, or (viii) take any action for the purpose of effecting any of the foregoing;

 

10.10 Material Adverse Effect.  A Material Adverse Effect shall have occurred;

 

10.11 Lien Priority.  Any Lien created hereunder or provided for hereby or under any related agreement for any reason ceases to be or is not a valid and perfected Lien having a first priority interest;

 

10.12 Enforceability of Intercreditor Agreement.  Ex-Im Agent denies or contests the validity or enforceability of the Ex-Im Intercreditor Agreement;

 

10.13 Cross Default.  A default of the obligations of any Credit Party under any other agreement to which it is a party shall occur which adversely affects its condition, affairs or 

 

  

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prospects (financial or otherwise) which default is not cured within any applicable grace period and which default could reasonably be expected to result in a Material Adverse Effect;

 

10.14 Breach of Guaranty.  Termination or breach of any Guaranty or Guaranty Security Agreement or similar agreement executed and delivered to Agent in connection with the Obligations of any Borrower, or if any Guarantor attempts to terminate, challenges the validity of, or its liability under, any such Guaranty or Guaranty Security Agreement or similar agreement;

 

10.15 Change of Control.  Any Change of Control shall occur;

 

10.16 Invalidity.  Any material provision of this Agreement or any Other Document shall, for any reason, cease to be valid and binding on any Credit Party or any Credit Party shall so claim in writing to Agent or any Lender;

 

10.17 Licenses.  (i) Any Governmental Body shall (A) revoke, terminate, suspend or adversely modify any material license, permit, patent trademark or trade name of any Credit Party, or (B) commence proceedings to suspend, revoke, terminate or adversely modify any such material license, permit, trademark, trade name or patent and such proceedings shall not be dismissed or discharged within sixty (60) days, or (c) schedule or conduct a hearing on the renewal of any material license, permit, trademark, trade name or patent necessary for the continuation of any Credit Party’s business and the staff of such Governmental Body issues a report recommending the termination, revocation, suspension or material, adverse modification of such license, permit, trademark, trade name or patent; (ii) any agreement which is necessary or material to the operation of any Credit Party’s business shall be revoked or terminated and not replaced by a substitute acceptable to Agent within thirty (30) days after the date of such revocation or termination, and such revocation or termination and non-replacement would reasonably be expected to have a Material Adverse Effect;

 

10.18 Seizures.  Any portion of the Collateral shall be seized or taken by a Governmental Body, or any Credit Party or the title and rights of any Credit Party shall have become the subject matter of claim, litigation, suit or other proceeding which might, in the Permitted Discretion of Agent, upon final determination, result in a material impairment or loss of the security provided by this Agreement or the Other Documents;

 

10.19 Pension Plans.  An event or condition specified in Sections 7.18 or 9.15 hereof shall occur or exist with respect to any Plan and, as a result of such event or condition, together with all other such events or conditions, any Borrower or any member of the Controlled Group shall incur, or in the opinion of Agent be reasonably likely to incur, a liability to a Plan or the PBGC (or both) which, in the reasonable judgment of Agent, would have a Material Adverse Effect.

 

10.20 Caspian Contract.  (i) the termination of any Caspian Contract or (ii) any material default by any Borrower of any Caspian Contract that could reasonably be expected to result in Material Adverse Effect.

 

XI LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT.

 

  

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11.1 Rights and Remedies.

 

(a) Upon the occurrence of (i) an Event of Default pursuant to Section 10.7 all Obligations shall be immediately due and payable and this Agreement and the obligation of Lenders to make Advances shall be deemed terminated; and, (ii) any of the other Events of Default and at any time thereafter (such default not having previously been cured), at the option of Required Lenders all Obligations shall be immediately due and payable and Lenders shall have the right to terminate this Agreement and to terminate the obligation of Lenders to make Advances.  Upon the occurrence of any Event of Default, Agent shall have the right to exercise any and all rights and remedies provided for herein, under the Other Documents, under the Uniform Commercial Code and at law or equity generally, including the right to foreclose the security interests granted herein and to realize upon any Collateral by any available judicial procedure and/or to take possession of and sell any or all of the Collateral with or without judicial process.  Agent may enter any of any Borrower’s premises or other premises without legal process and without incurring liability to any Borrower therefor, and Agent may thereupon, or at any time thereafter, in its discretion without notice or demand, take the Collateral and remove the same to such place as Agent may deem advisable and Agent may require Borrowers to make the Collateral available to Agent at a convenient place.  With or without having the Collateral at the time or place of sale, Agent may sell the Collateral, or any part thereof, at public or private sale, at any time or place, in one or more sales, at such price or prices, and upon such terms, either for cash, credit or future delivery, as Agent may elect.  Except as to that part of the Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Agent shall give Borrowers reasonable notification of such sale or sales, it being agreed that in all events written notice mailed to Borrowing Agent at least ten (10) days prior to such sale or sales is reasonable notification.  At any public sale Agent or any Lender may bid for and become the purchaser, and Agent, any Lender or any other purchaser at any such sale thereafter shall hold the Collateral sold absolutely free from any claim or right of whatsoever kind, including any equity of redemption and all such claims, rights and equities are hereby expressly waived and released by each Borrower.  For the purposes of enabling Agent to  exercise the rights and remedies hereunder and under each of the Other Documents, including the sale of Inventory, Agent is granted a perpetual nonrevocable, royalty free, nonexclusive license and Agent is granted permission to use all of each Borrower’s (a) trademarks, trade styles, trade names, trade name applications, domain names, domain name applications, patents, patent applications, copyrights, service marks, licenses, franchises and other proprietary rights which are used or useful in connection with Inventory for the purpose of marketing, advertising for sale and selling or otherwise disposing of such Inventory and (b) Equipment for the purpose of completing the manufacture of unfinished goods.  The cash proceeds realized from the sale of any Collateral shall be applied to the Obligations in the order set forth in Section 11.5 hereof.  Noncash proceeds will only be applied to the Obligations as they are converted into cash.  If any deficiency shall arise, Borrowers shall remain liable to Agent and Lenders therefor.

