Document:

Exhibit 10.27

 

SEVENTH AMENDMENT TO CREDIT AND SECURITY AGREEMENTS
 AND WAIVER OF DEFAULT

 

THIS SEVENTH AMENDMENT TO CREDIT AND SECURITY AGREEMENTS AND WAIVER OF DEFAULT (the “Amendment”), dated as of June 9, 2011, is entered into by and between CAPSTONE TURBINE CORPORATION, a Delaware corporation (“Company”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells Fargo”), acting through its Wells Fargo Business Credit operating division.

 

RECITALS

 

A.            Company and Wells Fargo are parties to (i) a Credit and Security Agreement dated February 9, 2009 (as amended by that certain First Amendment to Credit and Security Agreements, dated June 9, 2009 (“First Amendment”), that certain Second Amendment to Credit and Security Agreements and Waiver of Defaults, dated November 5, 2009 (“Second Amendment”), that certain Third Amendment to Credit and Security Agreements and Waiver of Default, dated June 11, 2010 (“Third Amendment”), that certain Fourth Amendment to Credit and Security Agreements, dated June 29, 2010 (“Fourth Amendment”), that certain Fifth Amendment to Credit and Security Agreements, dated November 9, 2010 (“Fifth Amendment”), and that certain Sixth Amendment to Credit and Security Agreement and Waiver of Default, dated March 23, 2011 (“Sixth Amendment”), and as further amended from time to time, the “Domestic Credit Agreement”), and (ii) a Credit and Security Agreement (Ex-Im Subfacility), dated February 9, 2009 (as amended by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, and the Sixth Amendment, and further amended from time to time, the “Ex-Im Credit Agreement”; and together with the Domestic Credit Agreement, the “Credit Agreements”).  Capitalized terms used in these recitals have the meanings given to them in the Credit Agreements unless otherwise specified.

 

B.            Company has requested that (i) certain amendments be made to the Credit Agreements, and (ii) an Event of Default be waived, both of which Wells Fargo is willing to agree to pursuant to the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows:

 

1.                                       Amendments to Credit Agreements.  The Credit Agreements are amended as follows:

 

1.1           Section 5.2(a) of the Credit Agreements.  Section 5.2(a) of the Credit Agreements is deleted in its entirety, and replaced with “[Intentionally Omitted].”

 

 

1.2                                 Section 5.2(b) of the Credit Agreements.  Section 5.2(b) of the Credit Agreements is amended to read in its entirety as follows:

 

“(a)         Minimum Net Income.  Company shall achieve Net Income, measured on each of the following test dates described below, for the fiscal year to date period ending on each such test date, of not less than the amount set forth opposite each such test date (numbers appearing between “< >” are negative):

 

	
Test Date
    	
 
    	
Minimum Net Income
    	
 
    
	
June 30, 2011
    	
 
    	
$
    	
<9,230,000
    	
> 
    
	
September 30, 2011
    	
 
    	
$
    	
<15,699,000
    	
> 
    
	
December 31, 2011
    	
 
    	
$
    	
<20,790,000
    	
> 
    
	
March 31, 2012
    	
 
    	
$
    	
<23,418,000
    	
> 
    

 

1.3                                 Section 5.2(d) of the Credit Agreements.  Section 5.2(d) of the Credit Agreements is amended to read in its entirety as follows:

 

“(d)         Capital Expenditures.  Company shall not incur or contract to incur Capital Expenditures of more than (i) $2,000,000 in the aggregate during Company’s fiscal year ending March 31, 2012, and (ii) zero for each subsequent year until Company and Wells Fargo agree on limits on Capital Expenditures for subsequent periods based on Company’s projections for such periods.”

 

1.4                                 Section 5.28 of the Credit Agreements.  Section 5.28 of the Credit Agreements is deleted in its entirety, and replaced with “[Intentionally Omitted].”  The remaining “Cash Collateral” described in such Section 5.28 of the Credit Agreements held by Wells Fargo shall be released to Company upon the effectiveness of this Amendment.

 

1.5                                 Exhibit D to the Credit Agreements.  Paragraph (e) of Exhibit D to the Credit Agreements is amended to read in its entirety as follows:

 

“(e)         Subsidiaries.  Except as disclosed below, Company has no Subsidiaries.

 

Subsidiaries

 

Capstone Turbine International, Inc., a Delaware corporation

 

Capstone Turbine Singapore Pte. Ltd.”

