Document:

GUARANTY OF PAYMENT AND PERFORMANCE

GUARANTY OF PAYMENT AND PERFORMANCE

THIS GUARANTY OF PAYMENT AND PERFORMANCE (this "Guaranty") is made as of December 15, 2010, by Newtek Business Services, Inc., a corporation organized under the laws of the State of New York having an address at 1440 Broadway, 17th Floor, New York, NY 10018 ("Guarantor"), in favor of Capital One, N.A., having its principal place of business at 275 Broadhollow Road, Melville, New York 11747 ("Lender").

R E C I T A L S :

WHEREAS, the Lender has agreed to make revolving loans to Newtek Small Business Finance, Inc., a majority owned subsidiary of Guarantor (the "Borrower") in the maximum principal amount not to exceed Twelve Million and No/100 dollars ($12,000,000.00) (collectively the "Loan"), which Loan is evidenced by a promissory note of even date herewith (collectively, together with all extensions, renewals, modifications, substitutions and amendments thereof, the "Note").WHEREAS, the Loan is secured by, among other things, a Revolving Loan and Security Agreement (together with all extensions, renewals, modifications, substitutions and amendments thereof, the "Loan and Security Agreement"; unless otherwise indicated, capitalized terms used herein which are not defined shall have the respective meanings assigned to them in the Loan and Security Agreement), dated as of the date hereof, which grants Lender a first priority lien on the Collateral.WHEREAS, Lender requires as a condition to the making of the Loan that Guarantor shall have executed and delivered this Guaranty for the benefit of Lender; andWHEREAS, Guarantor believes that the financing arrangements between Borrower and Lender will further the business and interests of Guarantor;NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt of which is hereby acknowledged, and in order to induce Lender to make the Loan to Borrower, Guarantor hereby represents, warrants and covenants to Lender as follows:

Authorization and Enforceability of Loan Documents.  Guarantor has taken all steps required to authorize and has in its capacity as shareholder of the Borrower authorized the execution and delivery of the Note and Loan and Security Agreement.  To the best of its knowledge the Note and Loan and Security Agreement have been duly authorized and executed by Borrower and are legal, valid and binding instruments, enforceable against Borrower in accordance with their respective terms subject to the effect of bankruptcy, insolvency, reorganization, moratorium or other legal or equitable principles now or hereafter in effect generally affecting creditors' rights and remedies.Obligations Guaranteed.  Guarantor unconditionally guarantees to Lender (i) the prompt and unconditional payment of all of the Obligations under the Loan and Security Agreement, including without limit  the Loan and the interest thereon, whether now or hereafter advanced, as the same shall become due and payable under the Note and the Loan and Security Agreement, as well as under any whether at stated maturity, by acceleration or otherwise, and any and all sums of money which, at the time, may have become or become due and payable under the provisions of the Loan and Security Agreement or any other Loan Document, and the due and prompt performance of all of the terms, agreements, covenants and conditions of the Note, the Loan and Security Agreement and the other Loan Documents;  (ii) payment in full of any and all expenses that may be paid or incurred by Lender in the collection of all or any portion of Guarantors' obligations hereunder or the exercise or enforcement of any one or more of the other rights, powers, privileges, remedies and interests of the Lender under the Loan Documents or hereunder, irrespective of the manner or success of any such collection, exercise or enforcement, and whether or not such expenses constitute part of the Borrower' obligations; and (iii) performance of all Borrower's (and all of the other entities guaranteeing the Loan) covenants and obligations contained herein and/or therein.  Guarantor's obligation to cause Borrower and the other guarantors to take any action with respect to their respective covenants and obligations shall be limited to those actions consistent with its status as the sole stockholder (or as a member or majority stockholder as applicable) of such parties and shall be exercised through the power consequent upon such status.Unconditional Guaranty.  This Guaranty is an absolute, unconditional, present and continuing guaranty of payment and performance and not of collection and is in no way conditioned or contingent upon any attempt to enforce Lender's rights against Borrower or to collect from the Borrower or upon any other condition or contingency; accordingly, Lender shall have the right to proceed against Guarantor immediately upon any Event of Default under the Loan Documents without taking any prior action or proceeding to enforce the Loan Documents or to liquidate or foreclose on any security Lender may at any time hold pursuant thereto.  Guarantor hereby waives and releases any claim (within the meaning of 11 U.S.C. 101) which Guarantor may have against Borrower arising from a payment made by Guarantor under this Guaranty and agrees not to assert or take advantage of any subrogation rights of Guarantor or any other right of Guarantor to proceed against Borrower for reimbursement.  It is expressly understood that the waivers and agreements of Guarantor constitute additional and cumulative benefits given to Lender for its security and as an inducement for its extension of credit to Borrower.Liability Unimpaired.  Guarantor's liability hereunder shall in no way be limited or impaired by, and Guarantor hereby consents to and agrees to be bound by, any amendment, extension or modification of the provisions of any of the Loan Documents or any other instrument made to or with Lender by Borrower or any other guarantor, or any Person who succeeds Borrower as owner of all or part of the Collateral prior to foreclosure of the Loan and Security Agreement or exercise of any power of sale contained therein.  In addition, Guarantor's liability hereunder shall in no way be limited or impaired by (i) any extensions of time for performance required by any of said documents, (ii) any sale, assignment or foreclosure of the Note or Loan and Security Agreement or any sale or transfer of all or part of the property covered by the Loan and Security Agreement, (iii) any exculpatory provision in any of said instruments limiting Lender's recourse to the Collateral or to any other security, or limiting Lender's rights to a deficiency judgment against Borrower , (iv) the release of Borrower or any other person (including, without limit, any other guarantor) from performance or observance of any of the agreements, covenants, terms or conditions contained in any of said instruments by operation of law or otherwise, (v) the release or substitution in whole or in part of any security for the Loan, (vi) Lender's failure to record the Loan and Security Agreement or file any UCC financing statements (or Lender's improper recording or filing of any thereof) or to otherwise perfect, protect, secure or insure any security interest or lien given as security for the Loan, (vii) the invalidity, irregularity or unenforceability, in whole or in part, of any of the Loan Documents, this Guaranty or any other instrument or agreement executed or delivered to Lender in connection with the Loan, except to the extent that there is a final adjudication by a court of competent jurisdiction of a valid defense to Borrower 's obligations under the Loan Documents to payment of the Indebtedness, (viii)  the inaccuracy of any of the representations and warranties made by Borrower in the Loan and Security Agreement, the other Loan Documents or any disbursement certificates or requests for disbursements made under the Loan Agreement, or (ix) any other action or circumstance whatsoever which constitutes, or might be construed to constitute, a legal or equitable discharge or defense (except full payment and satisfaction) of Borrower for its obligations under any of the Loan Documents or of any Guarantor under this Guaranty (whether as surety, guarantor or otherwise); and, in any such case, whether with or without notice to Guarantor and with or without consideration.Preservation of Loan Documents.  Guarantor will cause Borrower to maintain and preserve the enforceability of the Loan Documents as the same may be modified and will not permit Borrower to take or to fail to take actions of any kind, the taking of which or the failure to take which might be the basis for a claim that Guarantor has a defense to Guarantor's obligations hereunder.Security; Events of Default.  Pursuant to the terms of Guarantor Security Agreement of even date herewith, as security for any and all of the obligations of Guarantor under this Guaranty, now existing or hereafter arising hereunder or otherwise (collectively, the "Liabilities"), Guarantor hereby grants to the Lender a lien upon and a security interest in any and all moneys or other property (i.e., goods and merchandise, as well as any and all documents relative thereto, funds, securities, chooses in action and any and all other forms of property whether real, personal or mixed, and any right, title or interest of Guarantor therein or thereto), and the proceeds thereof, which have been, or may hereafter be, deposited or delivered to the Lender (or with any third party acting on the Lender's behalf) by or for the account or credit of Guarantor whether for safekeeping, custody, pledge, deposit, transmission, collection or otherwise and a lien upon and a security interest in all of its other assets pursuant to a security agreement of even date herewith.  All remittances and property shall be deemed delivered to the Lender as soon as put in transit to the Lender by mail or carrier.