 

(b) To the extent that Applicable Law imposes duties on Agent to exercise remedies in a commercially reasonable manner, each Borrower acknowledges and agrees that it is not commercially unreasonable for Agent (i) to fail to incur expenses reasonably deemed significant by Agent to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not 

 

  

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required by other law, to fail to obtain governmental or third party consents, if not required by law, for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against Customers or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral, (iv) to exercise collection remedies against Customers and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other Persons, whether or not in the same business as any Borrower, for expressions of interest in acquiring all or any portion of such Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements to insure Agent against risks of loss, collection or disposition of Collateral or to provide to Agent a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist Agent in the collection or disposition of any of the Collateral.  Each Borrower acknowledges that the purpose of this Section 11.1(b) is to provide non-exhaustive indications of what actions or omissions by Agent would not be commercially unreasonable in Agent’s exercise of remedies against the Collateral and that other actions or omissions by Agent shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 11.1(b).  Without limitation upon the foregoing, nothing contained in this Section11.1(b) shall be construed to grant any rights to any Borrower or to impose any duties on Agent that would not have been granted or imposed by this Agreement or by Applicable Law in the absence of this Section 11.1(b).

 

11.2 Agent’s Discretion.  Agent shall have the right in its sole discretion to determine which rights, Liens, security interests or remedies Agent may at any time pursue, relinquish, subordinate, or modify or to take any other action with respect thereto and such determination will not in any way modify or affect any of Agent’s or Lenders’ rights hereunder.

 

11.3 Setoff.  Subject to Section 14.12, in addition to any other rights which Agent or any Lender may have under Applicable Law, upon the occurrence of an Event of Default hereunder, Agent and such Lender shall have a right, immediately and without notice of any kind, to apply any Borrower’s property held by Agent and such Lender to reduce the Obligations.

 

11.4 Rights and Remedies not Exclusive.  The enumeration of the foregoing rights and remedies is not intended to be exhaustive and the exercise of any rights or remedy shall not preclude the exercise of any other right or remedies provided for herein or otherwise provided by law, all of which shall be cumulative and not alternative.

 

11.5 Allocation of Payments After Event of Default.  Notwithstanding any other provisions of this Agreement to the contrary, after the occurrence and during the continuance of an Event of Default, all amounts collected or received by Agent on account of the Obligations or 

 

  

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any other amounts outstanding under any of the Other Documents or in respect of the Collateral may, at Agent’s discretion, be paid over or delivered as follows:

 

FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) of Agent in connection with enforcing its rights and the rights of the Lenders under this Agreement and the Other Documents and any protective advances made by Agent with respect to the Collateral under or pursuant to the terms of this Agreement;

 

SECOND, to payment of any fees owed to Agent;

 

THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) of each of the Lenders to the extent owing to such Lender pursuant to the terms of this Agreement;

 

FOURTH, to the payment of all of the Obligations consisting of accrued fees and interest;

 

FIFTH, to the payment of the outstanding principal amount of the Obligations (including the payment or cash collateralization of any outstanding Letters of Credit);

 

SIXTH, to all other Obligations and other obligations which shall have become due and payable under the Other Documents or otherwise and not repaid pursuant to clauses “FIRST” through “FIFTH” above; and

 

SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus.

 

In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; (ii) each of the Lenders shall receive (so long as it is not a Defaulting Lender) an amount equal to its pro rata share (based on the proportion that the then outstanding Advances held by such Lender bears to the aggregate then outstanding Advances) of amounts available to be applied pursuant to clauses “FOURTH”, “FIFTH” and “SIXTH” above; and (iii) to the extent that any amounts available for distribution pursuant to clause “FIFTH” above are attributable to the issued but undrawn amount of outstanding Letters of Credit, such amounts shall be held by Agent in a cash collateral account and applied (A) first, to reimburse the Issuer from time to time for any drawings under such Letters of Credit and (B) then, following the expiration of all Letters of Credit, to all other obligations of the types described in clauses “FIFTH” and “SIXTH” above in the manner provided in this Section 11.5.

 

XII WAIVERS AND JUDICIAL PROCEEDINGS.

 

12.1 Waiver of Notice.  Each Borrower hereby waives notice of non-payment of any of the Receivables, demand, presentment, notice of intent to accelerate and notice of acceleration, protest and notice thereof with respect to any and all instruments, notice of acceptance hereof, notice of loans or advances made, credit extended, Collateral received or delivered, or any other action taken in reliance hereon, and all other demands and notices of any description, except such as are expressly provided for herein.

 

  

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12.2 Delay.  No delay or omission on Agent’s or any Lender’s part in exercising any right, remedy or option shall operate as a waiver of such or any other right, remedy or option or of any Default or Event of Default.

 

12.3 Jury Waiver.  EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

XIII EFFECTIVE DATE AND TERMINATION.

 

13.1 Term.  This Agreement, which shall inure to the benefit of and shall be binding upon the respective successors and permitted assigns of each Borrower, Agent and each Lender, shall become effective on the date hereof and shall continue in full force and effect until the May 29, 2015 (the “Term”), unless sooner terminated as herein provided.

 

13.2 Termination.  The termination of the Agreement shall not affect any Borrower’s, Agent’s or any Lender’s rights, or any of the Obligations having their inception prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into, rights or interests created or Obligations have been fully and indefeasibly paid, disposed of, concluded or liquidated.  The security interests, Liens and rights granted to Agent and Lenders hereunder and the financing statements filed hereunder shall continue in full force and effect, notwithstanding the termination of this Agreement or the fact that Borrowers’ Account may from time to time be temporarily in a zero or credit position, until all of the Obligations of each Borrower have been indefeasibly paid and performed in full after the termination of this Agreement or each Borrower has furnished Agent and Lenders with an indemnification satisfactory to Agent and Lenders in their Permitted Discretion with respect thereto.  Accordingly, each Borrower waives any rights which it may have under the Uniform Commercial Code to demand the filing of termination statements with respect to the Collateral, and Agent shall not be required to send such termination statements to each Borrower, or to file them with any filing office, unless and until this Agreement shall have been terminated in accordance with its terms and all Obligations have been indefeasibly paid in full in immediately available funds.  All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until all Obligations are indefeasibly paid and performed in full.

 

  

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XIV REGARDING AGENT.

 

14.1 Appointment.  Each Lender hereby designates PNC to act as Agent for such Lender under this Agreement and the Other Documents.  Each Lender hereby irrevocably authorizes Agent to take such action on its behalf under the provisions of this Agreement and the Other Documents and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto and Agent shall hold all Collateral, payments of principal and interest, fees (except the fees set forth in the Fee Letter), charges and collections (without giving effect to any collection days) received pursuant to this Agreement, for the ratable benefit of Lenders.  Agent may perform any of its duties hereunder by or through its agents or employees.  As to any matters not expressly provided for by this Agreement (including collection of the Revolving Credit Note) Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding; provided, however, that Agent shall not be required to take any action which exposes Agent to liability or which is contrary to this Agreement or the Other Documents or Applicable Law unless Agent is furnished with an indemnification reasonably satisfactory to Agent with respect thereto.

