Credit and Security Agreement - SkyMall Inc. and Imperial Bank
COMMITTED REDUCING REVOLVING FACILITY
CREDIT AND SECURITY AGREEMENT
Dated as of January 27, 1997
SKYMALL, INC., a Nevada corporation (the "Borrower"), and IMPERIAL BANK, a
California banking corporation (the "Lender"), hereby agree as follows:
ARTICLE I
DEFINITIONS
Section I.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
"Accounts" means the aggregate unpaid obligations of customers and
other account debtors to the Borrower arising out of the sale or lease of
goods or rendition of services by the Borrower on an open account or
deferred payment basis.
"Advance" means an advance to the Borrower by the Lender under the
Credit Facility.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower, including (without
limitation) any Subsidiary of the Borrower. For purposes of this
definition, "control," when used with respect to any specified Person,
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise.
"Agreement" means this Credit and Security Agreement.
"Banking Day" means a day other than a Saturday or a Sunday on which
banks are generally open for business in Inglewood, California.
"Base Rate" means either (i) the Prime Rate or (ii) LIBOR.
"Cash Flow Ratio" means the Borrower's total long term debt
outstanding plus the current portion of the Borrower's long term debt
outstanding, divided by earnings before taxes, interest, depreciation and
amortization (EBITDA) for the preceding four quarters. All components of
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the Cash Flow Ratio are to be determined in accordance with generally
accepted accounting principles consistent with those used in preparing
Borrower's most recent consolidating and consolidated audited financial
statement.
"Collateral" means all of the Equipment, General Intangibles,
Inventory, Real Estate, Receivables and all sums on deposit, together with
all substitutions and replacements for and products of any of the foregoing
Collateral and together with proceeds of any and all of the foregoing
Collateral and, in the case of all tangible Collateral, together with all
accessions and together with (i) all accessories, attachments, parts,
equipment and repairs now or hereafter attached or affixed to or used in
connection with any such goods, and (ii) all warehouse receipts, bills of
lading and other documents of title now or hereafter covering such goods.
"Commitment" means Five Million Dollars ($5,000,000.00), which shall
be reduced on an annual basis commencing December 31, 1997 and ending
December 31, 2001, to the Commitment amounts as follows:
December 31, 1997 $4,000,000.00
December 31, 1998 $3,000,000.00
December 31, 1999 $2,000,000.00
December 31, 2000 $1,000,000.00
December 31, 2001 $ 0.00
unless said Commitment amount available as provided above is reduced
pursuant to Section 2.5(d) hereof, in which event it means the amount to
which said Commitment amount is reduced.
"Credit Facility" means the credit facility being made available to
the Borrower by the Lender pursuant to Article II hereof.
"Debt to Worth Ratio" means the Borrower's total liabilities divided
by the Borrower's total equity. All components of the Debt to Worth Ratio
are to be determined in accordance with generally accepted accounting
principles consistent with those used in preparing Borrower's most recent
consolidating and consolidated audited financial statement.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means the period following the occurrence of a
Default or Event of Default which period shall continue until and unless
the Lender shall thereafter waive such Default or Event of Default in
writing.
"Default Rate" means at any time five percent (5%) over the Floating
Rate, which Default Rate shall change when and as the Floating Rate
changes.
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"Environmental Laws" has the meaning specified in Section 5.12 hereof.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but
not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, fixed assets, plant
assets, office and recordkeeping equipment, parts, tools, supplies, and
including specifically (without limitation) the goods described in any
equipment schedule or list herewith or hereafter furnished to the Lender by
the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning specified in Section 8.1 hereof.
"Floating Rate" means an annual rate of interest equal to the sum of
the Base Rate plus a margin percentage as listed in the table below. The
Base Rate will be either the Prime Rate or LIBOR, at Borrower's option. The
applicable margin percentage will be determined quarterly in arrears (based
on the Borrowers' Cash Flow Ratio for its most recent quarterly reporting
period), and said margin percentage will remain in effect until Borrower
files its 10 Q for the next quarter with the Securities and Exchange
Commission or the Cash Flow Ratio is otherwise determined from the
Borrower's next quarterly financial statement.
CASH FLOW RATIO PRIME MARGIN LIBOR MARGIN
2.25x or greater. 1.50% 3.25%
1.5x or greater, 1.25% 3.00%
up to 2.5x.
1.00x or greater, 1.00% 2.75%
up to 1.5x.
less than 1.00x. 0.00% 2.25%
The Floating Rate shall change when and as the Base Rate changes. The LIBOR
for any time period of a LIBOR loan shall be rounded upwards, if necessary,
to the nearest onesixteenth (1/16th) of one percent (1%).
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents,
patent applications, copyrights, trademarks, trade names (including without
limitation the trade names and trademarks "SkyMall" and "SkyMall Xpress"),
trade secrets, customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use the Borrower's name and
the goodwill of the Borrower's business.
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"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"Late Charge" means five percent (5%) of the amount of any installment
which is past due in excess of ten (10) days, as provided in Section 2.3 of
this Agreement and in the Note.
"LIBOR" means the London Interbank Offered Rate, determined as
provided herein, for the applicable LIBOR Interest Period to be specified
by the Borrower as provided in Section 2.1(b) of this Agreement. For each
Advance under the LIBOR option, the LIBOR rate will remain in effect
through the end of the LIBOR Interest Period. If prior to the due date for
a LIBOR loan Borrower requests a continuation of said LIBOR loan and
Borrower qualifies for such an Advance under section 2.1 of this Agreement,
Borrower's request shall comply with the request procedure specified below
and the LIBOR rate for the LIBOR loan shall be redetermined for the next
LIBOR Interest Period as provided below. LIBOR shall mean with respect to
any LIBOR Interest Period the rate equal to the arithmetic mean (rounded
upwards, if necessary, to the nearest onesixteenth (1/16th) of one percent
(1%) of:
(a) the offered rates per annum for deposits in U.S. Dollars for a
period equal to such LIBOR Interest Period which appears at 11:00 a.m.,
London time, on the Reuters Screen LIBOR Page on the Banking Day that is
two (2) Banking Days before the first day of such LIBOR Interest Period, in
each case if at least four (4) such offered rates appear on such page, or
(b) if clause (a) is inapplicable, (x) the offered rate per annum for
deposits in U.S. Dollars for a period equal to such LIBOR Interest Period
for a LIBOR loan hereunder which appears as of 11:00 a.m., London time on
the Telerate Monitor on Telerate Screen 3750 on the Banking Day which is
two (2) Banking Days before the first day of such LIBOR Interest Period; or
(y) if clause (x) above is inapplicable, the arithmetic mean (rounded
upwards, if necessary, to the nearest onesixteenth (1/16th) of one percent
(1%) of the interest rates per annum offered by at least three (3) prime
banks selected by Lender at approximately 11:00 a.m., London time, on the
Banking Day which is two (2) Banking Days before such date for deposits in
U.S. Dollars to prime banks in the London interbank market, in each case
for a period equal to such LIBOR Interest Period for a LIBOR loan hereunder
in an amount equal to the amount to which the LIBOR applies. "Reuters
Screen LIBOR Page" as used herein means the display designated as page
LIBOR on the Reuters Monitor Money Rates Service or such other page as may
replace the LIBOR page on that service for the purpose of displaying London
interbank offered rates of major banks.
"LIBOR Interest Period" has the meaning provided in section 2.1(b) of
this Agreement.
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"Loan Documents" means this Agreement, the Note, the Security
Documents and all other documents relating to any of the foregoing.
"Net Loss" means an after tax net loss for the Borrower from
continuing operations determined on a consolidating and consolidated basis,
to be determined in accordance with generally accepted accounting
principles consistent with those used in preparing Borrower's most recent
consolidating and consolidated audited financial statement.
"Note" means the Revolving Note of the Borrower payable to the order
of the Lender in substantially the form attached hereto as Exhibit A.
"Obligations" has the meaning specified in Section 3.1 hereof.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, jointstock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the
premises legally described in Exhibit E attached hereto.
"Prime Rate" means the rate of interest publicly announced from time
to time by Imperial Bank, a California banking corporation, in Inglewood,
California as its prime rate for lending (the "Prime Rate") (the Prime Rate
is not intended to be the lowest rate of interest charged by Lender in
connection with extensions of credit to borrowers) or, if such bank ceases
to announce a rate so designated, any similar successor rate designated by
the Lender;
"Quick Ratio" means the Borrower's cash plus cash equivalents plus
trade receivables, divided by the Borrower's total current liabilities. All
components of the Quick Ratio are to be determined in accordance with
generally accepted accounting principles consistent with those used in
preparing Borrower's most recent consolidating and consolidated audited
financial statement.