Upon the occurrence of any of the following events or any other agreement with Lender (each an "Event of Default"):  (a) Guarantor defaults under this Guaranty or any Loan Document or any other agreement with Lender to which Guarantor is a party; (b) any representation or warranty made by Guarantor herein or in any other Loan Document to which Guarantor is a party is false or untrue as of the date such representation or warranty is made; (c) Guarantor commences any case, proceeding, or other action under any law of any jurisdiction relating to bankruptcy, insolvency, reorganization, or relief of debtors or seeks to have an order for relief entered with respect to Guarantor or seeks to be adjudicated a bankrupt or insolvent, or seeks reorganization, arrangement, adjustment, liquidation, dissolution, composition or other relief with respect to Guarantor or Guarantor's debts, or seeks the appointment of a receiver, trustee, custodian, or other similar official for Guarantor or for all or any substantial part of Guarantor's property; (d) Guarantor makes a general assignment for the benefit of creditors; (e) there is commenced against Guarantor, any case, proceeding or other action of the type referred to in clause (c) above or seeking the issuance of a warrant of attachment, execution, distrait, or similar process against all or any substantial part of Guarantor's property, which case, proceeding or other action results in an entry of an order for relief or is not dismissed, discharged or bonded within sixty days of the commencement thereof; (f) Guarantor takes any action indicating Guarantor's consent to, approval of, or acquiescence in or in furtherance of, any of the acts set forth in clause (c) and (e) above; (g) Guarantor admits in writing Guarantor's inability to pay Guarantor's debts as they mature; (h) Guarantor terminates or dissolves or suspends Guarantor's usual business activities or conveys, sells, leases, transfers or otherwise disposes of all or a substantial part of Guarantor's property, business or assets other than in the ordinary course of business; (j) there shall be any default under or demand made under any other financing agreement or guaranty to which it is a party; or (k) the existence or occurrence at any time of one or more conditions or events which, in the reasonable good faith opinion of the Lender, has resulted or is reasonably likely to result in a material adverse change in the business, properties or financial condition of Guarantor, then, any or all of the obligations of Guarantor shall, at the Lender's option, become (for the purpose of this Guaranty) immediately due and payable by Guarantor, without demand or notice.  In addition, upon the occurrence of any Event of Default, the Lender shall have all of the rights and remedies provided to a secured party by the Uniform Commercial Code as in effect in New York State at that time.  Guarantor agrees that in the event that notice is necessary, written notice provided in accordance with paragraph 26 of this Guaranty and given below five Business Days prior to the date of public sale of the property subject to the lien and security interest created herein or prior to the date after which private sale or any other disposition of said property will be made shall constitute reasonable notice.

Indemnification; Payments; Certain Waivers.  Guarantor (i) waives any right or claim of right to cause a marshalling of Borrower 's assets or to cause Lender to proceed against any of the security for the Loan or for the obligations guaranteed hereby before proceeding against Guarantor, (ii) agrees that any payments required to be made by Guarantor hereunder shall become due on demand in accordance with the terms of paragraph 2 hereof and without presentment to Borrower , demand for payment or protest, or notice of non-payment or protest, and (iii) except as hereinafter provided, expressly waives and relinquishes all rights and remedies accorded by applicable law to guarantors.  Without limiting the generality of the foregoing, Guarantor hereby waives all rights (x) to participate in any claim or remedy Lender may now or hereafter have against Borrower or in any collateral which Lender has or hereafter may acquire for the obligations guaranteed hereby and (y) except as provided below, to contribution, indemnification, set-off, exoneration or reimbursement, whether from Borrower , Guarantor, or any other person now or hereafter primarily or secondarily liable for any of Borrower' obligations to Lender, and whether arising by contract or operation of law or otherwise by reason of Guarantor's execution, delivery or performance of this Guaranty.  Guarantor does not waive and hereby retains all rights of subrogation, contribution, indemnification, set-off or reimbursement against Borrower or any other guarantor that Guarantor may have (the "Undersigned's Rights"); provided, however, that (i) this Guaranty shall neither be contingent upon the existence of the Undersigned's Rights nor subject to any claims or defenses whatsoever which may be asserted in connection with the enforcement or attempted enforcement of the Undersigned's Rights including, without limitation, any claim that the Undersigned's Rights were abrogated by any of Lender' acts, and (ii) until the Loan shall have been paid in full, Guarantor hereby postpones and subordinates (A) the exercise of any and all of the Undersigned's Rights to Lender's rights against Guarantor under this Guaranty or against Borrower under any of the Loan Documents, and (B) any of the Undersigned's Rights to any collateral securing the Loan.Reinstatement.  This Guaranty shall continue to be effective, or be reinstated automatically, as the case may be, if at any time payment, in whole or in part, of any of the obligations guaranteed hereby is rescinded or otherwise must be restored or returned by Lender (whether as a preference, fraudulent conveyance or otherwise) upon or in connection with the insolvency, bankruptcy, dissolution, liquidation or reorganization of Borrower , Guarantor or any other person, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, either Borrower, Guarantor, any other Credit Party or any other person or for a substantial part of Borrower's, Guarantor's, or any of such other person's property, as the case may be, or otherwise, all as though such payment had not been made.  Guarantor further agrees that in the event any such payment is rescinded or must be restored or returned, all costs and reasonable expenses (including, without limitation, reasonable legal fees and expenses) incurred by or on behalf of Lender in defending or enforcing such continuance or reinstatement, as the case may be, shall constitute costs of enforcement, the payment of which is guaranteed by Guarantor pursuant to paragraph 2 above and covered by Guarantor's indemnity pursuant to paragraph 7 above.Litigation, Compliance with Judgments.  Guarantor represents and warrants with respect to itself that there are no actions, suits or proceedings pending or threatened against or affecting Guarantor, at law, in equity or before or by any governmental authorities which would have a material adverse effect on Guarantor's ability to perform its obligations hereunder; to the best of Guarantor's knowledge, Guarantor is not in default with respect to any order, writ, injunction, decree or demand of any court or governmental authorities.No Conflicts.  Guarantor represents and warrants with respect to itself that the consummation of the transactions contemplated hereby and the performance of this Guaranty and the other Loan Documents to which Guarantor is a party have not resulted and will not result in any breach of, or constitute a default under, any mortgage, deed of trust, lease, bank loan or credit agreement, corporate charter, by-laws, partnership agreement or other instrument to which Guarantor is a party or by which Guarantor may be bound or affected.Compliance with Laws.  Guarantor represents and warrants with respect to itself that Guarantor is in compliance with, and the transactions contemplated by the Loan Documents and this Guaranty do not and will not violate any provision of, or require any filing, registration, consent or approval under, any federal, state or local law, rule, regulation, ordinance, order, writ, judgment, injunction, decree, determination or award (hereinafter, "Laws") presently in effect having applicability to Guarantor, and agrees that Guarantor will comply promptly with all laws now or hereafter in effect having applicability to Guarantor.Accuracy of Information; Full Disclosure.  Guarantor represents and warrants with respect to itself that neither this Guaranty nor any documents, financial statements, reports, notices, schedules, certificates, statements or other writings furnished by or on behalf of Guarantor to Lender in connection with the negotiation of the Loan Documents or the consummation of the transactions contemplated thereby, or required herein or by the other Loan Documents to be furnished by or on behalf of Guarantor, contains any untrue or misleading statement of a material fact; there is no fact which Guarantor has not disclosed to Lender in writing which materially affects adversely any of the property covered by the Loan and Security Agreement or the business affairs or financial condition of Guarantor, or the ability of Guarantor to perform this Guaranty and the other Loan Documents to which Guarantor is a party.Financial Statements and Covenants.   LISTNUM  \l2   Guarantor represents and warrants with respect to itself that the most recent financial statements heretofore delivered by Guarantor to Lender are true and correct in all respects, have been prepared in accordance with sound accounting principles consistently applied and fairly present Guarantor's financial condition as of the date thereof, and no material adverse change has occurred in the financial condition reflected therein since the date thereof.