 

14.2 Nature of Duties.  Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the Other Documents.  Neither Agent nor any of its officers, directors, employees or agents shall be (i) liable for any action taken or omitted by them as such hereunder or in connection herewith, unless caused by their gross (not mere) negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment), or (ii) responsible in any manner for any recitals, statements, representations or warranties made by any Borrower or any officer thereof contained in this Agreement, or in any of the Other Documents or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any of the Other Documents or for the value, validity, effectiveness, genuineness, due execution, enforceability or sufficiency of this Agreement, or any of the Other Documents or for any failure of any Borrower to perform its obligations hereunder.  Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any of the Other Documents, or to inspect the properties, books or records of any Borrower.  The duties of Agent as respects the Advances to Borrowers shall be mechanical and administrative in nature; Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of this Agreement except as expressly set forth herein.

 

14.3 Lack of Reliance on Agent and Resignation.  Independently and without reliance upon Agent or any other Lender, each Lender has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of each Credit Party in connection with the making and the continuance of the Advances hereunder and the taking or not taking of any action in connection herewith, and (ii) its own appraisal of the creditworthiness of each Credit Party.  Agent shall have no duty or responsibility, either initially or on a continuing 

 

  

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basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before making of the Advances or at any time or times thereafter except as shall be provided by any Borrower pursuant to the terms hereof.  Agent shall not be responsible to any Lender for any recitals, statements, information, representations or warranties herein or in any agreement, document, certificate or a statement delivered in connection with or for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any Other Document, or of the financial condition of any Credit Party, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement, the Revolving Credit Note, the Other Documents or the financial condition of any Credit Party, or the existence of any Event of Default or any Default.

 

Agent may resign on sixty (60) days’ written notice to each of Lenders and Borrowing Agent and upon such resignation, the Required Lenders will promptly designate a successor Agent reasonably satisfactory to Borrowers.

 

Any such successor Agent shall succeed to the rights, powers and duties of Agent, and the term “Agent” shall mean such successor agent effective upon its appointment, and the former Agent’s rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent.  After any Agent’s resignation as Agent, the provisions of this Article XIV shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.

 

14.4 Certain Rights of Agent.  If Agent shall request instructions from Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any Other Document, Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from the Required Lenders; and Agent shall not incur liability to any Person by reason of so refraining.  Without limiting the foregoing, Lenders shall not have any right of action whatsoever against Agent as a result of its acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders.

 

14.5 Reliance.  Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, order or other document or telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to this Agreement and the Other Documents and its duties hereunder, upon advice of counsel selected by it.  Agent may employ agents and attorneys-in-fact and shall not be liable for the default or misconduct of any such agents or attorneys-in-fact selected by Agent with reasonable care.

 

14.6 Notice of Default.  Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder or under the Other Documents, unless Agent has received notice from a Lender or Borrowing Agent referring to this Agreement or the Other Documents, describing such Default or Event of Default and stating that such notice is a “notice of default”.  In the event that Agent receives such a notice, Agent shall give notice thereof to Lenders.  Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided, that, unless and until Agent 

 

  

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shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of Lenders.

 

14.7 Indemnification.  To the extent Agent is not reimbursed and indemnified by Borrowers, each Lender will reimburse and indemnify Agent in proportion to its respective portion of the Advances (or, if no Advances are outstanding, according to its Commitment Percentage), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Agent in performing its duties hereunder, or in any way relating to or arising out of this Agreement or any Other Document (INCLUDING WITHOUT LIMITATION, WITH RESPECT TO ANY OTHERWISE INDEMNIFIED MATTER ARISING FROM AGENTS NEGLIGENCE OR STRICT LIABILITY); provided that, Lenders shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent’s gross (not mere) negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment).

 

14.8 Agent in its Individual Capacity.  With respect to the obligation of Agent to lend under this Agreement, the Advances made by it shall have the same rights and powers hereunder as any other Lender and as if it were not performing the duties as Agent specified herein; and the term “Lender” or any similar term shall, unless the context clearly otherwise indicates, include Agent in its individual capacity as a Lender.  Agent may engage in business with any Borrower as if it were not performing the duties specified herein, and may accept fees and other consideration from any Borrower for services in connection with this Agreement or otherwise without having to account for the same to Lenders.

 

14.9 Delivery of Documents.  To the extent Agent receives financial statements required under Sections 9.7, 9.8, 9.9, 9.12 and 9.13 or Borrowing Base Certificates from any Borrower pursuant to the terms of this Agreement which any Borrower is not obligated to deliver to each Lender, Agent will promptly furnish such documents and information to Lenders.

 

14.10 Borrowers’ Undertaking to Agent.  Without prejudice to their respective obligations to Lenders under the other provisions of this Agreement, each Borrower hereby undertakes with Agent to pay to Agent from time to time on demand all amounts from time to time due and payable by it for the account of Agent or Lenders or any of them pursuant to this Agreement to the extent not already paid.  Any payment made pursuant to any such demand shall pro tanto satisfy the relevant Borrower’s obligations to make payments for the account of Lenders or the relevant one or more of them pursuant to this Agreement.

 

14.11 No Reliance on Agent’s Customer Identification Program.  Each Lender acknowledges and agrees that neither such Lender, nor any of its Affiliates, participants or assignees, may rely on Agent to carry out such Lender’s, Affiliate’s, participant’s or assignee’s customer identification program, or other obligations required or imposed under or pursuant to the USA PATRIOT Act or the regulations thereunder, including the regulations contained in 31 CFR 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or any other Anti-Terrorism Law, including any programs involving any of the following items relating to or in 

 

  

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connection with any Borrower, its Affiliates or its agents, this Agreement, the Other Documents or the transactions hereunder or contemplated hereby: (1) any identity verification procedures, (2) any record-keeping, (3) comparisons with government lists, (4) customer notices or (5) other procedures required under the CIP Regulations or such other laws.

 

14.12 Other Agreements.  Each of the Lenders agrees that it shall not, without the express consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Agent, set off against the Obligations, any amounts owing by such Lender to any Borrower or any deposit accounts of any Borrower now or hereafter maintained with such Lender.  Anything in this Agreement to the contrary notwithstanding, each of the Lenders further agrees that it shall not, unless specifically requested to do so by Agent, take any action to protect or enforce its rights arising out of this Agreement or the Other Documents, it being the intent of Lenders that any such action to protect or enforce rights under this Agreement and the Other Documents shall be taken in concert and at the direction or with the consent of Agent or Required Lenders.

 

XV BORROWING AGENCY PROVISION AND COMMON ENTERPRISE.