"Real Estate" means all of:
(i) the Borrower's interest in that certain property located at 1520
East Pima Street, Phoenix, Arizona 85034, whether now owned or hereafter
acquired, including but not limited to Borrower's interest as Sublessee
pursuant to
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(a) a Lease dated June 24, 1960 between Pasqualetti Properties,
Inc., an Arizona corporation ("Master Landlord") and Smitty's Super Valu,
Inc., an Iowa corporation ("Smitty's" or "Lessee"); and
(b) a Sublease dated August 1, 1984 between Smitty's as Sublessor
and Schwan Brothers Properties, an Arizona general partnership
("Sublessee"), Borrower being the successor in interest of the Sublessee's
interest in the Sublease, together with Borrower's interest in all of the
buildings and improvements located on said property; and
(ii) Borrower's interest in that certain property located at 1432
South 16th Street, Phoenix, Arizona 85034, whether now owned or hereafter
acquired, including but not limited to that certain pylon sign located on
the property and Borrower's interest as Lessee pursuant a Lease dated April
19, 1994 between Saint Lawrence Holding Company, a Delaware corporation, as
Lessor, and the Borrower as Lessee, together with Borrower's interest in
all of the buildings and improvements located on said property; and
(iii) the Borrower's interest in that certain property located at 1580
East Pima Street, Phoenix, Arizona 85034, whether now owned or hereafter
acquired, including but not limited to Borrower's interest in that Purchase
and Sale Agreement dated December 27, 1996 between Borrower as Seller and
Adrian C. Quinones and Guadalupe M. Quinones, husband and wife, as Buyer,
the Promissory Note of even date made by Buyer (the "Quinones Note"), the
Security Agreement of even date made by Buyer, the UCC1 Financing
Statement made by Buyer and filed with the Arizona Secretary of State on
December 31, 1996 at Recording Number 949965, the SubSublease and any Deed
of Trust to be entered into pursuant to said Purchase and Sale Agreement,
and other security or related documents arising out of Borrower's sale of
said property interest.
"Receivables" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services or
services to be rendered, out of a loan, out of the overpayment of taxes or
other liabilities, or otherwise arises under any contract or agreement,
whether such right to payment is created, generated or earned by the
Borrower or by some other person who subsequently transfers such person's
interest to the Borrower, whether such right to payment is or is not
already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all
liens and security interests) which the Borrower may at any time have by
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law or agreement against any account debtor or other obligor obligated to
make any such payment or against any property of such account debtor or
other obligor; all including but not limited to all present and future
accounts, accounts receivable, contract rights, loans and obligations
receivable, chattel papers, bonds, notes, drafts, acceptances, and other
debt instruments, purchase orders, tax refunds and rights to payment in the
nature of general intangibles and other forms of obligations and
receivables.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Security Documents" means the UCC1 Financing Statement; the
Leasehold Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing (the "Leasehold Deed of Trust"); the Trademark, Tradename
and Service Mark Collateral Assignment and Security Agreement; the
Collateral Assignment of Debtor's Interest in Promissory Note, Security
Agreement and UCC1 Financing Statement, the UCC2 Assignment of UCC1
Financing Statement and the original Promissory Note endorsed in favor of
Lender (relating to the Quinones transaction described above in the
definition of "Real Estate", subsection (iii)); and all other documents
relating to the security interest in the Collateral being given to Lender.
"Security Interest" has the meaning specified in Section 3.1 hereof.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of
such corporation, irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of
the happening of any contingency, is at the time directly or indirectly
owned by the Borrower, by the Borrower and one or more other Subsidiaries,
or by one or more other Subsidiaries.
"Termination Date" means December 31, 2001.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.12 hereof as the state whose laws
shall govern this Agreement, or in any other state whose laws are held to
govern this Agreement or any portion hereof.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section II.1 ADVANCES. The Lender agrees, on the terms and subject to the
conditions herein set forth, to make Advances to the Borrower from time to time
during the period from the date hereof to and including the Termination Date, or
the earlier date of termination in whole of the Credit Facility pursuant to
Sections 2.5(a) or 8.2 hereof, in an aggregate amount at any time outstanding
not to exceed the Commitment, which Advances shall be secured by the Collateral
as provided in Article III hereof. The Credit Facility shall be a revolving
facility and it is contemplated that the Borrower will request Advances, make
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prepayments and request additional Advances. LIBOR loans shall be borrowed in a
minimum amount of Five Hundred Thousand Dollars ($500,000.00) or such greater
amount which is an integral multiple of Fifty Thousand Dollars ($50,000), for
time periods specified by the Borrower as provided in subsection (b) below,
PROVIDED HOWEVER that the Borrower may not select a LIBOR Interest Period that
would otherwise extend beyond the Termination Date of this Agreement or that
would cause the aggregate amount of all Advances (whether LIBOR or otherwise) to
exceed the Commitment if the amount of the Commitment is to be reduced (as
provided under the definition of "Commitment") during such LIBOR Interest
Period, no LIBOR loan shall be made after the last Banking Day that is at least
thirty (30) days prior to the Termination Date and the aggregate amount of all
Advances (whether LIBOR or otherwise) outstanding at any time under this
Agreement shall not exceed the Commitment. The Borrower agrees to comply with
the following procedures in requesting Advances under this Section 2.1:
(a) The Borrower will not request any Advance under this Section 2.1
if, after giving effect to such requested Advance, the sum of the outstanding
and unpaid Advances under this Section 2.1 or otherwise would exceed the
Commitment.
(b) Each request for an Advance under this Section 2.1 shall be made
to the Lender prior to 12:00 noon (Phoenix, Arizona time) of the day of the
requested Advance by the Borrower, if such Advance is requested under the Prime
Rate option; or prior to 12:00 noon (Phoenix, Arizona time) of the third
business day prior to the day of the requested Advance by the Borrower, if such
Advance is requested under the LIBOR option. Each request for an Advance shall
be made in writing, specifying (i) the Banking Day on which the Advance is
requested, (ii) the amount thereof and (iii) (as to Advances under the LIBOR
option) whether the Advance will be all due and payable in thirty (30) days,
sixty (60) days or ninety (90) days (the time period at the Borrower's option,
referred to herein as the "LIBOR INTEREST PERIOD"). Each request for an Advance
shall be signed by (i) the Chief Executive Officer or the Chief Financial
Officer of the Borrower; or (ii) any person designated as the Borrower's agent
by either of said Officers of the Borrower in a writing delivered to the Lender.
Upon receiving such request for an Advance under the LIBOR option, the Lender
shall determine (which determination shall be in accordance with the definition
of "LIBOR" herein and shall, absent manifest error, be final, conclusive and
binding upon all parties hereto) the LIBOR rate applicable to such LIBOR option
Advance two (2) Banking Days prior to the Advance date, and shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to the
Borrower. If the Borrower shall fail to notify the Lender of the selected LIBOR
Interest Period for a LIBOR Advance (including the continuation of an existing
LIBOR loan or the conversion of a Prime rate loan into a LIBOR loan), the
Borrower shall be deemed to have selected a time period of ninety (90) days.
(c) Upon fulfillment of the applicable conditions set forth in Article
IV hereof, the Lender shall disburse loan proceeds in accordance with the
Borrower's written instructions. The Borrower shall be obligated to repay all
Advances under this Section 2.1 notwithstanding the fact that the person
requesting the same was not in fact authorized to do so, provided however that
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all requests for an Advance shall be made in writing as provided in subsection
(b) above. Any request for an Advance under this Section 2.1 shall be deemed to
be a representation by the Borrower that (i) the condition set forth in Section
2.1(a) hereof has been met, and (ii) the conditions set forth in Section 4.2
hereof have been met as of the time of the request.
Section II.2 NOTE. All Advances made by the Lender under this Article II
shall be evidenced by and repayable with interest in accordance with the Note.
The principal of the Note shall be payable as provided herein and on the earlier
of the Termination Date or acceleration by the Lender pursuant to Section 8.2
hereof, and shall bear interest as provided herein. Borrowings under the Prime
Rate option may be prepaid and reborrowed at any time, subject to the terms and
conditions of this Agreement. Borrowings under the LIBOR option may only be paid
at the end of the borrowing period for each LIBOR Advance.
Section II.3 INTEREST.
(a) The principal of the Advances outstanding from time to time during
any month shall bear interest (computed on the basis of actual days elapsed in a
360day year) at the Floating Rate; PROVIDED, HOWEVER, that from the first day
of any month during which any Default or Event of Default occurs or exists at
any time, in the Lender's discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time shall
bear interest at the Default Rate during the entire Default Period; PROVIDED
FURTHER that if any payment of interest and/or principal is not received by the
holder of the Note when such payment is due, then in addition to the remedies
conferred upon the holder and the other loan documents, a late charge of five
percent (5%) of the amount of the installment due and unpaid will be added to
the delinquent amount to compensate the holder for the expense of handling the
delinquency for any payment past due in excess of ten (10) days, regardless of
any notice and cure period; and PROVIDED, FURTHER, that in any
event no rate change shall be put into effect which would result in a rate
greater than the highest rate permitted by law. As to Advances made under the
Prime Rate option, interest accruing on the principal balance of such Advances
outstanding from time to time shall be payable on the first day of each
succeeding month and on the Termination Date, or earlier demand made in
accordance with the provisions of this Agreement or prepayment in full. As to
Advances made under the LIBOR option, interest accruing on the principal balance
of such Advances outstanding from time to time shall be payable with repayment
of the principal balance or at the time of a rollover of said Advances and on
the Termination Date, or earlier demand made in accordance with the provisions
of this Agreement or prepayment in full. The Borrower agrees that the interest
rate contracted for includes the interest rate set forth herein plus any other
charges or fees set forth herein and costs and expenses incident to this
transaction paid by the Borrower to the extent same are deemed interest under
applicable law.