 

1.6                                 Exhibit E to the Domestic Credit Agreement.  Exhibit E to the Domestic Credit Agreement is hereby deleted and replaced with Exhibit E-1 attached to this Amendment.

 

1.7                                 Exhibit E to the Ex-Im Credit Agreement.  Exhibit E to the Ex-Im Credit Agreement is hereby deleted and replaced with Exhibit E-2 attached to this Amendment.

 

2.                                       Waiver of Default.  Company is in default of the following provision of the Credit Agreements (the “Existing Default”):

 

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Section/Covenant
    	
 
    	
Description
    
	
Section 5.2(b)
   (Minimum Net Income)
    	
 
    	
Company   breached the minimum Net Income covenant for the quarter ended March 31,   2011
    

 

Upon the terms and subject to the conditions set forth in this Amendment (including, but not limited to, the effectiveness of this Amendment in accordance with Section 5 of this Amendment), Wells Fargo hereby waives the Existing Default.  This waiver shall be effective only in this specific instance and for the specific purpose for which it is given, and this waiver shall not entitle Company to any other or further waiver in any similar or other circumstances.

 

3.                                       No Other Changes.  Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreements shall remain in full force and effect and shall apply to any advance or letter of credit thereunder.

 

4.                                       Accommodation Fee.  Company shall pay Wells Fargo as of the date hereof a fully earned, non-refundable accommodation fee in the amount of $60,000 in consideration of Wells Fargo’s execution and delivery of this Amendment (the “Accommodation Fee”).

 

5.                                       Conditions Precedent.  This Amendment shall be effective when Wells Fargo shall have received an executed original of this Amendment, together with each of the following, each in substance and form acceptable to Wells Fargo in its sole discretion:

 

5.1           A Certificate of the Secretary of Company certifying as to (i) the resolutions of the board of directors of Company approving the execution and delivery of this Amendment, (ii) the fact that the certificate of incorporation and bylaws of Company, which were certified and delivered to Wells Fargo pursuant to the Certificate of Authority of Company’s secretary or assistant secretary dated February 9, 2009, continue in full force and effect and have not been amended or otherwise modified except as set forth in the Certificate to be delivered, and (iii) the fact that the officers and agents of Company who have been certified to Wells Fargo, pursuant to the Certificate of Authority of Company’s secretary or assistant secretary dated February 9, 2009, as being authorized to sign and to act on behalf of Company continue to be so authorized;

 

5.2           Consent and approval of this Amendment by the Export Import Bank of the United States, if required by Wells Fargo;

 

5.3           The Acknowledgement and Agreement of Guarantor set forth at the end of this Amendment, duly executed by Guarantor;

 

5.4           Payment of the Accommodation Fee described in Section 4 of this Amendment; and

 

5.5           Such other matters as Wells Fargo may require.

 

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6.                                       Representations and Warranties.  Company hereby represents and warrants to Wells Fargo as follows:

 

6.1           Company has all requisite power and authority to execute this Amendment and any other agreements or instruments required hereunder and to perform all of its obligations hereunder, and this Amendment and all such other agreements and instruments have been duly executed and delivered by Company and constitute the legal, valid and binding obligation of Company, enforceable in accordance with their terms.

 

6.2           The execution, delivery and performance by Company of this Amendment and any other agreements or instruments required hereunder have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to Company, or the certificate of incorporation or bylaws of Company, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Company is a party or by which it or its properties may be bound or affected.

 

6.3           After giving effect to this Amendment, all of the representations and warranties contained in Section 4 of, and Exhibit D to, the Credit Agreements are true and correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date (in which case they shall continue to be true and correct as of such earlier date), provided that the Existing Default has occurred.

 

7.                                       References.  All references in the Credit Agreements to “this Agreement” shall be deemed to refer to the relevant Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreements shall be deemed to refer to the relevant Credit Agreement as amended hereby.

 

8.                                       No Waiver.  Except as expressly provided in Section 2 of this Amendment, the execution of this Amendment and the acceptance of all other agreements and instruments related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreements or a waiver of any breach, default or event of default under any Security Document or other document held by Wells Fargo, whether or not known to Wells Fargo and whether or not existing on the date of this Amendment.