 

15.1 Borrowing Agency Provisions.

 

(a) Each Borrower hereby irrevocably designates Borrowing Agent to be its attorney and agent and in such capacity to borrow, sign and endorse notes, and execute and deliver all instruments, documents, writings and further assurances now or hereafter required hereunder, on behalf of such Borrower or Borrowers, and hereby authorizes Agent to pay over or credit all loan proceeds hereunder in accordance with the request of Borrowing Agent.

 

(b) The handling of this credit facility as a co-borrowing facility with a borrowing agent in the manner set forth in this Agreement is solely as an accommodation to Borrowers and at their request.  Neither Agent nor any Lender shall incur liability to Borrowers as a result thereof.  TO INDUCE AGENT AND LENDERS TO DO SO AND IN CONSIDERATION THEREOF, EACH BORROWER HEREBY INDEMNIFIES AGENT AND EACH LENDER AND HOLDS AGENT AND EACH LENDER HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES (INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR INACTION ARISING FROM AGENT’S NEGLIGENCE OR STRICT LIABILITY), EXPENSES, LOSSES, DAMAGES AND CLAIMS OF DAMAGE OR INJURY ASSERTED AGAINST AGENT OR ANY LENDER BY ANY PERSON ARISING FROM OR INCURRED BY REASON OF THE HANDLING OF THE FINANCING ARRANGEMENTS OF BORROWERS AS PROVIDED HEREIN, RELIANCE BY AGENT OR ANY LENDER ON ANY REQUEST OR INSTRUCTION FROM BORROWING AGENT OR ANY OTHER ACTION TAKEN BY AGENT OR ANY LENDER WITH RESPECT TO THIS SECTION 15.1 EXCEPT DUE TO WILLFUL MISCONDUCT OR GROSS (NOT MERE) NEGLIGENCE BY THE INDEMNIFIED PARTY (AS DETERMINED BY A COURT OF COMPETENT JURISDICTION IN A FINAL AND NON-APPEALABLE JUDGMENT).

 

(c) All Obligations shall be joint and several, and each Borrower shall make payment upon the maturity of the Obligations by acceleration or otherwise, and such obligation 

 

  

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and liability on the part of each Borrower shall in no way be affected by any extensions, renewals and forbearance granted to Agent or any Lender to any Borrower, failure of Agent or any Lender to give any Borrower notice of borrowing or any other notice, any failure of Agent or any Lender to pursue or preserve its rights against any Borrower, the release by Agent or any Lender of any Collateral now or thereafter acquired from any Borrower, and such agreement by each Borrower to pay upon any notice issued pursuant thereto is unconditional and unaffected by prior recourse by Agent or any Lender to the other Borrowers or any Collateral for such Borrower’s Obligations or the lack thereof.  Each Borrower waives all suretyship defenses.

 

15.2 Waiver of Subrogation.  Each Borrower expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution of any other claim which such Borrower may now or hereafter have against the other Borrowers or other Person directly or contingently liable for the Obligations hereunder, or against or with respect to the other Borrowers’ property (including, without limitation, any property which is Collateral for the Obligations), arising from the existence or performance of this Agreement, until termination of this Agreement and repayment in full of the Obligations.

 

15.3 Common Enterprise.  The successful operation and condition of each of Borrowers is dependent on the continued successful performance of the functions of the group of Borrowers as a whole and the successful operation of each Borrower is dependent on the successful performance and operation of each other Borrower.  Each of Borrowers expects to derive benefit (and its board of directors or other governing body has determined that it may reasonably be expected to derive benefit), directly and indirectly, from successful operations of Holdings and each of the other Borrowers.  Each Borrower expects to derive benefit (and the boards of directors or other governing body of each such Borrower have determined that it may reasonably be expected to derive benefit), directly and indirectly, from the credit extended by Lenders to Borrowers hereunder, both in their separate capacities and as members of the group of companies.  Each Borrower has determined that execution, delivery, and performance of this Agreement and any Other Documents to be executed by such Borrower is within its corporate purpose, will be of direct and indirect benefit to such Borrower, and is in its best interest.

 

XVI MISCELLANEOUS

 

16.1 Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Texas applied to contracts to be performed wholly within the State of Texas.  Any judicial proceeding brought by or against any Borrower with respect to any of the Obligations, this Agreement, the Other Documents or any related agreement may be brought in any court of competent jurisdiction in Dallas County, Texas, United States of America, and, by execution and delivery of this Agreement, each Borrower accepts for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement.  Each Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to Borrowing Agent at its address set forth in Section 16.6 and service so made shall be deemed completed five (5) days after the same shall have been so deposited in the mails of the United States of America, or at Agent’s option, by service upon Borrowing Agent, which each Borrower irrevocably appoints as such Borrower’s Agent for the 

 

  

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purpose of accepting service within the State of Texas. Nothing herein shall affect the right to serve process in any manner permitted by law or shall limit the right of Agent or any Lender to bring proceedings against any Borrower in the courts of any other jurisdiction.  Each Borrower waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  Each Borrower waives the right to remove any judicial proceeding brought against such Borrower in any state court to any federal court.  Any judicial proceeding by any Borrower against Agent or any Lender involving, directly or indirectly, any matter or claim in any way arising out of, related to or connected with this Agreement or any related agreement, shall be brought only in a federal or state court located in the City of Dallas, State of Texas.

 

16.2 Entire Understanding.

 

(a) This Agreement and the documents executed concurrently herewith contain the entire understanding between each Borrower, Agent and each Lender and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof.  Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing, signed by each Borrower’s, Agent’s and each Lender’s respective officers.  Neither this Agreement nor any portion or provisions hereof may be changed, modified, amended, waived, supplemented, discharged, cancelled or terminated orally or by any course of dealing, or in any manner other than by an agreement in writing, signed by the party to be charged.  Each Borrower acknowledges that it has been advised by counsel in connection with the execution of this Agreement and Other Documents and is not relying upon oral representations or statements inconsistent with the terms and provisions of this Agreement.

 

(b) The Required Lenders, Agent with the consent in writing of the Required Lenders, and Borrowers may, subject to the provisions of this Section 16.2 (b), from time to time enter into written supplemental agreements to this Agreement or the Other Documents executed by Borrowers, for the purpose of adding or deleting any provisions or otherwise changing, varying or waiving in any manner the rights of Lenders, Agent or Borrowers thereunder or the conditions, provisions or terms thereof or waiving any Event of Default thereunder, but only to the extent specified in such written agreements; provided, however, that no such supplemental agreement shall, without the consent of all Lenders affected thereby:

 

(i) increase the Commitment Percentage, the maximum dollar commitment of any Lender or the Maximum Revolving Advance Amount.