(b) If any Person shall acquire a participation in Advances under this
Agreement, the Borrower shall be obligated to the Lender to pay the full amount
of all interest calculated under Section 2.3(a) hereof, along with all other
fees, charges and other amounts due under this Agreement, regardless if such
Person elects to accept interest with respect to its participation at a lower
rate than the Floating Rate, or otherwise elects to accept less than its pro
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rata share of such fees, charges and other amounts due under this Agreement. The
Lender shall not be obligated to request, induce or permit any Person to acquire
or to retain any participation at all or in any particular amount or at any
particular rate of interest or on any particular terms.
Section II.4 CONVERSION TO PRIME LOANS.
(a) Subject to all the terms and conditions of this Agreement, the
Borrower may elect from time to time to convert a LIBOR loan to a Prime Rate
loan by giving the Lender at least three (3) Banking Days' prior irrevocable
notice of such election, and any such conversion of a LIBOR loan shall be made
on the last day of the LIBOR Interest Period with respect to such LIBOR loan.
(b) If the Borrower otherwise fails to give notice specifying its
requests with respect to any LIBOR loans that are scheduled to become due, such
failure shall be deemed, in the absence of any notice from the Borrower to the
contrary, to be notice of a requested Advance in the form of a Prime Rate loan
in a principal amount equal to the amount of said LIBOR loan.
Section II.5 VOLUNTARY PREPAYMENT; TERMINATION OF AGREEMENT BY THE
BORROWER; PERMANENT REDUCTION OF COMMITMENT.
(a) Except as otherwise provided herein, the Borrower may, in its
discretion, upon at least three (3) Banking Days irrevocable notice to the
Lender, prepay on any Banking Day the Advances under the Prime Rate option in
whole at any time or from time to time in part. Except as otherwise provided
herein, the Borrower may, upon at least three (3) Banking Days irrevocable
notice to the Lender, prepay the Advances under the LIBOR option, conditioned
upon the Borrower paying the customary actual "Breakage Fees" and "Prepayment
Costs" as defined below, resulting from prepayment of any LIBOR loan prior to
the end of the LIBOR Interest Period for said LIBOR loan. The notice of
prepayment shall specify the date and amount of the prepayment, and the loan to
which the prepayment applies. Each partial prepayment of a LIBOR loan shall be
in an amount not less than Fifty Thousand Dollars ($50,000) or such greater
amount which is an integral multiple of Fifty Thousand Dollars ($50,000);
PROVIDED, that unless a LIBOR loan is prepaid in full, no prepayment
shall be made if, after giving effect to such prepayment, the aggregate
principal amount of LIBOR loans having the same LIBOR Interest Period shall be
less than Five Hundred Thousand Dollars ($500,000). Notice of prepayment having
been delivered as aforesaid, the principal amount of the prepayment specified in
such notice shall become due and payable on the prepayment date set forth in
such notice. All payments of principal under this section shall be accompanied
by accrued but unpaid interest on the amount being prepaid through the date of
such prepayment. Subject to the foregoing provisions, the Borrower may terminate
this Agreement at any time and, subject to payment and performance of all the
Borrower's obligations to the Lender, may obtain any release or termination of
the Security Interest to which the Borrower is otherwise entitled by law by (i)
giving at least 30 days' prior written notice to the Lender of the Borrower's
intention to terminate this Agreement; and (ii) in the event of prepayment of
Advances under the LIBOR option, paying the Lender the Breakage Fees and
Prepayment Costs as provided below, if the Borrower terminates this Agreement
effective as of any date other than the Termination Date.
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(b) BREAKAGE FEES. If for any reason (including voluntary or mandatory
prepayment, voluntary or mandatory conversion of a LIBOR loan into a Prime loan,
or acceleration), the Lender receives all or part of the principal amount of a
LIBOR loan prior to the last day of the LIBOR Interest Period for such loan, the
Borrower shall immediately notify the Borrower's account officer at the Lender
and, on demand by the Lender, pay the Breakage Fees, defined as the amount (if
any) by which (i) the additional interest which would have been payable on the
amount so received had it not been received until the last day of such LIBOR
Interest Period exceeds (ii) the interest which would have been recoverable by
Lender (without regard to whether Lender actually so invests said funds) by
placing the amount so received on deposit in the certificate of deposit markets
or the offshore currency interbank markets or United States Treasury investment
products, as the case may be for a period starting on the date on which it was
so received and ending on the last day of such LIBOR Interest Period at the
interest rate determined by Lender in its reasonable discretion. Lender's
determination as to such amount shall be conclusive and final, absent manifest
error.
(c) PREPAYMENT COSTS. The Borrower shall pay to Lender, upon the
demand of Lender, such other amount or amounts as shall be sufficient (in the
reasonable judgment of the Lender) to compensate it for any loss, costs or
expense incurred by it as a result of any prepayment by the Borrower (including
voluntary or mandatory prepayment, voluntary or mandatory conversion of a LIBOR
loan into a Prime loan, or prepayment due to acceleration) of all or part of the
principal amount of a LIBOR loan prior to the last day of the LIBOR Interest
Period for such loan (including without limitation, any failure by the Borrower
to borrow a LIBOR loan on the loan date for such borrowing specified in the
relevant notice of borrowing hereunder). Such costs shall include, without
limitation, any interest or fees payable by Lender to lenders of funds obtained
by it in order to make or maintain its loans based on the London interbank
eurodollar market. Lender's determination as to such costs shall be conclusive
and final, absent manifest error.
(d) The Borrower may at any time and from time to time, upon at least
30 days' prior written notice to the Lender, permanently reduce the Commitment
in whole or in part, without payment of any fee or penalty except as provided in
this section with respect to LIBOR loan Breakage Fees and Prepayment Costs;
provided, however, that no reduction shall reduce the Commitment to an amount
less than the thenaggregate amount of the Advances.
Section II.6 MANDATORY PREPAYMENT. Without notice or demand, if the sum of
the outstanding principal balance of the Advances shall at any time exceed the
Commitment, the Borrower shall immediately prepay the Advances to the extent
necessary to reduce the sum of the outstanding principal balance of the Advances
to the Commitment. Any payment received by the Lender under this Section 2.6 or
under Section 2.5 may be applied to the Advances, including interest thereon and
any fees, commissions, costs and expenses hereunder and under the Security
Documents, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine, except to the extent Borrower designates
application of payment to Prime Rate loan Advances or LIBOR loan Advances.
Section II.7 PAYMENT. All payments of principal of and interest on the
Advances shall be made to the Lender in immediately available funds. The
Borrower hereby authorizes the Lender in its discretion at any time or from
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or from time to time and without request by the Borrower, to make an Advance or
Advances in such amount as shall be necessary to pay principal and accrued
interest amounts and any fees, costs or expenses from time to time due to the
Lender hereunder or under the Security Documents.
Section II.8 PAYMENT ON NONBANKING DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section II.9 USE OF PROCEEDS. The proceeds of Advances shall be used by the
Borrower to refinance the Borrower's existing obligations to Merrill Lynch, to
repay notes payable to vendors and for short term working capital purposes.
Section II.10 LIABILITY RECORDS. The Lender may maintain from time to time,
at its discretion, liability records as to any and all Advances made or repaid
and interest accrued or paid under this Agreement. All entries made on any such
record shall be presumed correct until the Borrower establishes the contrary. On
demand by the Lender, the Borrower will admit and certify in writing the exact
principal balance that the Borrower then asserts to be outstanding to the Lender
for Advances under this Agreement. Any billing statement or accounting rendered
by the Lender shall be conclusive and fully binding on the Borrower unless
specific written notice of exception is given to the Lender by the Borrower
within 30 days after receipt by the Borrower of said billing statement or
accounting, or within 30 days after completion of the Borrower's next annual
audit by its outside accounting firm.
Section II.11 SETOFF. The Borrower agrees that the Lender may at any time
or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any indebtedness owed to the Lender by the Borrower
(for Advances or for any other transaction or event), whether or not due. In
addition, each other Person holding a participating interest in any Advances
made to the Borrower by the Lender shall have the right to appropriate or setoff
any deposit or other liability then owed by such Person to the Borrower, whether
or not due, and apply the same to the payment of said participating interest, as
fully as if such Person had lent directly to the Borrower the amount of such
participating interest.