 

9.                                       Release.  Company and the Guarantor signing the Acknowledgment and Agreement of Guarantor set forth below hereby absolutely and unconditionally release and forever discharge Wells Fargo, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents, attorneys, and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which Company or Guarantor has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands

 

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and causes of action are matured or unmatured or known or unknown.  It is the intention of the Company and Guarantor in executing this release that the same shall be effective as a bar to each and every claim, demand and cause of action specified and in furtherance of this intention the Company and Guarantor each waives and relinquishes all rights and benefits under Section 1542 of the Civil Code of the State of California, which provides:

 

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MIGHT HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

 

The parties acknowledge that each may hereafter discover facts different from or in addition to those now known or believed to be true with respect to such claims, demands, or causes of action and agree that this instrument shall be and remain effective in all respects notwithstanding any such differences or additional facts.

 

10.                                 Costs and Expenses.  Company hereby reaffirms its agreement under the Credit Agreements to pay or reimburse Wells Fargo on demand for all costs and expenses incurred by Wells Fargo in connection with the Loan Documents, including, without limitation, all reasonable fees and disbursements of legal counsel.  Without limiting the generality of the foregoing, Company specifically agrees to pay all reasonable fees and disbursements of counsel to Wells Fargo for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto.  Company hereby agrees that Wells Fargo may, at any time or from time to time in its sole discretion and without further authorization by Company, make a loan to Company under the Credit Agreements, or apply the proceeds of any loan, for the purpose of paying any such reasonable fees, disbursements, costs and expenses and the fee set forth in Section 4 of this Amendment.

 

11.                                 Miscellaneous.  This Amendment and the Acknowledgment and Agreement of Guarantor may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument.  Transmission by facsimile or “pdf” file of an executed counterpart of this Amendment shall be deemed to constitute due and sufficient delivery of such counterpart.  Any party hereto may request an original counterpart of any party delivering such electronic counterpart.  This Amendment and the rights and obligations of the parties hereto shall be construed in accordance with, and governed by, the laws of the State of California.  In the event of any conflict between this Amendment and the Credit Agreements, the terms of this Amendment shall govern.  The Export-Import Bank of the United States shall be an express intended beneficiary of this Amendment.

 

[Signatures on next page]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

 

 

	
 
    	
WELLS   FARGO BANK,
    
	
 
    	
NATIONAL   ASSOCIATION
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/Michael   White
    
	
 
    	
Print   Name: Michael White
    
	
 
    	
Title:   Authorized Signatory
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
CAPSTONE   TURBINE CORPORATION
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/Edward   Reich
    
	
 
    	
Print   Name: Edward Reich
    
	
 
    	
Its:   Executive Vice President & Chief Financial Officer
    

 

S-1

 

ACKNOWLEDGMENT AND AGREEMENT OF GUARANTOR

 

The undersigned, a guarantor of the indebtedness of Capstone Turbine Corporation (“Company”) to Wells Fargo Bank, National Association (as more fully defined in the Amendment, “Wells Fargo”), acting through its Wells Fargo Business Credit operating division, pursuant to the separate Guaranty dated February 9, 2009 (“Guaranty”), hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents and agrees to the terms (including without limitation the release set forth in Section 9 of the Amendment) and execution and performance thereof; (iii) reaffirms all obligations to Wells Fargo pursuant to the terms of the Guaranty; and (iv) acknowledges that Wells Fargo may amend, restate, extend, renew or otherwise modify the Credit Agreements and any indebtedness or agreement of the Company, or enter into any agreement or extend additional or other credit accommodations, without notifying or obtaining the consent of the undersigned and without impairing the liability of the undersigned under the  Guaranty for all of the Company’s present and future indebtedness to Wells Fargo.

 

 

	
 
    	
CAPSTONE   TURBINE INTERNATIONAL, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Edward Reich
    
	
 
    	
Print   Name:
    	
Edward   Reich
    
	
 
    	
Title:
    	
Executive   Vice President & Chief Financial Officer
    
					

 

 

Exhibit E-1

 

Exhibit E to Credit and Security Agreement

 

COMPLIANCE CERTIFICATE

 

To:          Wells Fargo Bank, National Association

Date:       [                                    , 201    ]

Subject:                  Financial Statements

 

In accordance with our Credit and Security Agreement dated February 9, 2009 (as amended from time to time, the “Credit Agreement”), attached are the financial statements of Capstone Turbine Corporation (the “Company”) dated [                       , 201    ] (the “Reporting Date”) and the year-to-date period then ended (the “Current Financials”).  All terms used in this certificate have the meanings given in the Credit Agreement.

 

A.            Preparation and Accuracy of Financial Statements.  I certify that the Current Financials have been prepared in accordance with GAAP, subject to year-end audit adjustments, and fairly present Company’s financial condition as of the Reporting Date.