 

(ii) extend the maturity of any note or the due date for any amount payable hereunder, or decrease the rate of interest or reduce any fee payable by Borrowers to Lenders pursuant to this Agreement.

 

(iii) alter the definition of the term Required Lenders or alter, amend or modify this Section 16.2(b).

 

  

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(iv) release any Collateral during any calendar year (other than in accordance with the provisions of this Agreement) having an aggregate value in excess of $1,000,000.

 

(v) change the rights and duties of Agent.

 

(vi) permit any Revolving Advance to be made if after giving effect thereto the total of Revolving Advances outstanding hereunder would exceed the Formula Amount for more than thirty (30) consecutive Business Days or exceed one hundred and ten percent (110%) of the Formula Amount.

 

(vii) increase the Advance Rates above the Advance Rates in effect on the Closing Date.

 

(viii) release any Guarantor.

 

Any such supplemental agreement shall apply equally to each Lender and shall be binding upon Borrowers, Lenders and Agent and all future holders of the Obligations.  In the case of any waiver, Borrowers, Agent and Lenders shall be restored to their former positions and rights, and any Event of Default waived shall be deemed to be cured and not continuing, but no waiver of a specific Event of Default shall extend to any subsequent Event of Default (whether or not the subsequent Event of Default is the same as the Event of Default which was waived), or impair any right consequent thereon.

 

In the event that Agent requests the consent of a Lender pursuant to this Section 16.2 and such consent is denied (each, a “Non-Consenting Lender”), then PNC may, at its option, require such Non-Consenting Lender to assign its interest in the Advances to PNC or to another Lender or to any other Person designated by Agent (the “Designated Lender”), for a price equal to (i) the then outstanding principal amount thereof plus (ii) accrued and unpaid interest and fees due such Lender, which interest and fees shall be paid when collected from Borrowers.  In the event PNC elects to require any Lender to assign its interest to PNC or to the Designated Lender, PNC will so notify such Lender in writing within forty five (45) days following such Non-Consenting Lender’s denial, and such Non-Consenting Lender will assign its interest to PNC or the Designated Lender no later than five (5) days following receipt of such notice pursuant to a Commitment Transfer Supplement executed by such Lender, PNC or the Designated Lender, as appropriate, and Agent.

 

Notwithstanding (a) the existence of a Default or an Event of Default, (b) that any of the other applicable conditions precedent set forth in Section 8.2 hereof have not been satisfied or (c) any other provision of this Agreement, Agent may at its discretion and without the consent of the Required Lenders, voluntarily permit the sum of the outstanding Revolving Advances and the Maximum Undrawn Amount at any time to exceed the Formula Amount by up to ten percent (10%) of the Formula Amount for up to thirty (30) consecutive Business Days (the “Out-of-Formula Loans”); provided, that, such outstanding Advances do not exceed the Maximum Revolving Advance Amount.  If Agent is willing in its sole and absolute discretion to make such Out-of-Formula Loans, such Out-of-Formula Loans shall be payable on demand and shall bear interest at the Default Rate for Revolving Advances consisting of Domestic Rate Loans; 

 

  

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provided that, if Lenders do make Out-of-Formula Loans, neither Agent nor Lenders shall be deemed thereby to have changed the limits of Section 2.1(a).  For purposes of this paragraph, the discretion granted to Agent hereunder shall not preclude involuntary overadvances that may result from time to time due to the fact that the Formula Amount was unintentionally exceeded for any reason, including, but not limited to, Collateral previously deemed to be either “Eligible Receivables”, “Eligible Extended Term Receivables”, “Eligible Government Receivables”, “Eligible Unbilled Receivables” or “Eligible Costs in Excess of Billings”, as applicable, becomes ineligible, collections of Receivables applied to reduce outstanding Revolving Advances are thereafter returned for insufficient funds or overadvances are made to protect or preserve the Collateral.  In the event Agent involuntarily permits the outstanding Revolving Advances to exceed the Formula Amount by more than ten percent (10%), Agent shall use its efforts to have Borrowers decrease such excess in as expeditious a manner as is practicable under the circumstances and not inconsistent with the reason for such excess.  Revolving Advances made after Agent has determined the existence of involuntary overadvances shall be deemed to be involuntary overadvances and shall be decreased in accordance with the preceding sentence.

 

In addition to (and not in substitution of) the discretionary Revolving Advances permitted above in this Section 16.2, Agent is hereby authorized by Borrowers and the Lenders, from time to time in Agent’s sole discretion, (A) after the occurrence and during the continuation of a Default or an Event of Default, or (B) at any time that any of the other applicable conditions precedent set forth in Section 8.2 hereof have not been satisfied, to make Revolving Advances to Borrowers on behalf of the Lenders which Agent, in its reasonable business judgment, deems necessary or desirable (a) to preserve or protect the Collateral, or any portion thereof, (b) to enhance the likelihood of, or maximize the amount of, repayment of the Advances and other Obligations, or (c) to pay any other amount chargeable to Borrowers pursuant to the terms of this Agreement; provided, that, at any time after giving effect to any such Revolving Advances the outstanding Revolving Advances do not exceed one hundred and ten percent (110%) of the Formula Amount.

 

16.3 Successors and Assigns; Participations; New Lenders.

 

(a) This Agreement shall be binding upon and inure to the benefit of Borrowers, Agent, each Lender, all future holders of the Obligations and their respective successors and permitted assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of Agent and each Lender.

 

(b) Each Borrower acknowledges that in the regular course of commercial banking business one or more Lenders may at any time and from time to time sell participating interests in the Advances to other financial institutions (each such transferee or purchaser of a participating interest, a “Participant”).  Each Participant may exercise all rights of payment (including rights of set-off) with respect to the portion of such Advances held by it or other Obligations payable hereunder as fully as if such Participant were the direct holder thereof; provided, that, Borrowers shall not be required to pay to any Participant more than the amount which it would have been required to pay to Lender which granted an interest in its Advances or other Obligations payable hereunder to such Participant had such Lender retained such interest in the Advances hereunder or other Obligations payable hereunder and in no event shall Borrowers be required to pay any such amount arising from the same circumstances and with respect to the 

 

  

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same Advances or other Obligations payable hereunder to both such Lender and such Participant.  Each Borrower hereby grants to any Participant a continuing security interest in any deposits, moneys or other property actually or constructively held by such Participant as security for the Participant’s interest in the Advances.