Section II.12 FEES.
(a) The Borrower hereby agrees to pay the Lender a fully earned and
non refundable origination fee of $50,000, due and payable upon the execution
of this Agreement.
(b) The Borrower agrees to pay to the Lender a commitment fee at the
percentage rate per annum as specified in the table below, on the average daily
unused amount of the Commitment from the date hereof to and including the date
on which such facility is terminated, due and payable quarterly in arrears on
the first day of each month which follows the end of a quarter, commencing
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April 1, 1997, provided that any such commitment fee remaining unpaid upon
termination of the Credit Facility or acceleration of the Note by the Lender
pursuant to Section 8.2 hereof shall be due and payable on the date of such
termination or acceleration. Such fee shall be calculated on the basis of actual
days elapsed in a 360day year. The applicable percentage will be based on the
Cash Flow Ratio as follows:
CASH FLOW RATIO COMMITMENT FEE
2.25x or greater. .625%
1.5x or greater, .500%
up to 2.5x.
1.00x or greater, .375%
up to 1.5x.
less than 1.00x. .250%
ARTICLE III
SECURITY INTEREST
Section III.1 GRANT OF SECURITY INTEREST. The Borrower hereby assigns and
grants to the Lender a security interest (collectively referred to as the
"Security Interests") in the Collateral, as security for the payment and
performance of each and every debt, liability and obligation of every type and
description which the Borrower may now or at any time hereafter owe to the
Lender (whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower, and whether
it is direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, all indebtedness of the
Borrower arising under this Agreement or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or hereafter
entered into; all such debts, liabilities and obligations are herein
collectively referred to as the "Obligations").
Section III.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. With
respect to any and all rights to payment constituting Collateral the Lender may
at any time after the occurrence of an Event of Default notify any account
debtor or other person obligated to pay the amount due that such right to
payment has been assigned or transferred to the Lender for security and shall be
paid directly to the Lender. The Borrower will join in giving such notice if the
Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the Borrower's name, (a) demand, sue for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as agent and attorney in fact of the Borrower,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
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applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address. This right of Lender to act as agent and attorney in fact of the
Borrower shall be irrevocable for the life of this Agreement and may be
exercised by the Lender only at any time after the occurrence and during the
continuance of an Event of Default.
Section III.3 ASSIGNMENT OF INSURANCE. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time after the occurrence of any Event of Default, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section III.4 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time after the occurrence and during the
continuance of an Event of Default.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender may in good
faith deem to be related or incidental purposes.
(c) The right of the Lender to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations, and (ii) final sale or disposition of all goods constituting
Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, in the event that the Lender does pay or account
for any rent or other compensation for the possession, occupancy or use of any
of the Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof. In addition, the Borrower will pay, or reimburse the Lender for,
all taxes, fees, duties, imposts, charges and expenses at any time incurred by
or imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 3.4.
Section 3.5 LICENSE. The Borrower hereby grants to the Lender a
nonexclusive, worldwide and royaltyfree license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral following an Event of Default.
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ARTICLE IV
CONDITIONS OF LENDING
Section IV.1 CONDITIONS PRECEDENT AND CONDITIONS SUBSEQUENT TO THE
INITIAL ADVANCE.
CONDITIONS PRECEDENT. The obligation of the Lender to make the initial Advance
under the Credit Facility shall be subject to the condition precedent that the
Lender shall have received all of the following, each in form and substance
satisfactory to the Lender:
(a) This Agreement, properly executed on behalf of the Borrower.
(b) The Note, properly executed on behalf of the Borrower.
(c) (i) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises or has an interest in the Real
Estate; (ii) the Leasehold Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing properly executed on behalf of the Borrower; (iii)
the Trademark, Tradename and Service Mark Collateral Assignment and Security
Agreement properly executed on behalf of the Borrower; (iv) the UCC1 Financing
Statement(s) properly executed on behalf of the Borrower; and (v) the Collateral
Assignment of Debtor's Interest in Promissory Note, Security Agreement and UCC1
Financing Statement, the UCC2 Assignment of UCC1 Financing Statement and the
original Promissory Note endorsed in favor of Lender (relating to the Quinones
transaction described above in the definition of "Real Estate", subsection
(iii)), all properly executed on behalf of the Borrower.
(d) Current searches of appropriate filing offices showing that (i) no
state or federal tax liens have been filed and remain in effect against the
Borrower, (ii) no financing statements have been filed and remain in effect
against the Borrower, except those financing statements relating to liens
permitted pursuant to Section 7.1 hereof and those financing statements filed by
the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interests granted hereunder, to the extent the
Security Interests are capable of being perfected by filing. Without limiting
the foregoing, the Lender shall have also received, in form and substance
satisfactory to the Lender, termination of: (i) that certain financing statement
in favor of secured party WWF Paper Corporation West, Division of WWF Paper
Corporation filed July 12, 1994 with the Arizona Secretary of State as document
number 793560; (ii) that certain financing statement in favor of secured party
Bert A. Getz filed March 16, 1995 with the Arizona Secretary of State as
document number 823719; (iii) that certain financing statement in favor of
secured party Alan C. Ashton and Karen Ashton filed July 6, 1995 with the
Arizona Secretary of State as document number 837808.
(e) Current searches of appropriate filing offices showing that (i) no
mortgages, deeds of trust, collateral assignments or other security interests
have been filed and remain in effect against the Borrower's interest in the Real
Estate or the General Intangibles, except those relating to liens permitted
pursuant to Section 7.1 hereof and those filed by the Lender and (ii) the Lender
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has duly filed all mortgages, deeds of trust, collateral assignments or other
security interests necessary to perfect the Security Interests in the Real
Estate and the General Intangibles granted hereunder, to the extent the said
Security Interests are capable of being perfected by filing. Without limiting
the foregoing, the Lender shall have also received, in form and substance
satisfactory to the Lender, release and reconveyance of: (i) that certain Deed
of Trust in favor of secured party WWF Paper Corporation West, Division of WWF
Paper Corporation recorded July 11, 1994 with the Maricopa County, Arizona
Recorder's Office as document number 94532429; and (ii) that certain Deed of
Trust in favor of secured party Alan C. Ashton and Karen Ashton recorded July 6,
1995 with the Maricopa County, Arizona Recorder's Office as document number
95391591.
(f) A Corporate Resolution Regarding Credit executed by the Secretary
of the Borrower, certifying as to (i) the resolutions of the directors and, if
required, the shareholders of the Borrower, authorizing the execution, delivery
and performance of this Agreement and the Security Documents, (ii) the articles
of incorporation and bylaws of the Borrower, and (iii) the signatures of the
officers or agents of the Borrower authorized to execute and deliver this
Agreement, the Security Documents and other instruments, agreements and
certificates, including Advance requests, on behalf of the Borrower.
(g) A current certificate issued by the Secretary of State of the
state of the Borrower's incorporation, certifying that the Borrower is in
compliance with all corporate organizational requirements of such state.
(h) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary.
(i) A certificate of an officer of the Borrower confirming, in his
corporate capacity, the representations and warranties set forth in Article V
hereof.
(j) Certificates of the insurance required hereunder, with all hazard
insurance containing a loss payee endorsement in favor of the Lender and with
all liability insurance naming the Lender as an additional insured.
(k) Payment of the fees due through the date of the initial Advance
under Section 2.12 hereof and expenses incurred by the Lender through such date
and required to be paid by the Borrower under Section 9.7 hereof (including
without limitation the Lender's attorneys' fees as provided in Section 9.7).
(l) Such other documents as the Lender in its sole discretion may
reasonably require, including without limitation such documents as are necessary
to perfect any and all registered trademarks or trade names (including without
limitation the trade names and trademarks "SkyMall" and "SkyMall Xpress").
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(m) The original of the Quinones Note, endorsed by Borrower in favor
of Lender, which Lender shall hold as part of its security.
(n) The Acknowledgement of Collateral Assignment of Interest in
Promissory Note, Security Agreement, and UCC1 Financing Statement in form and
substance satisfactory to Lender, signed by the Quinones, stating their
acknowledgement that the Quinones Note, Security Agreement, and UCC1 Financing
Statement have been assigned to Lender and that they shall, after notice of
Borrower's default, pay directly to Lender all amounts due under the Quinones
Note.