In the event Borrower shall make any loans or advances to Guarantor, the proceeds thereof shall be used solely (i) for working capital by Guarantor in the operation of its business in the ordinary course, or (ii) except during the continuance of a Default or Event of Default (as such terms are defined in the Loan and Security Agreement) or during the continuance of an Event of Default hereunder, for making loans and advances to any other "Guarantor" as such term is defined in the Loan and Security Agreement; provided, such loans and advances are each at all times secured and fully subordinated to Lender, in each case pursuant to security documents and subordination documents in form and substance satisfactory to Lender.Guarantor shall deliver to Lender or cause to be delivered to Lender all financial statements required under the Loan and Security Agreement.Guarantor shall deliver to Lender within twenty (20) days of filing, but in no event more than fifteen (15) days after the last permitted extension for filing without penalty, its signed federal tax returns.Promptly after a written request therefor, such other financial data or information as the Lender may reasonably request from time to time.Guarantor agrees and acknowledges that any now existing or hereinafter created loan from Guarantor to the Borrower shall at all times be subordinate to the Loan in all respects and absent the consent of the Lender no repayments may be made by the Borrower in respect thereof.Guarantor shall at all times during the term of the Loan maintain its primary bank accounts with the Lender.Guarantor shall provide copies of all financial statements, reports and the like, as required pursuant to the Loan and Security Agreement.Promptly upon its becoming available, Guarantor shall provide Lender with one copy of each financial statement, report, notice or proxy statement sent by Guarantor to stockholders generally pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and, a copy of each regular or periodic report, and any registration statement, or prospectus in respect thereof, filed by Guarantor with any securities exchange or with federal or state securities and exchange commissions or any successor agency.