 

(c) Any Lender, with the consent of Agent which shall not be unreasonably withheld or delayed, may sell, assign or transfer all or any part of its rights and obligations under or relating to Revolving Advances under this Agreement and the Other Documents to one or more additional banks or financial institutions and one or more additional banks or financial institutions may commit to make Advances hereunder (each a “Purchasing Lender”) in minimum amounts of not less than $5,000,000, pursuant to a Commitment Transfer Supplement, executed by a Purchasing Lender, the transferor Lender, and Agent and delivered to Agent for recording.  Upon such execution, delivery, acceptance and recording, from and after the transfer effective date determined pursuant to such Commitment Transfer Supplement, (i) Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Lender thereunder with a Commitment Percentage as set forth therein, and (ii) the transferor Lender thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement, the Commitment Transfer Supplement creating a novation for that purpose.  Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of the Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and the Other Documents.  Each Borrower hereby consents to the addition of such Purchasing Lender and the resulting adjustment of the Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and the Other Documents.  Borrowers shall execute and deliver such further documents and do such further acts and things in order to effectuate the foregoing.

 

(d) Any Lender, with the consent of Agent which shall not be unreasonably withheld or delayed, may directly or indirectly sell, assign or transfer all or any portion of its rights and obligations under or relating to Revolving Advances under this Agreement and the Other Documents to an entity, whether a corporation, partnership, trust, limited liability company or other entity that (i) is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and (ii) is administered, serviced or managed by the assigning Lender or an Affiliate of such Lender (a “Purchasing CLO” and together with each Participant and Purchasing Lender, each a “Transferee” and collectively the “Transferees”), pursuant to a Commitment Transfer Supplement modified as appropriate to reflect the interest being assigned (“Modified Commitment Transfer Supplement”), executed by any intermediate purchaser, the Purchasing CLO, the transferor Lender, and Agent as appropriate and delivered to Agent for recording.  Upon such execution and delivery, from and after the transfer effective date determined pursuant to such Modified Commitment Transfer Supplement, (i) Purchasing CLO thereunder shall be a party hereto and, to the extent provided in such Modified Commitment Transfer Supplement, have the rights and obligations of a Lender thereunder and (ii) the transferor Lender thereunder shall, to the extent provided in such Modified Commitment Transfer Supplement, be released 

 

  

99

  

from its obligations under this Agreement, the Modified Commitment Transfer Supplement creating a novation for that purpose.  Such Modified Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing CLO.  Each Borrower hereby consents to the addition of such Purchasing CLO.  Borrowers shall execute and deliver such further documents and do such further acts and things in order to effectuate the foregoing.

 

(e) Agent shall maintain at its address a copy of each Commitment Transfer Supplement and Modified Commitment Transfer Supplement delivered to it and a register (the “Register”) for the recordation of the names and addresses of each Lender and the outstanding principal, accrued and unpaid interest and other fees due hereunder.  The entries in the Register shall be conclusive, in the absence of manifest error, and each Borrower, Agent and Lenders may treat each Person whose name is recorded in the Register as the owner of the Advance recorded therein for the purposes of this Agreement.  The Register shall be available for inspection by Borrowing Agent or any Lender at any reasonable time and from time to time upon reasonable prior notice.  Agent shall receive a fee in the amount of $3,500 payable by the applicable Purchasing Lender and/or Purchasing CLO upon the effective date of each transfer or assignment (other than to an intermediate purchaser) to such Purchasing Lender and/or Purchasing CLO.

 

(f) Each Borrower authorizes each Lender to disclose to any Transferee and any prospective Transferee any and all financial information in such Lender’s possession concerning such Borrower which has been delivered to such Lender by or on behalf of such Borrower pursuant to this Agreement or in connection with such Lender’s credit evaluation of such Borrower.

 

16.4 Application of Payments.  Agent shall have the continuing and exclusive right to apply or reverse and re-apply any payment and any and all proceeds of Collateral to any portion of the Obligations.  To the extent that any Borrower makes a payment or Agent or any Lender receives any payment or proceeds of the Collateral for any Borrower’s benefit, which are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other party under any bankruptcy law, common law or equitable cause, then, to such extent, the Obligations or part thereof intended to be satisfied shall be revived and continue as if such payment or proceeds had not been received by Agent or such Lender.

 

16.5 Indemnity.  Each Borrower shall indemnify Agent, each Lender and each of their respective officers, directors, Affiliates, attorneys, employees and agents from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including fees and disbursements of counsel) which may be imposed on, incurred by, or asserted against Agent or any Lender in any claim, litigation, proceeding or investigation instituted or conducted by any Governmental Body or instrumentality or any other Person with respect to any aspect of, or any transaction contemplated by, or referred to in, or any matter related to, this Agreement or the Other Documents, whether or not Agent or any Lender is a party thereto, except to the extent that any of the foregoing arises out of the gross negligence, bad faith or willful misconduct of the party being indemnified (as determined by a court of competent jurisdiction in a final and non-appealable judgment).  Without limiting the generality of the foregoing, this indemnity shall 

 

  

100

  

extend to any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including fees and disbursements of counsel) asserted against or incurred by any of the indemnitees described above in this Section 16.5 by any Person under any Environmental Laws or similar laws by reason of any Borrower’s or any other Person’s failure to comply with laws applicable to solid or hazardous waste materials, including Hazardous Substances and Hazardous Waste, or other Toxic Substances.  Additionally, if any taxes (excluding taxes imposed upon or measured solely by the net income of Agent and Lenders, but including any intangibles taxes, stamp tax, recording tax or franchise tax) shall be payable by Agent, Lenders or Borrowers on account of the execution or delivery of this Agreement, or the execution, delivery, issuance or recording of any of the Other Documents, or the creation or repayment of any of the Obligations hereunder, by reason of any Applicable Law now or hereafter in effect, Borrowers will pay (or will promptly reimburse Agent and Lenders for payment of) all such taxes, including interest and penalties thereon, and will indemnify and hold the indemnitees described above in this Section 16.5 harmless from and against all liability in connection therewith.