CONDITIONS SUBSEQUENT. On or before April 30, 1997, the Lender shall have
received, each in form and substance satisfactory to the Lender, termination of:
that certain financing statement in favor of secured party Saint Lawrence
Holding Company filed April 20, 1994 with the Arizona Secretary of State as
document number 783315; and that certain financing statement in favor of secured
party Quad/Graphics, Inc. filed December 28, 1995 with the Arizona Secretary of
State as document number 860472. In connection with the Quinones transaction, if
and when Borrower enters into a SubSublease concerning that part of the Real
Estate described in subsection (iii) of the definition of Real Estate above,
said SubSublease shall provide that a default under the Quinones Note is a
default under the SubSublease, entitling SubSublessor to terminate the
SubSublease; the May 1, 1994 Lease between Borrower as Lessor and Quinones as
Lessee (the "Restaurant Lease") shall contain the same default provision, or
shall be amended to add the same default provision simultaneously with execution
of the SubSublease; and Borrower shall assign to Lender a security interest, in
form and substance satisfactory to Lender, in Borrower's interest in the
SubSublease and the Restaurant Lease. Default in the performance of any of
these conditions subsequent shall be an Event of Default under Section 8.1 (d)
of this Agreement.
Section IV.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of the
Lender to make each Advance shall be subject to the further conditions precedent
that on such date:
(a) the representations and warranties contained in Article V hereof
are correct on and as of the date of such Advance as though made on and as of
such date, except to the extent that such representations and warranties relate
solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance which constitutes a Default or an Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section V.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE OFFICE;
INVENTORY AND EQUIPMENT LOCATIONS. The Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Nevada, and is duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
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of the business transacted by it makes such licensing or qualification
necessary. The Borrower has all requisite power and authority, corporate or
otherwise, to conduct its business, to own its properties and to execute and
deliver, and to perform all of its obligations under, the Loan Documents. During
its corporate existence, the Borrower has done business solely under the names
set forth in Exhibit B hereto. The chief executive office and principal place of
business of the Borrower is located at the address set forth in Exhibit B
hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in Exhibit B hereto.
Section V.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (a) require
any consent or approval of the stockholders of the Borrower, (b) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof, (c) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Articles of Incorporation or Bylaws of the Borrower, (d)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected, or (e) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interests) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section V.3 LEGAL AGREEMENTS. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section V.4 SUBSIDIARIES. Except as set forth in Exhibit B attached hereto,
the Borrower has no Subsidiaries.
Section V.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower has
heretofore furnished to the Lender audited financial statements of the Borrower
for the reporting period ended June 30, 1996 and unaudited financial statements
of the Borrower for the quarter ended September 30, 1996, and those statements
fairly present the financial condition of the Borrower on the dates thereof and
the results of its operations and cash flows for the periods then ended and were
prepared in accordance with generally accepted accounting principles. Since the
date of the most recent financial statements, there has been no material adverse
change in the business, properties or condition (financial or otherwise) of the
Borrower.
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Section V.6 LITIGATION. There are no actions, suits or proceedings pending
or, to the knowledge of the Borrower, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.
Section V.7 REGULATION U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section V.8 TAXES. The Borrower and its Affiliates have paid or caused to
be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due,
except for any tax whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and so long as the Collateral and the
Lender's lien thereon is not in any manner impaired by any enforcement remedy
available to the tax levying entity during the period of such contest.
Section V.9 TITLES AND LIENS. The Borrower has good and absolute title to
all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest balance
sheet referred to in Section 5.5 hereof and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances, except for (i)
mortgages, security interests and liens permitted by Section 7.1 hereof, and
(ii) in the case of any such property which is not Collateral or other
collateral described in the Security Documents, covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere
with the business or operations of the Borrower as presently conducted. No
financing statement naming the Borrower as debtor is on file in any office
within the States of Arizona and Nevada, or to Borrower's knowledge with any
other office, except to perfect only security interests permitted by Section 7.1
hereof. If any financing statements not permitted by Section 7.1 hereof become
known to Borrower, Borrower will use its best efforts to terminate same
promptly.
Section V.10 PLANS. Except as disclosed to the Lender in writing prior to
the date hereof, neither the Borrower nor any of its Affiliates maintains or has
maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
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(a) Any accumulated funding deficiency within the meaning of ERISA; or
(b) Any liability or knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may become
payable to participants or beneficiaries of any such Plan).
Section V.11 DEFAULT. The Borrower is in compliance with all provisions of
all agreements, instruments, decrees and orders to which it is a party or by
which it or its property is bound or affected, the breach or default of which
could have a material adverse effect on the financial condition, properties or
operations of the Borrower.
Section V.12 ENVIRONMENTAL PROTECTION. The Borrower has obtained all
permits, licenses and other authorizations which are required under federal,
state and local laws and regulations relating to emissions, discharges, releases
of pollutants, contaminants, hazardous or toxic materials, or wastes into
ambient air, surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") at the Borrower's facilities or in
connection with the operation of its facilities. The Borrower shall provide
copies of all such permits, licenses and other authorizations to the Lender upon
the Lender's request. The Borrower also shall provide to the Lender copies of
all environmental investigation and inspection reports available to the Borrower
that pertain to the Borrower's facilities, upon the Lender's request. Except as
previously disclosed to the Lender in writing, the Borrower and all activities
of the Borrower at its facilities comply with all Environmental Laws and with
all terms and conditions of any required permits, licenses and authorizations
applicable to the Borrower with respect thereto. Except as previously disclosed
to the Lender in writing, the Borrower is also in compliance with all
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in Environmental Laws or
contained in any plan, order, decree, judgment or notice of which the Borrower
is aware. Except as previously disclosed to the Lender in writing, the Borrower
is not aware of, nor has the Borrower received notice of, any events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent continued compliance with, or which may give
rise to any liability under, any Environmental Laws. Except as previously
disclosed to the Lender in writing, the Borrower has received no inquiry from
any federal, state or local agency concerning the Borrower's facilities or any
adjacent properties involving possible environmental contamination or violations
of any Environmental Laws, and has no knowledge of any such inquiry to any party
concerning the Borrower's facilities or any adjacent properties. The Borrower
agrees to notify the Lender promptly in writing of any inquiries by third
parties or regulatory agencies concerning the possible presence of environmental
contamination on the Borrower's facilities or any adjacent properties or
concerning any possible violations of Environmental Laws involving the
Borrower's facilities or any adjacent properties. The Lender shall have the
right to enter the Borrower's facilities for the purpose of conducting
environmental investigations, including taking soil and water samples, during
the Borrower's normal business hours of operation.
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Section V.13 SUBMISSIONS TO THE LENDER. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section V.14 FINANCING STATEMENTS. The Borrower has provided to the Lender
signed financing statement(s) and deed(s) of trust sufficient when filed to
perfect the Security Interests and the other security interests created by the
Security Documents. When such financing statements and deed(s) of trust are
filed in the offices noted therein, the Lender will have a valid and perfected
security interest in all Collateral and all other collateral described in the
Security Documents which is capable of being perfected by filing financing
statements. None of the Collateral or other collateral covered by the Security
Documents is or will become a fixture on real estate, unless a sufficient
fixture filing is in effect with respect thereto.
Section V.15 RIGHTS TO PAYMENT. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral or other collateral covered by the Security Documents is (or, in the
case of all future Collateral or such other collateral, will be when arising or
issued) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim, of the account debtor or other obligor named
therein or in the Borrower's records pertaining thereto as being obligated to
pay such obligation.