Guarantor agrees and acknowledges that it shall maintain all of its Subsidiaries and Affiliates as separate and independent entities consistent with the standards of Section 6.18 of the Loan and Security Agreement and shall not allow the Collateral under the Loan and Security Agreement to become intermingled with any Person that is not a Credit Party, nor shall it suffer or permit any of the Collateral to be directly or indirectly pledged to any party other than the Lender.Non-Waiver Remedies Cumulative.  No failure or delay on Lender's part in exercising any right, power or privilege under any of the Loan Documents, this Guaranty or any other document made to or with Lender in connection with the Loan shall operate as a waiver of any such privilege, power or right or shall be deemed to constitute Lender's acquiescence in any default by Borrower or Guarantor under any of said documents.  A waiver by Lender of any right or remedy under any of the Loan Documents, this Guaranty or any other document made to or with Lender in connection with the Loan on any one occasion shall not be construed as a bar to any right or remedy which Lender otherwise would have on any future occasion.  The rights and remedies provided in said documents are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law.Transfers of Interests in Loan.  Guarantor recognizes that Lender may sell and transfer interests in the Loan to one or more participants and/or assignees (collectively, "Participants") and that all documentation, financial statements, appraisals and other data, or copies thereof, relevant to Borrower, Guarantor or the Loan, may be exhibited or delivered on a confidential basis to and retained by any such Participant or prospective Participant, with a request to any prospective Participant to return such information if it does not become a Participant.Separate Indemnity.  Guarantor acknowledges and agrees that Lender's rights (and Guarantor's obligations) under this Guaranty shall be in addition to all of Lender's rights (and all of Guarantor's obligations) under any indemnity agreement executed and delivered to Lender by Borrower and/or Guarantor or any other guarantor in connection with the Loan, and payments by Guarantor under this Guaranty shall not reduce any of Guarantor's obligations and liabilities under any such indemnity agreement.Severability.  Any provision of this Guaranty, or the application thereof to any person or circumstance, which, for any reason, in whole or in part, is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Guaranty (or the remaining portions of such provision) or the application thereof to any other person or circumstance, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision (or portion thereof) or the application thereof to any person or circumstance in any other jurisdiction.Entire Agreement; Amendments.  This Guaranty contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements or statements relating to such subject matter, and none of the terms and provisions hereof may be waived, amended or terminated except by a written instrument signed by the Person against whom enforcement of the waiver, amendment or termination is sought.Successors and Assigns.  This Guaranty shall be binding upon and shall inure to the benefit of Lender and Guarantor and their respective heirs, personal representatives, successors and assigns.  This Guaranty may be assigned by Lender with respect to all or any portion of the obligations guaranteed hereby, and when so assigned Guarantor shall be liable under this Guaranty to the assignee(s) of the portion(s) of the obligations guaranteed hereby so assigned without in any manner affecting the liability of Guarantor hereunder to Lender with respect to any portion of the obligations guaranteed hereby retained by Lender.WAIVER OF TRIAL BY JURY.  GUARANTOR, AND BY ITS ACCEPTANCE HEREOF, LENDER, EACH HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH.  THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.  GUARANTOR AND LENDER ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER.ADDITIONAL WAIVERS IN THE EVENT OF ENFORCEMENT. GUARANTOR HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVES, IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT BY OR ON BEHALF OF LENDER ON THIS GUARANTY, ANY AND EVERY RIGHT GUARANTOR MAY HAVE TO (I) INJUNCTIVE RELIEF, (II) INTERPOSE ANY COUNTERCLAIM THEREIN (OTHER THAN COMPULSORY COUNTERCLAIMS), AND (III) HAVE THE SAME CONSOLIDATED WITH ANY OTHER OR SEPARATE SUIT, ACTION OR PROCEEDING.  NOTHING HEREIN CONTAINED SHALL PREVENT OR PROHIBIT GUARANTOR FROM INSTITUTING OR MAINTAINING A SEPARATE ACTION AGAINST LENDER WITH RESPECT TO ANY ASSERTED CLAIM.Governing Law; Submission To Jurisdiction.  This Guaranty and the rights and obligations of the parties hereunder shall in all respects be governed by, and construed and enforced in accordance with, the laws of the State of New York (without giving effect to New York's principles of conflicts of law other than Section 5-1401 of the New York General Obligations Law).  Guarantor hereby irrevocably submits to the non-exclusive jurisdiction of the Courts of New York State or the United States District Court for the Eastern District of New York over any suit, action or proceeding arising out of or relating to this Guaranty, and Guarantor hereby agrees and consents that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any of the Courts of New York State or the United States District Court for the Eastern District of New York may be made by certified or registered mail, return receipt requested, directed to Guarantor at the address indicated below, and service so made shall be complete five (5) days after the same shall have been so mailed.Paragraph Headings.  Any paragraph headings and captions in this Guaranty are for convenience only and shall not affect the interpretation or construction hereof.Liability Unaffected by Release.  Subject only to written notice to Guarantor, any other Person liable upon or in respect of any obligation hereby guaranteed, may be released without affecting the liability of Guarantor hereunder.Joint and Several Obligations.  If more than one Person comprises Guarantor, then each such Person's obligations and liability under this Guaranty shall be joint and several.Notices.  Notices shall be given in the manner provided in the Loan and Security Agreement and with respect to Guarantor at the address set forth on the signature page hereto.  Guarantor acknowledges reviewing the notice provision contained in the Loan and Security Agreement and accepts the provisions thereof.Additional Indebtedness.  Without the prior written consent of Lender, so long as any Indebtedness is outstanding, Guarantor shall not incur any direct or indirect indebtedness for borrowed money other than (i) indebtedness to Lender, and (iii) unsecured trade indebtedness incurred in the ordinary course of business.  Guarantor represents that no portion of the collateral pledged to Lender under the Loan Documents is pledged to any other Person (other than with respect to the SBA Loans to the SBA).Counterparts. This Guaranty may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute together but one and the same agreement.

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IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed and delivered by its duly authorized official as of the date first above stated.
NEWTEK BUSINESS SERVICES INC.

By:  /s/Name:  Barry SloaneTitle:Chairman and Chief Executive Officer

Address: 1440 Broadway, 17th Floor,
New York, NY 10018

PAGE  

 PAGE 9

Exhibit 10.18.2

 PAGE 1ex10-1.htm

Exhibit 10.1

 

 

December 15, 2010

 

Aceto Corporation, et al

$40,000,000 Senior Secured Revolving Credit Facility

$40,000,000 Senior Secured Term Loan Facility

Commitment Letter

 

Aceto Corporation

One Hollow Lane

Lake Success, New York 11042

 

Attention:           Douglas Roth, Chief Financial Officer

 

Ladies and Gentlemen:

 

           You have advised JPMorgan Chase Bank, N.A. (“JPMCB”) that Aceto Corporation, a New York corporation, Aceto Agricultural Chemicals Corporation, a New York corporation, CDC Products Corporation, a New York corporation, Aceto Pharma Corp., a Delaware corporation, ACCI Realty Corp., a New York corporation, Arsynco Inc., a New Jersey corporation, Aceto Realty LLC, a New York limited liability company, jointly and severally, (each a “Company” and, collectively, the “Companies”) are seeking to raise a senior credit facility for the purposes of consummating a certain acquisition and for other general corporate purposes of the Companies.  In that connection, you have requested that JPMCB agree to structure, arrange and syndicate senior secured revolving credit and term loan facilities (the “Facility”) in an aggregate amount of up to $80,000,000 consisting of a revolving credit facility of $40,000,000 and a term loan facility of $40,000,000 and that JPMCB commit to provide a portion of the Facility and to serve as Administrative Agent for the Facility, all in accordance with the terms and conditions described in the Term Sheet.

 

           JPMCB is pleased to advise you of its commitment to provide up to $40,000,000 of the Facility and that it is willing to act as exclusive arranger for the Facility.  In such capacity, JPMCB will use commercially reasonable efforts to assemble a syndicate of financial institutions identified by JPMCB in consultation with you (the “Lenders”), to provide the balance of the necessary commitments for the Facility, in each case upon the terms and subject to the conditions set forth or referred to in this commitment letter (the “Commitment Letter”) and in the Summary of Terms and Conditions attached hereto as Exhibit A (the “Term Sheet”).  It is a condition to JPMCB’s commitment hereunder that the portion of the Facility not being provided by JPMCB shall be provided by the other Lenders referred to below.

 

           It is agreed that JPMCB will act as the sole and exclusive Administrative Agent, and that JPMCB will act as the sole and exclusive Arranger and Bookrunner (in such capacities, the “Arranger”) for the Facility.  You agree that no other agents, co-agents or arrangers will be appointed, no other titles will be awarded and no compensation (other that that expressly contemplated by the Term Sheet and the Fee Letter referred to below) will be paid in connection with the Facility unless you and we shall so agree.

 

  

  

  

 

	Confidential

 

           The Arranger intends to commence syndication efforts promptly upon the execution of this Commitment Letter, and you agree actively to assist the Arranger in completing a syndication satisfactory to it prior to the execution and delivery of the definitive documentation for the Facility.  Such assistance shall include (a) your using commercially reasonable efforts to ensure that the syndication efforts benefit materially from your existing lending and investment banking relationships, (b) direct contact between senior management and advisors of the Companies, on the one hand, and the proposed Lenders, on the other hand, (c) the hosting, with the Arranger, of one or more meetings or conference calls with prospective Lenders and (d) assistance in the preparation of a marketing materials for the bank meeting.