 

16.6 Notice.  Any notice or request hereunder may be given to Borrowing Agent or any Borrower or to Agent or any Lender at their respective addresses set forth below or at such other address as may hereafter be specified in a notice designated as a notice of change of address under this Section.  Any notice, request, demand, direction or other communication (for purposes of this Section 16.6 only, a “Notice”) to be given to or made upon any party hereto under any provision of this Agreement shall be given or made by telephone or in writing (which includes by means of electronic transmission (i.e., “e-mail”) or facsimile transmission or by setting forth such Notice on a site on the World Wide Web (a “Website Posting”) if Notice of such Website Posting (including the information necessary to access such site) has previously been delivered to the applicable parties hereto by another means set forth in this Section 16.6) in accordance with this Section 16.6.  Any such Notice must be delivered to the applicable parties hereto at the addresses and numbers set forth under their respective names on Section 16.6 hereof or in accordance with any subsequent unrevoked Notice from any such party that is given in accordance with this Section 16.6.  Any Notice shall be effective:

 

(a) In the case of hand-delivery, when delivered;

 

(b) If given by mail, four days after such Notice is deposited with the United States Postal Service, with first-class postage prepaid, return receipt requested;

 

(c) In the case of a telephonic Notice, when a party is contacted by telephone, if delivery of such telephonic Notice is confirmed no later than the next Business Day by hand delivery, a facsimile or electronic transmission, a Website Posting or an overnight courier delivery of a confirmatory Notice (received at or before noon on such next Business Day);

 

(d) In the case of a facsimile transmission, when sent to the applicable party’s facsimile machine’s telephone number, if the party sending such Notice receives confirmation of the delivery thereof from its own facsimile machine;

 

(e) In the case of electronic transmission, when actually received;

 

  

101

  

(f) In the case of a Website Posting, upon delivery of a Notice of such posting (including the information necessary to access such site) by another means set forth in this Section 16.6; and

 

(g) If given by any other means (including by overnight courier), when actually received.

 

Any Lender giving a Notice to Borrowing Agent or any Borrower shall concurrently send a copy thereof to Agent, and Agent shall promptly notify the other Lenders of its receipt of such Notice.

 

	
(A) If to Agent or PNC at:

	 	 	  
	  	 	 	  
	  	 	PNC Bank, National Association
	  	 	2100 Ross Avenue, Suite 1850
	  	 	Dallas, Texas 75201
	  	 	Attention:	
Relationship Manager (ENGlobal)

	  	 	Telephone:	
214-871-1261

	  	 	Facsimile:	
214-871-2015

	  	 	Email:	
ronald.eckhoff@pnc.com

	  	 	 	  
	  	 	with a copy to:
	  	 	 	  
	  	 	PNC Bank, National Association
	  	 	Two Tower Center Boulevard
	  	 	East Brunswick, New Jersey 08816
	  	 	Attention:	
Josephine Griffin

	  	 	Telephone:	
732-220-4388

	  	 	Facsimile:	
732-220-4548

	  	 	Email:	
josephine.griffin@pnc.com

	  	 	 	  
	  	 	with an additional copy to:
	  	 	 	  
	  	 	Patton Boggs LLP
	  	 	2000 McKinney Avenue, Suite 1700
	  	 	Dallas, Texas 75201
	  	 	Attention:	
Michelle W. Suarez, Esq.

	  	 	Telephone:	
214-758-1500

	  	 	Facsimile:	
214-758-1550

	  	 	Email:	
msuarez@pattonboggs.com

	  	 	 	  
	
(B) If to a Lender other than Agent, as specified on the signature pages hereof.

	 	 	  

 

  

102

  

 

	  	 	 	  
	
(C) If to Borrowing Agent or any Borrower:

	 	ENGlobal Corporation
	  	 	654 N. Sam Houston Parkway – Suite 400
	  	 	Houston, Texas 77060
	  	 	Attention:	
Tami Walker

	  	 	Telephone:	
281-878-1000

	  	 	Facsimile:	
281-754-4859

	  	 	Email:	
tami.walker@englobal.com

	  	 	 	  
	  	 	with a copy to:
	  	 	Porter Hedges LLP
	  	 	1000 Main Street, 36th Floor
	  	 	Houston, Texas  77002
	  	 	Attention:	
Ephraim del Pozo, Esq.

	  	 	Telephone:	
713-226-6660

	  	 	Facsimile:	
713-226-6260

	  	 	Email:	
edelpozo@porterhedges.com

 

16.7 Survival.  The obligations of Borrowers under Sections 2.2(f), 3.7, 3.8, 3.9, 4.19(h), and 16.5 and the obligations of Lenders under Section 14.7, shall survive termination of this Agreement and the Other Documents and payment in full of the Obligations.

 

16.8 Severability.  If any part of this Agreement is contrary to, prohibited by, or deemed invalid under Applicable Laws, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.

 

16.9 Expenses.  All costs and expenses including reasonable attorneys’ fees and disbursements incurred by Agent on its behalf or on behalf of Lenders (a) in all efforts made to enforce payment of any Obligation or effect collection of any Collateral, or (b) in connection with the entering into, documentation, negotiation, modification, amendment, administration and enforcement of this Agreement, the Ex-Im Intercreditor Agreement or any consents or waivers hereunder or thereunder and all related agreements, documents and instruments, or (c) in instituting, maintaining, preserving, enforcing and foreclosing on Agent’s security interest in or Lien on any of the Collateral, or maintaining, preserving or enforcing any of Agent’s or any Lender’s rights hereunder, under the Ex-Im Intercreditor Agreement and under all related agreements, documents and instruments, whether through judicial proceedings or otherwise, or (d) in defending or prosecuting any actions or proceedings arising out of or relating to Agent’s or any Lender’s transactions with any Credit Party or (e) in connection with any advice given to Agent or any Lender with respect to its rights and obligations under this Agreement, the Ex-Im Intercreditor Agreement and all related agreements, documents and instruments, may be charged to Borrowers’ Account and shall be part of the Obligations.

 

  

103

  

16.10 Injunctive Relief.  Each Borrower recognizes that, in the event any Borrower fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, or threatens to fail to perform, observe or discharge such obligations or liabilities, any remedy at law may prove to be inadequate relief to Lenders; therefore, Agent, if Agent so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving that actual damages are not an adequate remedy.

 

16.11 Consequential Damages.  Neither Agent nor any Lender, nor any agent or attorney for any of them, shall be liable to any Credit Party (or any Affiliate of any such Person) for indirect, punitive, exemplary or consequential damages arising from any breach of contract, tort or other wrong relating to the establishment, administration or collection of the Obligations or as a result of any transaction contemplated under this Agreement or any Other Document.

 

16.12 Captions.  The captions at various places in this Agreement are intended for convenience only and do not constitute and shall not be interpreted as part of this Agreement.

 

16.13 Counterparts; Facsimile Signatures.  This Agreement may be executed in any number of and by different parties hereto on separate counterparts, all of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement.  Any signature delivered by a party by facsimile or other form of electronic transmission shall be deemed to be an original signature hereto.

 

16.14 Construction.  The parties acknowledge that each party and its counsel have reviewed this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments, schedules or exhibits thereto.