 

B.            Name of Company; Merger and Consolidation.  I certify that:

 

(Check one)

 

 ̈            Company has not, since the date of the Credit Agreement, changed its name or jurisdiction of organization, nor has it consolidated or merged with another Person.

 

 ̈            Company has, since the date of the Credit Agreement, either changed its name or jurisdiction of organization, or both, or has consolidated or merged with another Person, which change, consolidation or merger:   ̈ was consented to in advance by Wells Fargo in an Authenticated Record, and/or  ̈ is more fully described in the statement of facts attached to this Certificate.

 

C.            Events of Default.  I certify that:

 

(Check one)

 

 ̈            I have no knowledge of the occurrence of an Event of Default under the Credit Agreement, except as previously reported to Wells Fargo in a Record.

 

 ̈            I have knowledge of an Event of Default under the Credit Agreement not previously reported to Wells Fargo in a Record, as more fully described in the statement of facts attached to this Certificate, and further, I acknowledge that Wells Fargo may under the terms of the Credit Agreement impose the Default Rate at any time during the resulting Default Period.

 

1

 

D.            Litigation Matters.  I certify that:

 

(Check one)

 

 ̈            I have no knowledge of any material adverse change to the litigation exposure of Company or any of its Affiliates or of any Guarantor.

 

 ̈            I have knowledge of material adverse changes to the litigation exposure of Company or any of its Affiliates or of any Guarantor not previously disclosed in Exhibit D, as more fully described in the statement of facts attached to this Certificate.

 

E.             Financial Covenants.  I further certify that:

 

(Complete each of the following)

 

1.             Minimum Net Income.  Pursuant to Section 5.2(b) of the Credit Agreement, as of the Reporting Date, Company’s Net Income was [$                    ], which  ̈ satisfies  ̈ does not satisfy the requirement that Net Income be not less than the amount required by such Section 5.2(b).

 

2.             Minimum Cash to Unreimbursed Line of Credit Advances Coverage Ratio.  Pursuant to Section 5.2(c) of the Credit Agreement, as of the Reporting Date, at all times, Company has  ̈ has not  ̈ been in compliance with the requirement that the percentage of the unreimbursed Line of Credit Advances under the Revolving Note plus the L/C Amount plus outstanding “Advances” under the Ex-Im Credit Agreement to the amount of cash plus Cash Equivalents of Company in which Wells Fargo has a perfected first priority security interest be not greater than 80%.

 

3.             Capital Expenditures.  Pursuant to Section 5.2(d) of the Credit Agreement, for the year-to-date period ending on the Reporting Date, Company has expended or contracted to expend during the fiscal year ended March 31, 201      , for Capital Expenditures, $                                 in the aggregate, which  ̈ satisfies  ̈ does not satisfy the requirement that such expenditures not exceed the limit for such fiscal year set forth in such Section 5.2(d).

 

Attached are statements of all relevant facts and computations in reasonable detail sufficient to evidence Company’s compliance with the financial covenants referred to above, which computations were made in accordance with GAAP.

 

	
 
    	
Capstone   Turbine Corporation
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Its:
    	
Chief   Financial Officer
    

 

2

 

Exhibit E-2

 

Exhibit E to Credit and Security Agreement (Ex-Im Subfacility)

 

COMPLIANCE CERTIFICATE

 

To:          Wells Fargo Bank, National Association

Date:       [                                    , 201    ]

Subject:                  Financial Statements

 

In accordance with our Credit and Security Agreement (Ex-Im Subfacility) dated February 9, 2009 (as amended from time to time, the “Credit Agreement”), attached are the financial statements of Capstone Turbine Corporation (the “Company”) dated [                       , 201    ] (the “Reporting Date”) and the year-to-date period then ended (the “Current Financials”).  All terms used in this certificate have the meanings given in the Credit Agreement.

 

A.            Preparation and Accuracy of Financial Statements.  I certify that the Current Financials have been prepared in accordance with GAAP, subject to year-end audit adjustments, and fairly present Company’s financial condition as of the Reporting Date.

 

B.            Name of Company; Merger and Consolidation.  I certify that:

 

(Check one)

 

 ̈            Company has not, since the date of the Credit Agreement, changed its name or jurisdiction of organization, nor has it consolidated or merged with another Person.