 

           As the Arranger, JPMCB will manage all aspects of the syndication in consulation with you, including decisions as to the selection of institutions to be approached and when they will be approached, when their commitments will be accepted, which institutions will participate, the allocations of the commitments among the Lenders and the amount and distribution of fees among the Lenders.  In acting as the Arranger, JPMCB will have no responsibility other than to arrange the syndication as set forth herein and shall in no event be subject to any fiduciary or other implied duties.  To assist JPMCB in its syndication efforts, you agree promptly to prepare and provide to JPMCB all information with respect to each Company and the transactions contemplated hereby, including all financial information and projections (the “Projections”), as we may reasonably request in connection with the arrangement and syndication of the Facility.  You hereby represent and covenant that (a) all information other than the Projections (the “Information”) that has been or will be made available to JPMCB by 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 materially misleading in light of the circumstances under which such statements are made and (b) the Projections that have been or will be made available to JPMCB by you or any of your representatives have been or will be prepared in good faith based upon reasonable assumptions.  You understand that in arranging and syndicating the Facility we may use and rely on the Information and Projections without independent verification thereof.

 

           JPMCB’s commitment hereunder and agreement to perform the services described herein are subject to (a) there not occurring or becoming known to us any material adverse condition or material adverse change in or affecting the business, operations, property, condition (financial or otherwise) or prospects of the Companies and their respective subsidiaries, taken as a whole, (b) our completion of and satisfaction in all respects with a due diligence investigation of the Companies, (c) our not becoming aware after the date hereof of any information or other matter affecting any Company or the transactions contemplated hereby which is inconsistent in a material and adverse manner with any such information or other matter disclosed to us prior to the date hereof, (d) there not having occurred a material disruption of or material adverse change in financial, banking or capital market conditions that, in our judgment, could materially impair the syndication of the Facility, (e) our satisfaction that prior to and during the syndication of the Facility there shall be no competing offering, placement or arrangement of any debt securities or bank financing by or  on behalf of any Company or any affiliate thereof, (f) the negotiation, execution and delivery on or before February 8, 2011 of definitive documentation with respect to the Facility satisfactory to JPMCB and its counsel and (g) the other conditions set forth or referred to in the Term Sheet.  The terms and conditions of JPMCB’s commitment hereunder and of the Facility are not limited to those set forth herein and in the Term Sheet.  Those matters that are not covered by the provisions hereof and of the Term Sheet are subject to the approval and agreement of JPMCB and the Companies.

 

  

2

  

 

	Confidential

 

           Each Company agrees to, jointly and severally, (a) indemnify and hold harmless JPMCB and its affiliates and their respective officers, directors, employees, advisors, and agents (each, an “indemnified person”) from and against any and all losses, claims, damages and liabilities to which any such indemnified person may become subject arising out of or in connection with this Commitment Letter, the Facility, the use of the proceeds thereof or any related transaction or any claim, litigation, investigation or proceeding relating to any of the foregoing, regardless of whether any indemnified person is a party thereto, and to reimburse each indemnified person upon demand for any legal or other expenses incurred in connection with investigating or defending any of the foregoing, provided that the foregoing indemnity will not, as to any indemnified person, apply to losses, claims, damages, liabilities or related expenses to the extent they are found by a final, non-appealable judgment of a court to arise from the willful misconduct or gross negligence of such indemnified person, and (b) reimburse JPMCB and its affiliates on demand for all out-of-pocket expenses (including due diligence expenses, syndication expenses, consultant’s fees and expenses, travel expenses, and reasonable fees, charges and disbursements of counsel) incurred in connection with the Facility and any related documentation (including this Commitment Letter, the Term Sheet, the Fee Letter and the definitive financing documentation) or the administration, amendment, modification or waiver thereof.  No indemnified person shall be liable for any indirect or consequential damages in connection with its activities related to the Facility.  No indemnified person shall be liable for any damages arising from the use by others of Information or other materials obtained through electronic, telecommunications or other information transmission systems or for any special, indirect, consequential or punitive damages in connection with the Facilities.

 

           This Commitment Letter shall not be assignable by you without the prior written consent of JPMCB (and any purported assignment without such consent shall be null and void), 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.  This Commitment Letter may not be amended or waived except by an instrument in writing signed by you and JPMCB.  This Commitment Letter may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement.  Delivery of an executed signature page of this Commitment Letter by facsimile transmission shall be effective as delivery of manually executed counterpart hereof.  This Commitment Letter and the Fee Letter dated the date hereof and delivered in connection herewith are the only agreements that have been entered into among us with respect to the Facility and set forth the entire understanding of the parties with respect thereto.

 

           This Commitment Letter shall be governed by, and construed in accordance with, the law of the State of New York.  Each Company consents to the nonexclusive jurisdiction and venue of the state or federal courts located in the City of New York.  Each party hereto irrevocably waives, to the fullest extent permitted by applicable law, (a) any right it may have to a trial by jury in any legal proceeding arising out of or relating to this Commitment Letter, the Fee Letter or the transactions contemplated hereby or thereby (whether based on contract, tort or any other theory) and (b) any objection that it may now or hereafter have to the laying of venue of any such legal proceeding in the state or federal courts located in the City of New York.

 

  

3

  

 

	Confidential

 

           This Commitment Letter is delivered to you on the understanding that neither this Commitment Letter, the Term Sheet or the Fee Letter nor any of their terms or substance shall be disclosed, directly or indirectly, to any other person except (a) to your officers, agents and advisors who are directly involved in the consideration of this matter or (b) as may be compelled in a judicial or administrative proceeding or as otherwise required by law (in which case you agree to inform us promptly thereof), provided that, the foregoing restrictions shall cease to apply (except in respect of the Fee Letter and its terms and substance) after this Commitment Letter has been accepted by you.

 

           You acknowledge that JPMCB and its affiliates may be providing debt financing, equity capital or other services (including financial advisory services) to other companies in respect of which you may have conflicting interests regarding the transactions described herein and otherwise.  JPMCB will not use confidential information obtained from you by virtue of the transactions contemplated by this letter or their other relationships with you in connection with the performance by JPMCB of services for other companies, and JPMCB will not furnish any such information to other companies.  You also acknowledge that JPMCB has no obligation to use in connection with the transactions contemplated by this letter, or to furnish to you, confidential information obtained from other companies.

 

           The compensation, reimbursement, indemnification and confidentiality provisions contained herein and in the Fee Letter shall remain in full force and effect regardless of whether definitive financing documentation shall be executed and delivered and notwithstanding the termination of this Commitment Letter or JPMCB’s commitment hereunder.

 

           If the foregoing correctly sets forth our agreement, please indicate your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by returning to us executed counterparts hereof and of the Fee Letter, not later than 5:00 p.m., New York City time, on December 15, 2010.  JPMCB’s commitment and agreements herein will expire at such time in the event JPMCB has not received such executed counterparts in accordance with the immediately preceding sentence.

 

[next page is the signature page]

 

  

4

  

 

	
Confidential

 

JPMCB is pleased to have been given the opportunity to assist you in connection with this important financing.