 

16.15 Confidentiality; Sharing Information.  Agent, each Lender and each Transferee shall hold all non-public information obtained by Agent, such Lender or such Transferee pursuant to the requirements of this Agreement in confidence and accordance with Agent’s, such Lender’s and such Transferee’s customary procedures for handling confidential information of this nature; provided, however, Agent, each Lender and each Transferee may disclose such confidential information (a) to its examiners, Affiliates, outside auditors, counsel and other professional advisors, (b) to Agent, any Lender or to any prospective Transferees, and (c) as required or requested by any Governmental Body or representative thereof or pursuant to legal process; provided, further that (i) unless specifically prohibited by Applicable Law, Agent, each Lender and each Transferee shall use its reasonable best efforts prior to disclosure thereof, to notify the applicable Borrower of the applicable request for disclosure of such non-public information (A) by a Governmental Body or representative thereof (other than any such request in connection with an examination of the financial condition of a Lender or a Transferee by such Governmental Body) or (B) pursuant to legal process and (ii) in no event shall Agent, any Lender or any Transferee be obligated to return any materials furnished by any Borrower other than those documents and instruments in possession of Agent or any Lender in order to perfect its Lien on the Collateral once the Obligations have been paid in full and this Agreement has been terminated.  Each Borrower acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to such Borrower or one or more of its Affiliates (in connection with this Agreement or otherwise) by any Lender or by one 

 

  

104

  

or more Subsidiaries or Affiliates of such Lender and each Borrower hereby authorizes each Lender to share any information delivered to such Lender by such Borrower and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Lender to enter into this Agreement, to any such Subsidiary or Affiliate of such Lender, it being understood that any such Subsidiary or Affiliate of any Lender receiving such information shall be bound by the provisions of this Section 16.15 as if it were a Lender hereunder.  Such authorization shall survive the repayment of the other Obligations and the termination of this Agreement.

 

16.16 Publicity.  Each Borrower and each Lender hereby authorizes Agent to make appropriate announcements of the financial arrangement entered into among Borrowers, Agent and Lenders, including announcements which are commonly known as tombstones, in such publications and to such selected parties as Agent shall in its Permitted Discretion deem appropriate.

 

16.17 Certifications From Banks and Participants; US PATRIOT Act.  Each Lender or assignee or participant of a Lender that is not incorporated under the Laws of the United States of America or a state thereof (and is not excepted from the certification requirement contained in Section 313 of the USA PATRIOT Act and the applicable regulations because it is both (i) an affiliate of a depository institution or foreign bank that maintains a physical presence in the United States or foreign country, and (ii) subject to supervision by a banking authority regulating such affiliated depository institution or foreign bank) shall deliver to Agent the certification, or, if applicable, recertification, certifying that such Lender is not a “shell” and certifying to other matters as required by Section 313 of the USA PATRIOT Act and the applicable regulations: (1) within ten (10) days after the Closing Date, and (2) as such other times as are required under the USA PATRIOT Act.

 

16.18 No Advisory or Fiduciary Relationship.  In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any Other Document), each Borrower acknowledges and agrees that:  (a)(i) the arranging and other services regarding this Agreement provided by Agent are arm’s-length commercial transactions between Borrowers, on the one hand, and Agent on the other hand, (ii) each Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (iii) each Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the Other Documents; (b)(i) each of Agent and Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for any Credit Party, or any other Person and (ii) none of Agent or any Lender has any obligation to any Credit Party, or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the Other Documents; and (c) Agent and Lenders may be engaged in a broad range of transactions that involve interests that differ from those of any Credit Party, and their respective Affiliates, and neither Agent nor any Lender has any obligation to disclose any of such interests to any Credit Party, or any of their respective Affiliates.  To the fullest extent permitted by law, each Borrower hereby waives and releases any claims that it may have against each of Agent and Lenders with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

 

  

105

  

16.19 Non-Applicability of Chapter 346.  Borrowers, Agent and the Lenders hereby agree that, except for the opt-out provisions of Section 346.004 thereof, the provisions of Chapter 346 of the Texas Finance Code, as amended from time to time (regulating certain revolving credit loans and revolving tri-party accounts) shall not apply to this Agreement or any of the Other Documents, and the extensions of credit made hereunder are not for personal, family or household use.

 

16.20 BORROWERS’ WAIVER OF RIGHTS UNDER TEXAS DECEPTIVE TRADE PRACTICES ACT.  EACH BORROWER HEREBY WAIVES ANY RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, SECTION § 17.41 ET SEQ. TEXAS BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS.  AFTER CONSULTATION WITH AN ATTORNEY OF THE OBLIGORS' OWN SELECTION, EACH OBLIGOR VOLUNTARILY CONSENTS TO THIS WAIVER.  EACH BORROWER EXPRESSLY WARRANTS AND REPRESENTS THAT EACH PERSON (A) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND (B) HAS BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

[Signature Pages Follow.]

 

 

 

 

 

 

 

  

106

  

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

 

 

	 	
BORROWERS:

	 	 	 
	 	
ENGLOBAL CORPORATION

	 	 	 
	 	By:	
/s/ Edward L. Pagano

	 	Name:	
Edward L. Pagano

	 	Title:	
President and Chief Executive Officer

	 	 	 
	 	 	 
	 	
ENGLOBAL U.S., INC.

	 	 	 
	 	By:	
/s/ Edward L. Pagano

	 	Name:	
Edward L. Pagano

	 	Title:	
President and Chief Executive Officer

	 	 	 
	 	 	 
	 	
ENGLOBAL INTERNATIONAL, INC.

	 	 	 
	 	By:	
/s/ Edward L. Pagano

	 	Name:	
Edward L. Pagano

	 	Title:	
President and Chief Executive Officer

	 	 	 
	 	 	 
	 	
ENGLOBAL GOVERNMENT SERVICES, INC.

	 	 	 
	 	By:	
/s/ Edward L. Pagano

	 	Name:	
Edward L. Pagano

	 	Title:	
President and Chief Executive Officer

 

  

[Signature Page to Revolving Credit and Security Agreement]

  

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

 

	 	
PNC BANK, NATIONAL ASSOCIATION,

	 	
as Lender and as Agent

	 	 	 
	 	 	 
	 	By:	
/s/ Ron Eckhoff

	 	Name: 	
Ron Eckhoff

	 	Title:	
Vice President

 

 

 

 

 

 

 

  

[Signature Page to Revolving Credit and Security Agreement]

  

Schedule 1.1

 

Lenders’ Commitments

 

	
Lender

	
Percentage

	
PNC Bank, National Association

	
100%

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