 

 ̈            Company has, since the date of the Credit Agreement, either changed its name or jurisdiction of organization, or both, or has consolidated or merged with another Person, which change, consolidation or merger:   ̈ was consented to in advance by Wells Fargo in an Authenticated Record, and/or  ̈ is more fully described in the statement of facts attached to this Certificate.

 

C.            Events of Default.  I certify that:

 

(Check one)

 

 ̈            I have no knowledge of the occurrence of an Event of Default under the Credit Agreement, except as previously reported to Wells Fargo in a Record.

 

 ̈            I have knowledge of an Event of Default under the Credit Agreement not previously reported to Wells Fargo in a Record, as more fully described in the statement of facts attached to this Certificate, and further, I acknowledge that Wells Fargo may under the terms of the Credit Agreement impose the Default Rate at any time during the resulting Default Period.

 

1

 

D.            Litigation Matters.  I certify that:

 

(Check one)

 

 ̈            I have no knowledge of any material adverse change to the litigation exposure of Company or any of its Affiliates or of any Guarantor.

 

 ̈            I have knowledge of material adverse changes to the litigation exposure of Company or any of its Affiliates or of any Guarantor not previously disclosed in Exhibit D, as more fully described in the statement of facts attached to this Certificate.

 

E.             Financial Covenants.  I further certify that:

 

(Complete each of the following)

 

1.             Minimum Net Income.  Pursuant to Section 5.2(b) of the Credit Agreement, as of the Reporting Date, Company’s Net Income was [$                    ], which  ̈ satisfies  ̈ does not satisfy the requirement that Net Income be not less than the amount required by such Section 5.2(b).

 

2.             Minimum Cash to Unreimbursed Line of Credit Advances Coverage Ratio.  Pursuant to Section 5.2(c) of the Credit Agreement, as of the Reporting Date, at all times, Company has  ̈ has not  ̈ been in compliance with the requirement that the percentage of the unreimbursed Line of Credit Advances under the Revolving Note plus the L/C Amount plus outstanding “Advances” under the Domestic Facility Agreement to the amount of cash plus Cash Equivalents of Company in which Wells Fargo has a perfected first priority security interest be not greater than 80%.

 

3.             Capital Expenditures.  Pursuant to Section 5.2(d) of the Credit Agreement, for the year-to-date period ending on the Reporting Date, Company has expended or contracted to expend during the fiscal year ended March 31, 201      , for Capital Expenditures, $                                 in the aggregate, which  ̈ satisfies  ̈ does not satisfy the requirement that such expenditures not exceed the limit for such fiscal year set forth in such Section 5.2(d).

 

Attached are statements of all relevant facts and computations in reasonable detail sufficient to evidence Company’s compliance with the financial covenants referred to above, which computations were made in accordance with GAAP.

 

	
 
    	
Capstone   Turbine Corporation
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Its:
    	
Chief   Financial Officer
    

 

2kentfinancial8kexh101.htm

Exhibit 10.1

 

 

 

This is an EMPLOYMENT AGREEMENT (the “Agreement”), dated as of June 13, 2011, by and between KENT FINANCIAL SERVICES, INC., a Nevada corporation (the “Company”), and Paul O. Koether (the “Executive”).

Recitals

 

The Executive currently serves as Chairman of the Company.   The Company desires the Executive to continue to serve as the Company’s Chairman, and the Executive desires to continue to serve the Company as its Chairman, on the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, the parties agree as follows:

 

1.         Employment.  The Company hereby employs the Executive as Chairman of the Company, and the Executive hereby accepts such employment, upon the terms and conditions set forth herein.

 

2.         Duties and Powers.

 

2.1   Duties.   The Executive shall serve as Chairman of the Company and perform the duties of Chairman as defined in the Bylaws of the Company in effect on the date of this Agreement.  The Chairman shall receive the compensation provided herein notwithstanding any future amendment to the Bylaws of the Company which diminishes or alters the duties of the Chairman of the Company.   The Executive shall not be required to devote his entire working time to the business of the Company, and may devote time to other business interests, including directorships of other companies public and private, and personal investments.

  

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2.2      Service as Director.   If elected, the Executive shall serve as a director of the Company without additional compensation, and shall have the right at any time to serve as a director of any subsidiary of the Company.

 

3.        Term of Agreement.    The initial term of employment under this Agreement shall be three years commencing effective as of July 1, 2011 (the “Effective Date”) and shall extend until July 1, 2014 unless sooner terminated pursuant to Section 6 below.  The term of the Executive’s employment under this Agreement shall be automatically extended one day for each day elapsed after the Effective Date.  Employment of the Executive by the Company prior to the Effective Date shall, subject to the terms and conditions of the benefit plans and arrangements referred to in section 5.1 below, be counted in determining the Executive’s continuous service with the Company for purposes of any benefit computation.