	  	  	  
	  	
Very truly yours,

	  	  
	  	
JPMORGAN CHASE BANK, N.A.

	  	  
	  	
By: 

	/s/ Sanford Wald
	  	
Name:

	
Sanford Wald

	  	  	
Title: Vice President

 

	
Accepted and agreed to as of

	  	  
	
the date first written above by:

	  	  
	  	  	  	  
	
ACETO CORPORATION

	  	  
	  	  	  	  
	
By:

	/s/ Douglas Roth	  	  
	
Name: Douglas Roth

	  	  
	
Title:   Chief Financial Officer

	  	  
	  	  	  
	
ACETO AGRICULTURAL

	  	  
	
CHEMICALS CORPORATION

	  	  
	  	  	  	  
	
By:

	/s/ Douglas Roth	  	  
	
Name: Douglas Roth

	  	  
	
Title:   Secretary

	  	  
	  	  	  
	
CDC PRODUCTS CORPORATION

	  
	  	  	  	  
	
By: 

	/s/ Douglas Roth	  	  
	
Name: Douglas Roth

	  	  
	
Title:   Secretary

	  	  
	  	  	  	  
	
ACETO PHARMA CORP.

	  	  
	  	  	  
	
By:

	/s/ Douglas Roth	  	  
	
Name: Douglas Roth

	  	  
	
Title:   Secretary

	  	  
	  	  	  
	
ACCI REALTY CORP.

	  	  
	  	  	  	  
	
By:

	/s/ Douglas Roth	  	  
	
Name: Douglas Roth

	  	  
	
Title:   Secretary

	  	  
	  	  	  	  
	
ARSYNCO INC.

	  	  
	  	  	  	  
	
By:

	/s/ Douglas Roth	  	  
	
Name: Douglas Roth

	  	  
	
Title:   Secretary

	  	  

 

	
ACETO REALTY LLC

	  	  
	  	  	  	  
	
By: 

	/s/ Douglas Roth	  	  
	
Name: Douglas Roth

	  	  
	
Title:   Secretary

	  	  

  

5

  

 

	
Confidential

	
Aceto Corporation

 

CERTAIN INDICATIVE TERMS - FOR DISCUSSION PURPOSES

 

December 6, 2010

 

	This outline of terms is intended for discussion purposes only and does not represent a commitment to lend by JPMorgan Chase Bank, N.A. (“JPMCB” or the “Lender”). The following is a summary of terms and conditions of the proposed financing, it being understood that this outline of terms does not purport to summarize all the terms and conditions which would be contained in the Lender’s documentation. No credit approval has yet been obtained for these indicative terms or for any such facilities. The terms and conditions herein are subject to credit approval and, as such, may be amended or supplemented as the Lender or its counsel deem appropriate. Aceto Corporation and its affiliates each hereby further acknowledge and agree that this discussion outline is for information purposes only and is not to be shown to or relied upon by third parties.

 

	
EXISTING

CREDIT FACILITIES

AND REQUEST:

	
 

 

JPMorgan Chase Bank, N.A. (“JPMCB” or the “Lender”) currently accommodates Aceto Corporation and certain of its affiliates (collectively, “Aceto”) with a $25,000,000 unsecured revolving credit facility (the “Existing RC Commitment”) expiring December 31, 2012 under an Amended and Restated Credit Agreement dated as of April 23, 2010 (as amended from time to time, the “Existing Credit Agreement”) by and between Aceto and Chase. Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Existing Credit Agreement.

	  	  
	  	
You have advised JPMCB of your intention to acquire substantially all of the assets of Rising Pharmaceuticals, Inc. (the “Seller”) (the “Acquisition”) in exchange for total consideration of $80,000,000 (the “Purchase Price”). In conjunction with the Acquisition, you have requested JPMorgan Securities, Inc. (“JPMSI”) to arrange financing of up to $80,000,000 in the aggregate (the “Credit Facilities”) to partially finance the Acquisition as well as the ongoing working capital needs of Aceto, all as more specifically set forth below.

	  	  
	  	
To the extent JPMSI arranges the Credit Facilities, the Existing RC Commitment will be canceled. All legal fees and expense in connection with the documenting and closing of the Credit Facilities shall be for the account of the Borrower.

	
PROPOSED CREDIT FACILITIESAND AMOUNT:

	  
	  	
1.          Up to $40,000,000 secured five year revolving credit facility (the “RC”) with sublimit of $2,000,000 for commercial and standby letters of credit issued by the Agent and risk participated in by all Lenders on a pro rata basis in accordance with their respective RC commitment amount.

	  	
2.          Up to $40,000,000 secured five year term loan facility (the “Term Loan”; collectively with the RC, the “Credit Facilities”).

	  	  
	
BORROWER:

	
Aceto Corporation and each of the affiliated entities identified as a “Company” in the Existing Credit Agreement and which are Domestic Subsidiaries of Aceto Corporation, jointly and severally as co-borrowers (the “Borrower”). In addition, consistent with Section 6.13. of the Existing Credit Agreement, each current or future formed entity which is a Domestic Subsidiary of Aceto Corporation shall also be required to execute a joinder agreement pursuant to which such entity agrees to be bound by all of the obligations of a Company under the Existing Credit Agreement.

	  	  
	
LEAD

ARRANGER:

	
JPMorgan Securities, Inc. (“JPMSI”).

	  	  
	
LENDERS:

	
JPMCB and up to 2 other financial institutions acceptable to the Borrower and JPMCB. JPMCB will hold up to $40,000,000 of the Credit Facilities with the balance of $40,000,000 to be provided by one or two additional financial institutions, on the terms and conditions set forth herein, as identified and arranged by JPMSI on a best efforts basis. Each Lender would be required to hold the same pro rata share of the RC and the Term Loan.

 

  

  

  

 

	
Confidential

	
Aceto Corporation

 

	
PURPOSE:

	
The proceeds of the RC would be used: (1) to finance up $26,000,000 of the Purchase Price and (2) for general corporate purposes (subject to the terms and conditions of the agreements governing the Credit Facilities).

	  	  
	  	
The proceeds of the Term Loan would be used to partially finance the Acquisition.

	  	  
	  	
As we understand the transaction, the Purchase Price will be funded as follows: (1) $72,000,000 dollars comprised of (a) no less than $57,000,000 payable in cash on the closing date and (b) 1,000,000 shares of common stock of Aceto; (2) contingent consideration based upon EBITDA during the three year period following the closing date with minimum contingent consideration of $8,000,000 (the “Contingent Payout”); and (3) the assumption of (a) the Seller’s schedule trade payables incurred in the ordinary course of business in existence as of the closing date and (b) certain of the Seller’s scheduled accrued expenses, agreed to by Aceto, in existence as of the closing date. All terms and conditions of the Acquisition and the Purchase Price including but not limited to the final break down of the Purchase Price, the form of the Contingent Payout (which shall be subordinated to the repayment of the Credit Facilities on terms and conditions satisfactory to the Agent and the Lenders), and all tax, legal and accounting aspects of the Acquisition shall be satisfactory to Lenders and their counsel in all respects.