ARTICLE VI
AFFIRMATIVE COVENANTS OF THE BORROWER
So long as the Note shall remain unpaid or the Credit Facility shall be
outstanding, the Borrower will comply with the following requirements, unless
the Lender shall otherwise consent in writing:
Section VI.1 REPORTING REQUIREMENTS. The Borrower will deliver, or cause to
be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within one hundred twenty
(120) days after the end of each fiscal year of the Borrower, audited financial
statements of the Borrower with the unqualified opinion of independent certified
public accountants selected by the Borrower and acceptable to the Lender, which
annual financial statements shall include the balance sheet of the Borrower as
at the end of such fiscal year and the related statements of income, retained
earnings and cash flows of the Borrower for the fiscal year then ended,
prepared, if the Lender so requests, on a consolidating and consolidated basis
to include any Affiliates, all in reasonable detail and prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
the accounting practices applied in the financial statements referred to in
Section 5.5 hereof, together with (i) a report signed by such accountants
stating that in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Default or Event of
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Default hereunder and all relevant facts in reasonable detail to evidence, and
the computations as to, whether or not the Borrower is in compliance with the
requirements set forth in Sections 6.12 through 6.14 hereof; and (ii) a
certificate of the chief financial officer of the Borrower stating whether or
not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) as soon as available and in any event within forty five (45) days
after the end of each quarter, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the end of and
for such quarter and for the year to date period then ended, prepared, if the
Lender so requests, on a consolidating and consolidated basis to include any
Affiliates, in reasonable detail and stating in comparative form the figures for
the corresponding date and periods in the previous year, all prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the accounting practices reflected in the financial statements
referred to in Section 5.5 hereof, subject to yearend audit adjustments; and
accompanied by a certificate of the chief financial officer of the Borrower,
substantially in the form of Exhibit D hereto stating (i) that such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the accounting practices reflected
in the financial statements referred to in Section 5.5 hereof, subject to
yearend audit adjustments, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore reported
and remedied and, if so, stating in reasonable detail the facts with respect
thereto, and (iii) all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with the
requirements set forth in Sections 6.12 through 6.14 hereof;
(c) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.6 hereof or
which seek a monetary recovery against the Borrower in excess of Two Hundred
Fifty Thousand Dollars ($250,000);
(d) as promptly as practicable (but in any event not later than five
(5) business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default hereunder,
notice of such occurrence, together with a detailed statement by a responsible
officer of the Borrower of the steps being taken by the Borrower to cure the
effect of such breach, default or event;
(e) as soon as possible and in any event within 30 days after the
Borrower knows or has reason to know that any Reportable Event with respect to
any Plan has occurred, the statement of the chief financial officer of the
Borrower setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(f) as soon as possible, and in any event within 10 days after the
Borrower fails to make any quarterly contribution required with respect to any
Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended, the
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statement of the chief financial officer of the Borrower setting forth details
as to such failure and the action which the Borrower proposes to take with
respect thereto, together with a copy of any notice of such failure required to
be provided to the Pension Benefit Guaranty Corporation;
(g) promptly upon knowledge thereof, notice of (i) any disputes or
claims by customers of the Borrower (except for disputes or claims in the normal
course of the Borrower's business); (ii) any goods returned to or recovered by
the Borrower (except for returns or recoveries in the normal course of the
Borrower's business); and (iii) any change in the persons constituting the
officers and directors of the Borrower;
(h) promptly upon knowledge thereof, notice of any loss of or material
damage to any Collateral or other collateral covered by the Security Documents
or of any substantial adverse change in any Collateral or such other collateral
or the prospect of payment thereof;
(i) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
(j) promptly after the sending or filing thereof, copies of all
regular and periodic financial reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange,
including without limitation the Borrower's Quarterly 10Q Reports no later that
45 days after the quarterly period ending and the Borrower's Annual 10K Report
no later than 120 days after the fiscal year period ending;
(k) promptly upon knowledge thereof, notice of the violation by the
Borrower of any law, rule or regulation, the noncompliance with which could
materially and adversely affect its business or its financial condition; and
(l) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment schedules,
copies of invoices to account debtors, shipment documents and delivery receipts
for goods sold, and such other material, reports, records or information as the
Lender may reasonably request.
Section VI.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time reasonably request in
which true and complete entries will be made in accordance with generally
accepted accounting principles consistently applied and, upon reasonable request
of the Lender, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
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business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
affairs of the Borrower with any of its directors, officers, employees or
agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, other collateral
covered by the Security Documents or any other property of the Borrower at any
time during ordinary business hours.
Section VI.3 ACCOUNT VERIFICATION. The Borrower will at any time and from
time to time upon reasonable request of the Lender send requests for
verification of accounts or notices of assignment to account debtors and other
obligors.
Section VI.4 COMPLIANCE WITH LAWS; ENVIRONMENTAL INDEMNITY. The Borrower
will (a) comply with the requirements of applicable laws and regulations, the
noncompliance with which would materially and adversely affect its business or
its financial condition, (b) comply with all applicable Environmental Laws and
obtain any permits, licenses or similar approvals required by any such
Environmental Laws, and (c) use and keep the Collateral, and will require that
others use and keep the Collateral, only for lawful purposes, without violation
of any federal, state or local law, statute or ordinance. The Borrower will
indemnify, defend and hold the Lender harmless from and against any claims, loss
or damage to which the Lender may be subjected as a result of any past, present
or future existence, use, handling, storage, transportation or disposal of any
hazardous waste or substance or toxic substance by the Borrower or on property
owned, leased or controlled by the Borrower. This indemnification agreement
shall survive the termination of this Agreement and payment of the indebtedness
hereunder.
Section VI.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interests, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and so long
as the Collateral and the Lender's lien thereon is not in any manner impaired by
any enforcement remedy available to the tax levying entity during the period of
such contest.
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Section VI.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other properties
necessary or useful in its business in good condition, repair and working order
(normal wear and tear excepted) and will from time to time replace or repair any
worn, defective or broken parts; provided, however, that nothing in this Section
6.6 shall prevent the Borrower from discontinuing the operation and maintenance
of any of its properties if such discontinuance is desirable in the conduct of
the Borrower's business and not disadvantageous in any material respect to the
Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral covered
by the Security Documents free and clear of all security interests, liens and
encumbrances except the Security Interests and other security interests
permitted by Section 7.1 hereof.
Section VI.7 INSURANCE. The Borrower will obtain and at all times maintain
insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
reasonably required in writing by the Lender, but in all events in such amounts
and against such risks as is usually carried by companies engaged in similar
business and owning similar properties in the same general areas in which the
Borrower operates. Without limiting the generality of the foregoing, the
Borrower will at all times keep all tangible Collateral insured against risks of
fire (including socalled extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request in writing, with any loss payable to the Lender to
the extent of its interest, and all policies of such insurance shall contain a
lender's loss payable endorsement for the benefit of the Lender. All policies of
liability insurance required hereunder shall name the Lender as an additional
insured.
Section VI.8 PRESERVATION OF CORPORATE EXISTENCE. The Borrower will
preserve and maintain its corporate existence and all of its rights, privileges
and franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section VI.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the Lender, the
Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section VI.10 [NOT USED].
Section VI.11 PERFORMANCE BY THE LENDER. If the Borrower at any time fails
to perform or observe any of the foregoing covenants contained in this Article
VI or elsewhere herein, and if such failure shall continue for a period of ten
(10) calendar days after the Lender gives the Borrower written notice thereof
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(or in the case of the agreements contained in Sections 6.5 and 6.7 hereof,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the performance or observance by the Lender of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the delegate of the Lender, acting alone, as the attorney in fact of the
Borrower (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this Section
6.11. This right of Lender to act as attorney in fact of the Borrower shall be
irrevocable for the life of this Agreement and may be exercised by the Lender
only at any time after the occurrence and during the continuance of an Event of
Default.
Section VI.12 QUICK RATIO. The Borrower will at all times maintain a Quick
Ratio of not less than 1.50 to 1.00 measured on a quarterly basis.
Section VI.13 DEBT TO WORTH RATIO. The Borrower will at all times maintain
a Debt to Worth Ratio of not more than 2.00 to 1.00 measured on a quarterly
basis.
Section VI.14 CASH FLOW RATIO. The Borrower will at all times maintain a
Cash Flow Ratio of not more than 2.5 times measured on a quarterly basis.
Section 6.15 CONSECUTIVE NET LOSS. The Borrower will not incur a Net Loss
in any two consecutive quarters.
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ARTICLE VII
NEGATIVE COVENANTS
So long as the Note shall remain unpaid or the Credit Facility shall be
outstanding, the Borrower agrees that, without the prior written consent of the
Lender:
Section VII.1 LIENS. The Borrower will not create, incur or suffer to exist
any mortgage, deed of trust, pledge, lien, security interest, assignment or
transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; EXCLUDING, HOWEVER, from the operation of the
foregoing:
(a) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Exhibit C hereto,
securing indebtedness for borrowed money permitted under Section 7.2 hereof;
(b) the Security Interests; and
(c) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower so long as the Borrower is in, and
maintains, compliance with every other provision of this Agreement.
Section VII.2 INDEBTEDNESS. The Borrower will not incur, create, assume or
permit to exist any indebtedness or liability on account of deposits or advances
or any indebtedness for borrowed money, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof and
listed in Exhibit C hereto; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1(c) hereof.
Section VII.3 GUARANTIES. The Borrower will not assume, guarantee, endorse
or otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in existence on
the date hereof and listed in Exhibit C hereto.
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Section VII.4 [NOT USED].
Section VII.5 [NOT USED].
Section VII.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of: (i) the stock of any Subsidiary; (ii) all or a substantial part of
its assets; or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person, other than the
sale of Inventory in the ordinary course of business or de minimis sale of other
Collateral; and will not liquidate, dissolve or suspend business operations. The
Borrower will not in any manner transfer any property without prior or present
receipt of full and adequate consideration.
Section VII.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire in a transaction analogous in purpose or effect to
a consolidation or merger all or substantially all the assets of any other
Person.
Section VII.8 SALE AND LEASEBACK. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section VII.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section VII.10 [NOT USED].
Section VII.11 ACCOUNTING. The Borrower will not adopt any material change
in accounting principles other than as required by generally accepted accounting
principles. The Borrower will not adopt, permit or consent to any change in its
fiscal year.
Section VII.12 DISCOUNTS, ETC. Except in the normal course of the
borrower's business, the Borrower will not, after notice from the Lender, grant
any discount, credit or allowance to any customer of the Borrower or accept any
return of goods sold, or at any time (whether before after notice from the
Lender) modify, amend, subordinate, cancel or terminate the obligation of any
account debtor or other obligor of the Borrower.