 

4.          Compensation.    For all services rendered by the Executive under this Agreement, the Company shall pay the Executive an annual salary of $120,000 (the “Base Salary”), payable in equal semi-monthly installments.   The Board of Directors of the Company shall from time to time review the compensation to be paid to the Executive under this Agreement and shall increase (but not decrease) the compensation in such amounts, if any, as the Board of Directors determines.

 

	
 

 

	
5.

	
Benefits, Expenses, Reimbursement, etc.

 

5.1     Benefit Plans.    The Company shall provide the Executive with such medical and disability insurance, hospital insurance and group life insurance and other benefits made available to executive level employees of the Company, subject to the terms and conditions of such benefit plans and arrangements.  In the event of the Executive’s death, the Company shall provide the same benefits to the Executive’s spouse at Company expense for a period of three years commencing with the date of the Executive’s death.

  

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5.2         Expenses.     The Company shall pay all expenses incurred by the Executive in furtherance of or in connection with the business of the Company and its subsidiaries and affiliates including, without limitation, all (i) travel and living expenses while away from home on business or at the request and in the service of the Company or its subsidiary or affiliate, and (ii) entertainment expenses, upon submission of appropriate receipts or vouchers and in accordance with the standard expense reimbursement policies of the Company as in effect from time to time.  If any such expenses are paid by the Executive, the Company shall reimburse him promptly for those expenses.   The Executive shall also be entitled to reimbursement for the annual fee(s) of any credit cards the Executive acquires for use in charging expenditures incurred in the performance of his duties under this Agreement.

 

Vacations.  The Executive shall be entitled each year to a vacation of four weeks (twenty working days), during which time his compensation shall be paid in full and such holidays and other non-working days as are consistent with the policies of the Company for executives generally.   All vacations shall be scheduled so as to cause minimal interference with the operations of the Company.   If the Executive’s employment under this Agreement is terminated pursuant to Section 6, the Executive shall be entitled to payment for all untaken vacation days.

 

Death Benefits.   In the event of the Executive’s death during the term of this Agreement or thereafter during the period of any disability described in Section 5.5(C), the Company shall pay to such beneficiaries as the Executive shall designate in writing prior to the Executive’s death, or if he fails to designate a beneficiary, to the Executive’s spouse, or, if none, to the Executive’s estate, an annual benefit equal to three times the Executive’s Base Salary (the “Death Benefit”).   The Death Benefit shall be payable in equal monthly installments for a period of 3 years, commencing on the first day of the next month following the month in which the Executive’s death occurs.   Payments made pursuant to this Section 5.4 shall be made in lieu of any and all payments provided for in Section 4 of this Agreement.

  

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Disability.

 

A.           The Executive shall be paid such benefits to which he is entitled under the terms of such long-term disability insurance as the company has provided under Section 5.1 of this Agreement.   However, if at any time during the term of this Agreement (i) the Company is not providing the Executive with long-term disability insurance coverage, or (ii) the amount of coverage provided pays benefits less than an annual benefit of 80% of the Executive’s Base Salary, which the Executive is being paid prior to the commencement of disability benefits, or (iii) fails to pay benefits to age 80, and the Executive suffers from a Condition (defined below), then the Executive shall be paid the amount specified in Section 5.5(B) of this Agreement.

 

               B.           If during the term of this Agreement (i) the Executive shall be deemed disabled and unable to perform his duties hereunder by an insurance company under any disability insurance policy covering the Executive, (ii) the Executive suffers any illness, disability or incapacity which renders him unable to perform his duties hereunder and such illness, disability or incapacity is deemed by a duly licensed physician (who may be the Executive’s personal physician) to be permanent, or (iii) the Executive is unable to render services to the Company of the nature required by this Agreement because of illness, disability or incapacity for a period of 90 days, whether or not such days are consecutive, during any year of the term hereof (each of the events described in paragraphs (i), (ii) and (iii) above being defined as a “Condition”), then the Executive shall continue to use his best efforts to render advisory and consulting services as he is able and as may be reasonably requested by the Company and the Company shall pay to the Executive disability payments equal to the difference, if any, between 80% of the Executive’s Base Salary and the amount the Executive actually receives under the Company’s long-term disability insurance policy.   The disability payments shall be paid to the Executive in equal monthly installments until the Executive attains age 80.   The total amount payable to the Executive under this Section  5.5(B) shall be the “Disability Benefit”.   Such payments shall commence on the first day of the month following the month in which the Condition occurs and shall be made even if the Executive is unable to render any services to the Company.   Such payments shall be paid in lieu of any and all compensation provided for in Section 4 of this Agreement.