	  	  
	
INTEREST RATE:

	
 

The Credit Facilities shall bear interest at a rate equal to the LIBOR Rate or the ABR Rate, plus the applicable Margins set forth below and which shall be based on the ratio of Consolidated Funded Debt to Consolidated EBITDA. The commitment fee shall be payable quarterly in arrears on the unused portion of the RC.

 

	
Ratio of Consolidated

	
Applicable

	
Applicable

	
Applicable

	
Funded Debt to

	
LIBOR

	
ABR

	
Unused

	
Consolidated EBITDA

	
Margin

	
Margin

	
Fee

	  	  	  	  
	
< 2.0 to 1.0

	
225 bp

	
0bp

	
25bp

	
=> 2.0 to 1.0 but < 3.55 to

	  	  	  
	
1.0

	
275 bp

	
25bp

	
37bp

	
> or = to 3.55 to 1.0

	
350 bp

	
100bp

	
50

 

 

	  	
The foregoing rates and spreads, as well as the upfront fees set forth immediately below, are indicative and subject to change based on market conditions. Structure, terms and pricing may be subject to change if syndication has not been completed and JPMSI, in consultation with you, determines changes are advisable in order to ensure a successful syndication.

	  	  
	  	
“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1⁄2 of 1% and (c) the Adjusted LIBO Rate for a one month interest period on such day (or if such day is not a business day, the immediately preceding business day) plus 100 bps.

	  	  
	
LC COMMISSION:

	
Commercial letters of credit: 25bp payment commission, to be shared ratably by the Lender.

	  	  
	  	
Standby letters of credit: Annual commission equal to applicable LIBOR margin, to be shared ratably by the Lenders.

 

  

  

  

 

	
Confidential

	
Aceto Corporation

 

	  	
Commercial letters of credit and standby letters of credit shall be issued by the Agent and each Lender shall purchase a risk participation in accordance with their pro rata percentage of the RC commitment. The Borrower shall pay to the Agent for its own account the agent’s usual and customary fronting and processing fees for letters of credit.

	  	  
	
INTEREST RATE

PROTECTION:

	
 

The Borrower shall be required to enter into an interest rate protection arrangement satisfactory to the Agent to hedge at least 50% of the Term Loan. The obligations of the Borrower under any interest rate protection arrangement shall be secured by the Collateral outlined below on a pari passu basis with the Credit Facilities.

	  	  
	
UPFRONT FEE:

	
The Borrower shall pay upfront fees to the Agent, for pro rata distribution to the Lenders, equal to: (1) TL: 37.5 bps of the RC commitment at closing ($150,000) and (2) Term Loan: 37.5 bps of the TL commitment at closing ($150,000).

	  	  
	
AMORTIZATION:

	
RC: Due in full at maturity.

	  	  
	  	
Term Loan:

	  	  
	  	
Year 1: $6,000,000

Year 2: $6,000,000

Year 3: $7,000,000

Year 4: $8,000,000

Year 5: $13,000,000

	  	  
	  	
Term Loan payments shall be paid in equal quarterly installments on the last day of each calendar quarter (ie: March 31, June 30, September 30 and December 31) commencing March 31, 2011.

	  	  
	
MANDATORY

PREPAYMENT:

	
 

The Term Loan shall be required to be prepaid in an amount equal to 50% of “Excess Cash Flow” in each fiscal year, commencing with the FQE 12/31/2011 (first mandatory prepayment due by March 31, 2012). “Excess Cash Flow” to be defined as and calculated for the rolling 12 months ended 12/31 of each calendar year: (1) the sum of net income, interest expense, depreciation and amortization expenses, income tax expense and unrealized losses less (2) the sum of unfunded capital expenditures, scheduled payments of long term debt, interest expense, income taxes paid in cash and cash dividends (not in excess of $5,800,000), all of the foregoing categories to be calculated in accordance with GAAP and measured for the immediately prior 12 month period. The maximum amount of mandatory prepayments from Excess Cash Flow shall be $5,000,000 over the life of the Term Loan (ie: once the Term Loan has been prepaid by at least $5,000,000, this provision shall no longer be applicable) and the maximum amount of mandatory prepayments from Excess Cash Flow in each year shall be as follows: (1) $1,000,000 based on Excess Cash Flow for the rolling 12 months ended 12/31/2011; ($1,000,000 based on Excess Cash Flow for the rolling 12 months ended 12/31/2012; (3) $2,000,000 based on Excess Cash Flow for the rolling 12 months ended 12/31/2013; (4) $1,000,000 based on Excess Cash Flow for the rolling 12 months ended 12/31/2014. All prepayments shall be applied to scheduled payments on the Term Loan in the inverse order of maturity.

	  	  
	
COLLATERAL:

	
The Credit Facilities would be secured by: (1) first priority perfected security interest in all present and future personal property assets of the Borrower and (2) the collateral required to be delivered to the Lender pursuant to Section 6.13. of the Existing Credit Agreement (that is, 65% of the capital stock of each Subsidiary which becomes a First Tier Foreign Subsidiary).

 

  

  

  

	
Confidential

	
Aceto Corporation

 

	
BANKING

RELATIONSHIP

	
 

The Borrower and its affiliates will maintain their primary depository relationship with JPMCB, subject to JPMCB’s usual and customary fee schedule for depository and treasury banking services in effect from time to time.

	  	  
	
LOAN DOCUMENTATION:

	
The extension of the Credit Facilities is subject to, among other things, the preparation and execution of loan documentation satisfactory to the Agent and its counsel in all respects and which would include terms and conditions usual and customary for a transaction and credit facilities of the types contemplated herein including without limitation, (1) conditions precedent to the closing of the Credit Facilities (including but not limited to (a) the receipt and satisfactory review by the Lender of (1) the Borrower’s unaudited consolidated and consolidating financial statements for the 3ME 9/30/10 and (2) 3 year projections incorporating the impact of the Acquisition and demonstrating continued compliance with the covenants contemplated below; (b) credit approval by JPMCB of the Credit Facilities; (c) receipt and satisfactory review by the Agent and the Lenders of (1) historical “reviewed” fiscal year financial statements of the Seller for the FYE 12/31/09, 12/31/08 and 12/31/07, (2) the interim company prepared financial statements of the Seller for the 9ME 9/30/2010, (3) the due diligence results of BDO Seidman LLP with regard to the review of the Seller’s interim financial statements for the nine months ended September 30, 2010 as well as the historical accounting for discounts and allowances to gross sales and overall dilution on accounts receivable (billed to collected) as well as general internal controls of the Seller, (4) due diligence report prepared for the benefit of the Borrower by an independent industry consultant with regard to the current and projected product portfolio of the Seller and supporting the projected operating statement revenue of the Seller for upcoming 3 years; (d) payment of all fees and expenses of the JPMCB in connection with the contemplated legal documentation for the Credit Facilities including but not limited to all legal fees and expenses of JPMCB; (e) payment of the Upfront Fee to the Lenders and the Agent’s Fee to the Agent; (2) usual and customary representations and warranties of the Borrower for credit facilities and transaction of these types and usual and customary affirmative and negative covenants (including without limitation on debt, liens, guarantees, investments, mergers and acquisitions (acquisitions to be permitted provided total consideration not in excess of $5,000,000 per acquisition and not in excess of $5,000,000 in aggregate for all acquisitions in any fiscal year and provided each acquisition would otherwise constitute a “Permitted Acquisition” as defined in the Existing RC Agreement), assets sales, affiliate transactions, distributions, dividends, stock repurchases and buybacks, capital expenditures, change of control) and standard events of default.