Section VII.13 DEFINED BENEFIT PENSION PLANS. The Borrower will not adopt,
create, assume or become a party to any defined benefit pension plan, unless
disclosed to the Lender pursuant to Section 5.10 hereof.
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Section VII.14 OTHER DEFAULTS. The Borrower will not permit any material
breach, default or event of default by the Borrower to occur under any note,
loan agreement, indenture, lease, mortgage, contract for deed, security
agreement or other contractual obligation binding upon the Borrower.
Section VII.15 PLACE OF BUSINESS; NAME. The Borrower will not transfer its
chief executive office or principal place of business outside the State of
Arizona, or close or sell any business location except in connection with a
transfer of its chief executive office or principal place of business within the
State of Arizona. The Borrower will not permit any tangible Collateral or any
records pertaining to the Collateral to be located in any state or area in
which, in the event of such location, a financing statement covering such
Collateral would be required to be, but has not in fact been, filed in order to
perfect the Security Interests. The Borrower will not change its name.
Section VII.16 ORGANIZATIONAL DOCUMENTS; S CORPORATION STATUS. The Borrower
will not amend its certificate of incorporation, articles of incorporation or
bylaws. The Borrower will not become an S Corporation within the meaning of the
Internal Revenue Code of 1986, as amended, or, if the Borrower already is such
an S Corporation, it shall not change or rescind its status as an S Corporation.
ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section VIII.1 EVENTS OF DEFAULT. "Event of Default", wherever used herein,
means any one of the following events:
(a) Default in the payment of any interest on or principal of the Note
when it becomes due and payable, which default continues for a period of ten
(10) days; or
(b) Default in the payment of any fees, commissions, costs or expenses
required to be paid by the Borrower under this Agreement, which default
continues for a period of thirty (30) days after the Lender has given written
notice thereof; or
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in sections 6.12 through 6.15 of this
Agreement; or
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement (other than sections 6.12
through and including 6.15 which are covered in the prior subsection), which
default continues for a period of twenty (20) days after the Lender has given
written notice thereof; or
(e) The Borrower shall be or become insolvent, or admit in writing its
inability to pay its debts as they mature, or make an assignment for the benefit
of creditors; or the Borrower shall apply for or consent to the appointment of
any receiver, trustee, or similar officer for it or for all or any substantial
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part of its property; or such receiver, trustee or similar officer shall be
appointed without the application or consent of the Borrower, as the case may
be; or the Borrower shall institute (by petition, application, answer, consent
or otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding relating to
it under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the Borrower; or any
judgment, writ, warrant of attachment, garnishment or execution or similar
process shall be issued or levied against a substantial part of the property of
the Borrower; or
(f) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor; or
(g) Any representation or warranty made by the Borrower in this
Agreement, or by the Borrower (or any of its officers) in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement shall
prove to have been incorrect in any material respect when deemed to be
effective; or
(h) The rendering against the Borrower of a final judgment, decree or
order for the payment of money in excess of Two Hundred Fifty Thousand Dollars
($250,000) and the continuance of such judgment, decree or order unsatisfied and
in effect for any period of thirty (30) consecutive days without a stay of
execution; or
(i) A material default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than the
Lender, or under any indenture or other instrument under which any such evidence
of indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of grace, if
any, specified in such evidence of indebtedness, indenture, other instrument or
lease, which default continues for a period of thirty (30) days; or
(j) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any Plan or for the appointment
by the appropriate United States District Court of a trustee to administer any
Plan, shall have occurred and be continuing 30 days after written notice to such
effect shall have been given to the Borrower by the Lender; or a trustee shall
have been appointed by an appropriate United States District Court to administer
any Plan; or the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan; or the Borrower shall have filed for a distress termination of any Plan
under Title IV of ERISA; or the Borrower shall have failed to make any quarterly
contribution required with respect to any Plan under Section 412(m) of the
Internal Revenue Code of 1986, as amended, which the Lender determines in good
faith may by itself, or in combination with any such failures that the Lender
may determine are likely to occur in the future, result in the imposition of a
lien on the assets of the Borrower in favor of the Plan; or
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(k) An event of default shall occur under any Security Document or
under any other security agreement, mortgage, deed of trust, assignment or other
instrument or agreement securing any obligations of the Borrower hereunder or
under any note (other than any obligations to pay principal and interest under
the Note, which are covered in subsection (a) above), which continues for a
period of twenty (20) days after the Lender has given written notice thereof; or
(l) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the ordinary
course, or sell all or substantially all of its assets, without the prior
written consent of the Lender; or
(m) The Borrower shall fail to pay, withhold, collect or remit any tax
or tax deficiency when assessed or due (other than any tax deficiency which is
being contested in good faith and by proper proceedings and for which it shall
have set aside on its books adequate reserves therefor) except as allowed by
Section 6.5 or notice of any state or federal tax liens shall be filed or
issued, which continues for a period of thirty (30) days after any such event
has occurred; or
(n) Default in the payment of any amount owed by the Borrower to the
Lender other than any indebtedness arising hereunder, and the expiration of the
applicable period of grace, if any, specified in the evidence of indebtedness;
or
(o) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender, and the
expiration of the applicable period of grace, if any, specified in such
agreement.
Section VIII.2 RIGHTS AND REMEDIES. Upon the occurrence of an Event of
Default or at any time thereafter, the Lender may exercise any or all of the
following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare the Credit
Facility to be terminated, whereupon the same shall forthwith terminate;
(b) The Lender may, by notice to the Borrower, declare to be forthwith
due and payable the entire unpaid principal amount of the Note then outstanding,
all interest accrued and unpaid thereon, all amounts payable under this
Agreement and any other Obligations, whereupon the Note, all such accrued
interest and all such amounts and Obligations shall become and be forthwith due
and payable, without presentment, notice of dishonor, protest or further notice
of any kind, all of which are hereby expressly waived by the Borrower;
(c) The Lender may, without notice to the Borrower and without further
action, apply any and all money owing by the Lender to the Borrower, including
without limitation any funds on deposit with the Lender, whether or not matured,
to the payment of the Advances, including interest accrued thereon, and of all
other sums then owing by the Borrower hereunder;
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(d) The Lender may, exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC, including,
without limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrower hereby expressly waives) and
the right to sell, lease or otherwise dispose of any or all of the Collateral,
and, in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be designated by
the Lender which is reasonably convenient to both parties;
(e) The Lender may automatically convert all LIBOR loans then
outstanding to Prime Rate loans on the last day of each respective interest
period for each LIBOR loan;
(f) The Lender may exercise and enforce its rights and remedies under
the Loan Documents; and
(g) The Lender may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(f) hereof, the entire unpaid principal amount of the
Note (whether contingent or funded), all interest accrued and unpaid thereon,
all other amounts payable under this Agreement and any other Obligations shall
be immediately due and payable automatically without presentment, demand,
protest or notice of any kind.
Section VIII.3 INDEMNITY. Borrower agrees to pay and indemnify the Lender
for, and to hold the Lender harmless from, any and all cost, loss or expense
(including without limitation any such cost, loss or expense arising from
interest or fees payable by the Lender to lenders of funds obtained by it in
order to maintain its LIBOR loans hereunder, or in its reemployment of funds
obtained in connection with the making or maintaining of LIBOR loans) which the
Lender may sustain or incur as a consequence of any default by the Borrower in
connection with or related to: (a) payment of the principal amount of or
interest on LIBOR loans, (b) making a borrowing or conversion of a LIBOR loan
after the Borrower has given a notice thereof in accordance with this Agreement,
or (c) making a prepayment of a LIBOR loan after Borrower has given a notice
thereof in accordance with this Agreement, or any prepayment (whether optional
or mandatory) of any LIBOR loan prior to the end of the applicable LIBOR
Interest Period for such loan.
Section VIII.4 CERTAIN NOTICES. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least five (5) calendar days
prior to the date of intended disposition or other action.
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ARTICLE IX
MISCELLANEOUS
Section IX.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.
Section IX.2 AMENDMENTS, ETC. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section IX.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed to the party to whom notice is being given at its address as
set forth below and, if telecopied, transmitted to that party at its telecopier
number set forth below:
If to the Borrower:
SkyMall, Inc.
1520 East Pima Street
Phoenix, Arizona 85034
Attention: David A. Wirthlin,
Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary
Telecopier: (602) 2546544
If to the Lender:
Imperial Bank
9920 South La Cienega Boulevard
Suite 636
Inglewood, California 90301
Attention: General Counsel
Telecopier: (310) 4175695
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With a copy to:
Imperial Bank
4343 East Camelback Road
Suite 444
Phoenix, Arizona 85018
Attention: R. Mark Chambers
Telecopier: (602) 9528643
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II hereof shall not
be effective until received by the Lender.
Section IX.4 FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
SkyMall, Inc.