  

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C.

	
In the event of the Executive’s death at any time during the period in which payments in respect of the Disability Benefit are required to be paid pursuant to Sections 5.5(A) and 5.5(B) above, the Company shall cease paying any such payments and shall pay the Death Benefit provided in Section 5.4.

 

	
               6.         Termination.

	
The Executive’s employment hereunder may be terminated only under the following circumstances:

 

6.1          Cause.  The Company may terminate the Executive’s employment hereunder for “cause” upon not less than five days prior written notice of such termination.  For purposes of this Agreement, the Company shall have “cause” to terminate the Executive’s employment hereunder upon (A) the continued failure by the Executive to substantially perform his duties hereunder (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or the removal of the Executive’s office to a location more than 5 miles from its current location), which failure has not been cured (i) within three days after a written demand for substantial performance is delivered to the Executive by the Company that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties (the “Three Day Period”), or (ii) in the event such failure cannot be reasonably cured within the Three Day Period, within 20 days thereafter, provided that the Executive promptly commences and thereafter diligently prosecutes the cure thereof, or (B) the Executive’s conviction of any criminal act or fraud with respect to the Company.  Notwithstanding the foregoing, the Executive’s employment may not be terminated for cause unless and until the Company has delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than 80 percent of the entire Board of Directors at a meeting of the Board (of which the Executive was given at least 20 days prior written notice and an opportunity, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Executive has not substantially performed his duties (which failure shall be described in detail) and such failure has not been cured within the period described in (ii) above.   In addition, the Company shall not have cause to terminate the Executive’s employment hereunder as a result of any event occurring prior to the date hereof and previously disclosed to the Company.   The burden of establishing cause shall be upon the Company.

 

  

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6.2           Termination by the Executive.    The Executive may terminate his employment hereunder for “good reason” upon not less than five days prior written notice to the Company.   For purposes of this Agreement, “good reason” shall mean the continued failure by the Company to perform its obligations under this Agreement (including any material change by the Company in the duties, responsibilities and powers of the Executive as set forth herein or the removal of the Executive’s office to a location more than 5 miles from its current location) which failure has not been cured (i) within three days after a written demand for performance is delivered to the Company by the Executive that specifically identifies the manner in which the Executive believes the Company has not performed its obligations (the “Three Day Period”), or (ii) in the event such a failure cannot be reasonably cured within the Three Day Period, within twenty (20) days thereafter provided that the Company promptly commences and thereafter diligently prosecutes the cure thereof.

 

	
  

	
6.3

	
Change in Control.

 

A.           The Executive may terminate his employment under this Agreement at any time for “good reason” (as defined below) within 36 months after the date of a Change in Control (as defined below) of the Company.

 

B.            A “Change in Control” of the Company shall be deemed to have occurred if:

 

            (1) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) as in effect on the date hereof), other than individuals beneficially owning, directly or indirectly, common stock of the Company representing 30% or more of the Company’s issued and outstanding common stock as of the Effective Date, is or becomes the beneficial owner, directly or indirectly, of common stock of the Company representing 30% or more of the Company’s then issued and outstanding common stock; or

  

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 (2) individuals who constitute the Company’s Board of Directors on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a Director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director, without objection to such nomination) shall be, for purposes of this clause, considered as though such person were a member of the Incumbent Board.   For purposes of this Section 6.3(A) “good reason” shall mean a determination solely by the Executive, in good faith, that as a result of the Change of Control of the Company he may be adversely affected (i) in carrying out his duties and powers in the fashion he previously enjoyed or (ii) in his future prospects with the Company.

 

C.           If the Executive terminates his employment after a Change of Control of the Company, he shall notify the Company in writing of the effective date of the termination (the “Termination Date”) of his employment and he shall be paid the greater of (i) the Base Salary payable to the Executive under this Agreement through to the Termination Date, or (ii) an amount equal to the product of (a) the average annual Base Salary paid to the Executive during the five years preceding the Termination Date, multiplied by (b) three.   The amount payable under this Section 6.3(C) shall be paid in a lump sum on or before the fifth day following the Termination Date.