	  	  
	
COVENANTS:

	
The proposed credit agreement shall contain the following financial covenants:

	  	  
	  	
●

	
The “Consolidated Debt Service Coverage Ratio” shall not be less than 1.25 to 1.0 at the end of any fiscal quarter, commencing with the FQE 3/31/2011. The Consolidated Debt Service Coverage Ratio shall be calculated as the ratio of (1) (a) net income plus (b) depreciation and amortization expenses plus (c) interest expense plus (d) income tax expense less (e) unfunded capital expenditures less (f) dividends, stock repurchases and redemptions for cash less (g) cash income taxes to (2) interest expense plus principal payments made on debt. All of the foregoing categories shall be calculated on a consolidated basis as follows: (1) for the FQE 3/31/2011 only; (2) for the 2 FQE 6/30/2011 only; (3) for 3 FQE 9/30/2011 only and (4) commencing with the FQE 12/31/2011, for the four fiscal quarter period most recently ended.

	  	  	  	  
	  	  	
●

	
The “Domestic Debt Service Coverage Ratio” shall not be less than 1.10 to 1.0 at the end of any fiscal quarter commencing with the FQE 3/31/2011. The Domestic Debt Service Coverage Ratio shall be calculated as the ratio of (1) (a) net income plus (b) depreciation and amortization expenses plus (c) interest expense plus (d) income tax expense plus (e) for the calculation of the Domestic Debt Service Coverage Ratio for the 2 FQE 6/30/2011 only, up to $1,000,000 provided domestic cash on hand and availability under the RC is at least $1,000,000 less (f) unfunded capital less (g) dividends, stock repurchases and redemptions for cash less (h) cash income taxes to (2) interest expense plus principal payments made on debt. All of the foregoing categories shall be calculated on the basis of Aceto Corporation and its domestic subsidiaries only as follows: (1) for the FQE 3/31/2011 only; (2) for the 2 FQE 6/30/2011 only; (3) for 3 FQE 9/30/2011 only and (4) commencing with the FQE 12/31/2011, and for the four fiscal quarter period most recently ended.

 

  

  

  

 

	
Confidential

	
Aceto Corporation

 

	  	  	  
	  	
●

	
Consolidated EBITDA for the FQE 12/31/2010 alone shall not be less than $1,800,000.

	  	  	  
	  	
●

	
Domestic EBITDA for the FQE 12/31/2010 alone shall not be less than $400,000.

	  	  	  
	  	
●

	
The ratio of Consolidated Total Funded Debt to Consolidated EBITDA shall not be greater than:

 

	 	
Closing – 12/30/2011

	
3.55 to 1.0

	 	
12/31/2011 – 12/30/2012

	
3.00 to 1.0

	 	
12/31/2012 and thereafter

	
2.50 to 1.0

 

	  	
●

	
Consolidated cash and cash equivalents shall not be less than $12,000,000 at any time.

	  	  	  
	  	
●

	
Cash dividends shall not exceed $5,800,000 in any fiscal year.

	  	  	  
	  	
●

	
Stock buybacks, repurchases and redemptions shall not be permitted during the term of the RC and Term Loan.

 

	
REPORTING

REQUIREMENTS

	
 

The Borrowers will be required to provide the following financial information and statements in form and content acceptable to JPMCB, as set forth below:

	  	  
	  	
Within 90 days after the Borrower’s fiscal year end, (1) the unqualified audited annual financial statements of Borrower on a consolidated basis with each subsidiary, prepared by independent certified public accountant acceptable the Agent and the Lenders (the “CPA”) and (2) a copy of the management letter, if any, provided to the Borrower by the CPA.

	  	  
	  	
Within 90 days after the Borrower’s fiscal year end, the management prepared and certified consolidating annual financial statements of Borrower with each subsidiary.

	  	  
	  	
Within 45 days after the Borrower’s fiscal quarter end, the management prepared and certified consolidated and consolidating financial statements of Borrower with each subsidiary for the fiscal quarter then ended and on a year to date basis.

	  	  
	  	
Within 30 days after the end of each fiscal year, the Borrower’s annual operating / business plan for the following fiscal year, in form, substance and detail satisfactory to the Agent and the Lenders.

	  	  
	  	
Quarterly compliance certificates.

	  	  
	
EVENTS OF

DEFAULT

	
 

Usual and customary for transactions of this type including without limitation (1) nonpayment of principal, interest, fees or other amounts; (2) violation of covenants (20 day cure period for certain affirmative covenants from date of default); (3) inaccuracy of representations and warranties; (4) cross default; (5) bankruptcy and other insolvency events; (6) change of control; (7) the cost of remediation with respect to the Carlstadt Real Property (as defined in the Existing RC Agreement) (exclusive of those costs paid by BASF Corporation) exceeds $6,000,000 in the aggregate.

  

  

  

 

	
Confidential

	
Aceto Corporation

 

	
MISCELLANEOUS

	
The credit agreement contemplated herein shall contain standard miscellaneous provisions relating to, among other things, voting rights, assignments and participations, yield protection and expenses/indemnifications, all satisfactory to JPMCB.

	  	  
	
GOVERNING LAW

	
New York.

	  	  
	
MARKET

DISRUPTION:

	
 

Notwithstanding anything contained herein to the contrary, in the event any material change shall occur in the financial markets after the date of this proposal, including but not limited to any governmental action or other event which materially adversely affects the extension of credit by banks or other lending institutions, JPMCB may withdraw this proposal or modify any of the terms and conditions thereof, including without limitation the indicative pricing described herein.

 

You acknowledge that JPMorgan Chase may be providing debt financing, equity capital or other services (including financial advisory services) to other companies in respect of which you may have conflicting interests regarding the transaction described herein and otherwise. JPMorgan Chase will not use confidential information obtained from you by virtue of the transaction contemplated by this term sheet or their other relationships with you in connection with the performance by JPMorgan Chase of services for other companies, and JPMorgan Chase will not furnish any such information to other companies. You also acknowledge that JPMorgan Chase has no obligation to use in connection with the transactions contemplated by this term sheet, or to furnish to you, confidential information obtained from other companies.

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