 

7.           Interest and Counsel Fees.

                        7.1     Interest.    All amounts payable to the Executive under this Agreement shall be due and payable at the time specified herein and any payment which is not made within five days of the date of written demand shall be made with interest on the amount due from the due date until paid in full at an annual rate equal to 2% over the prime rate of interest generally published in The Wall Street Journal as in effect from time to time during the period from such due date until the date such payment is made.

 

 7.2       Counsel Fees.    The Company hereby irrevocably authorizes the Executive from time to time to retain counsel of his choice at the expense of the Company to represent the Executive in connection with the Executive’s initiation or defense of any litigation, arbitration or other legal action relating to this Agreement or any provision hereof (whether such action is by or against the Company or any director, officer, stockholder or other person affiliated with the Company, or in any jurisdiction).   Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Executive entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel.   The reasonable fees and expenses of counsel selected by the Executive shall be paid or reimbursed to the Executive by the Company on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by such counsel in accordance with its customary practices, up to a maximum aggregate amount of $250,000.  Notwithstanding the preceding, if it should be finally determined by judgment or order of a court of competent jurisdiction (the time for the appeal of which judgment or order shall have expired), that the Executive has not prevailed in any such litigation, arbitration or other legal action, the Executive shall promptly return to the Company, upon its demand, any amounts so advanced in connection with such action together with interest thereon at the rate provided in Section 7.1 above.

 

 

  

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       8.           No Conflicting Commitments

                               8.1     Representation and Warranty.    The Executive represents and warrants that he has no commitments or obligations of any kind whatsoever inconsistent with this Agreement and is under no disability of any kind whatsoever which would impair, infringe upon or limit Executive’s ability to enter this Agreement or to perform the services required hereunder.

 

8.2       Indemnification.     The Executive agrees to indemnify and hold the Company harmless against any claim or other actions asserted against the Company based upon circumstances in which it is alleged that the Executive has breached the warranty set forth in Section 8.1.

 

9.          Governing Law.      This Agreement has been executed and delivered in the State of Texas, and shall in all respects be interpreted, construed, and governed by and in accordance with the law of the State of Texas.   Except as otherwise herein provided, all actions or proceedings arising directly, indirectly or otherwise in connection with, out of, related to, or from this Agreement shall be litigated exclusively and only in courts having situs within the State of Texas, and the parties hereby consent and submit to the jurisdiction of any state or federal court located in the State of Texas.   Notwithstanding the preceding, the Executive, at his sole and exclusive option, exercisable by written notice given to the Company at any time, may elect to submit any dispute arising under this Agreement to resolution by arbitration held in Tarrant County, Texas in accordance with the rules of the American Arbitration Association.

 

10.         Notices.     All notices hereunder shall be in writing and personally delivered or mailed by registered or certified mail, return receipt requested, to the following address:

 

If to the Company:

7501 Tillman Hill Road

Colleyville, Texas 76034

If to the Executive:

Paul O. Koether

6808 Mystic Woods Lane

Colleyville, Texas 76034

The Company or the Executive may hereafter designate another address to the other in writing for purposes of notices under this Agreement.

 

11.         Waivers.    Any waiver by any party of any violation of, breach of or default under any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or waiver of any other violation of, breach of or default under any other provision of this Agreement.

 

12.         Assignability.     This Agreement shall not be assignable by the Company without the written consent of the Executive, except that if the Company shall merge or consolidate with or into, or transfer substantially all of its assets to, another corporation or other form of business organization, this Agreement shall be binding on the Executive and be for the benefit of and binding upon the successor of the Company resulting from such merger, consolidation or transfer without the Executive’s consent, subject to the Executive’s right to terminate his employment under Section 6.3 (C).   The Executive may not assign, pledge, or encumber any interest in this Agreement or any part thereof without the express written consent of the Company, this Agreement being personal to the Executive.

 

13.         Severability.      Each provision of this Agreement constitutes a separate and distinct undertaking, covenant and/or provision hereof.   In the event that any provision of this Agreement shall finally be determined to be unlawful, such provision shall be deemed severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect, and in substitution for any such provision held unlawful, there shall be substituted a provision of similar import reflecting the original intent of the parties hereto to the extent permissible under law.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first set forth above.

 

	  	
KENT FINANCIAL SERVICES, INC.

	  	  
	  	  
	  	
By:

	  	  
	  	
Title:   Chief Financial Officer

	  	  
	  	  
	  	  
	
Paul O. Koether

	  

 

 

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