1520 East Pima Street
Phoenix, Arizona 85034
Federal Tax Identification No. 860651100
Name and address of Secured Party:
Imperial Bank, a California banking corporation
Lending Services
9920 South La Cienega Boulevard
Inglewood, California 90301
Attention: General Counsel
Section IX.5 FURTHER DOCUMENTS. The Borrower will from time to time execute
and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interests or the rights of the Lender under this
Agreement (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of this Agreement and the Security Interests,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
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Section IX.6 COLLATERAL. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section IX.7 COSTS AND EXPENSES. The Borrower agrees to pay on demand all
reasonable costs and expenses, including (without limitation) reasonable
attorneys' fees, incurred by the Lender in connection with the Obligations, this
Agreement, the Loan Documents and any other document or agreement related hereto
or thereto, and the transactions contemplated hereby, including without
limitation all such reasonable costs, expenses and fees incurred in connection
with the negotiation, preparation, execution, amendment, administration,
performance, collection and enforcement of the Obligations and all such
documents and agreements and the creation, perfection, protection, satisfaction,
foreclosure or enforcement of the Security Interests.
Section IX.8 INDEMNITY. In addition to the payment of expenses pursuant to
Section 9.7 hereof and the environmental indemnity pursuant to Section 6.4
hereof, the Borrower agrees to indemnify, defend and hold harmless the Lender,
and any of its participants, parent corporations, subsidiary corporations,
affiliated corporations, successor corporations, and all present and future
officers, directors, employees and agents of the foregoing (the "Indemnitees"),
from and against (i) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution and
delivery of this Agreement and the other Loan Documents or the making of the
Advances, and (ii) any and all liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of
counsel) in connection with any investigative, administrative or judicial
proceedings, whether or not such Indemnitee shall be designated a party thereto,
which may be imposed on, incurred by or asserted against such Indemnitee, in any
manner relating to or arising out of or in connection with the making of the
Advances, this Agreement and all other Loan Documents or the use or intended use
of the proceeds of the Advances (the "Indemnified Liabilities"). If any
investigative, judicial or administrative proceeding arising from any of the
foregoing is brought against any Indemnitee, upon request of such Indemnitee,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner reasonably directed by the Indemnitee, at the Borrower's sole
cost and expense. Each Indemnitee will use its best efforts to cooperate in the
defense of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
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<PAGE>
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The obligation of the
Borrower under this Section 9.8 shall survive the termination of this Agreement
and the discharge of the Borrower's other Obligations.
Section IX.9 PARTICIPANTS. The Lender and its participants, if any, are not
partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the participants, successors or assigns of the Lender.
Section IX.10 EXECUTION IN COUNTERPARTS. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section IX.11 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT; SHARING OF
INFORMATION. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written consent of the
Lender. This Agreement, together with the Loan Documents, comprises the complete
and integrated agreement of the parties on the subject matter hereof and
supersedes all prior agreements, written or oral, on the subject matter hereof.
Without limitation of the Lender's right to share information regarding the
Borrower and its Affiliates with Lender's participants, accountants, lawyers and
other advisors, the Lender may share (subject to applicable provisions of
securities laws) at any time with Imperial Bancorp. and all direct and indirect
subsidiaries of Imperial Bancorp. any and all information the Lender may have in
its possession regarding the Borrower and its Affiliates, and the Borrower
waives any right of confidentiality it may have with respect to such sharing of
such information.
Section IX.12 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL. The
Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of California (except
that the Leasehold Deed of Trust shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Arizona), except to the extent Lender has greater rights or remedies under
Federal law, whether as a national bank or otherwise, in which case such choice
of California law shall not be deemed to deprive Lender of any such rights and
remedies as may be available under Federal law. Subject to the provisions of
Section 9.15 hereof, each party consents to the personal jurisdiction and venue
of the state courts located in Los Angeles, State of California in connection
with any controversy related to this Agreement, waives any argument that venue
in any such forum is not convenient and agrees that any litigation initiated by
any of them in connection with this Agreement shall be venued in the Superior
Court of Los Angeles County, California. Notwithstanding the provisions in the
prior sentence, each party consents to the personal jurisdiction and venue of
the state courts located in Phoenix, Maricopa County, State of Arizona in
connection with any controversy related to the Leasehold Deed of Trust, waives
any argument that venue in any such forum is not convenient and agrees that any
litigation initiated by any of them in connection with the Leasehold Deed of
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Trust shall be venued in the Superior Court of Maricopa County, Arizona. The
parties waive any right to trial by jury in any action or proceeding based on or
pertaining to this Agreement or any of the Loan Documents.
Section IX.13 SEVERABILITY OF PROVISIONS. Any provision of this Agreement
which is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
Section IX.14 HEADINGS. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section IX.15 REFERENCE PROVISION. a. Each controversy, dispute or claim
("Claim") between the parties arising out of or relating to this Agreement
and/or any of the Loan Documents except the Leasehold Deed of Trust, which is
not settled in writing within ten days after the "Claim Date" (defined as the
date on which a party gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in Los Angeles, California, in accordance with the provisions of Section 638 ET
SEQ. of the California Code of Civil Procedure, or their successor section
("CCP"), which shall constitute the exclusive remedy for the settlement of any
Claim, including whether such Claim is subject to the reference proceeding and
the parties waive their rights to initiate any legal proceedings against each
other in any court or jurisdiction other than the Superior Court of Los Angeles
(the "Court"). The referee shall be a retired Judge selected by mutual agreement
of the parties, and if they cannot so agree within thirty days (30) after the
Claim Date, the referee shall be selected by the Presiding Judge of the Court.
The referee shall be appointed to sit as a temporary judge, as authorized by
law. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the Claim Date and (b) try any and all issues of law or
fact and report a statement of decision upon them, if possible, within ninety
(90) days of the Claim Date. Any decision rendered by the referee will be final,
binding and conclusive and judgment shall be entered pursuant to CCP 644 in the
Court. All discovery permitted by this Agreement shall be completed no later
than fifteen (15) days before the first hearing date established by the referee.
The referee may extend such period in the event of a party's refusal to provide
requested discovery for any reason whatsoever, including, without limitation,
legal objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducing
discovery. Depositions may be taken by either party upon seven (7) days written
notice, and, request for production of inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties.
b. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The prevailing party shall be entitled to an award of reasonable attorneys' fees
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<PAGE>
and other costs incurred, pursuant to California Civil Code Section 1717, as
amended. The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject to the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties expressly reserve the right to
findings of fact, conclusions of law, a written statement of decision, and the
right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
SKYMALL, INC., A NEVADA CORPORATION
By:/s/ David A. Wirthlin
---------------------------------------------
Name: David A. Wirthlin
-------------------------------------------
Title: Vice President of Finance and CFO
------------------------------------------
IMPERIAL BANK, A CALIFORNIA BANKING CORPORATION
By:/s/ R. Mark Chambers
---------------------------------------------
Name: R. Mark Chambers
-------------------------------------------
Title: Vice President
------------------------------------------
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EXHIBIT A TO CREDIT AND SECURITY AGREEMENT
REVOLVING NOTE
$5,000,000.00 Phoenix, Arizona
For value received, the undersigned, SkyMall, Inc., a Nevada corporation
(the "Borrower"), hereby promises to pay on or before December 31, 2001 to the
order of Imperial Bank, a California banking corporation, (the "Lender"), at its
office at Lending Services, No. 2560, 9920 South La Cienega Boulevard,
Inglewood, California 90301 or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Five Million Dollars
($5,000,000.00) or, if less, the aggregate unpaid principal amount of all
advances made by the Lender to the Borrower hereunder, together with interest on
the principal amount hereunder remaining unpaid from time to time, computed on
the basis of the actual number of days elapsed and a 360day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Credit and Security Agreement of even date herewith (the "Credit
Agreement") by and between the Lender and the Borrower. The principal hereof and
interest accruing thereon shall be due and payable as provided in the Credit
Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit Agreement
and the Security Documents as therein defined, and may now or hereafter be
secured by one or more other security agreements, mortgages, deeds of trust,
assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
reasonable attorneys' fees and reasonable legal expenses in the event this Note
is not paid when due, whether or not legal proceedings are commenced.
The Borrower agrees that the interest rate contracted for includes the
interest rate set forth herein plus any other charges or fees set forth herein
and costs and expenses incident to this transaction paid by the Borrower to the
extent the same are deemed interest under applicable law.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
A1
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If any payment of interest and/or principal is not received by the holder
hereof when such payment is due, then in addition to the remedies conferred upon
the holder hereof and the other loan documents, a late charge of five percent
(5%) of the amount of the installment due and unpaid will be added to the
delinquent amount to compensate the holder hereof for the expense of handling
the delinquency for any payment past due in excess of ten (10) days, regardless
of any notice and cure period.
The indebtedness evidenced hereby shall be payable in lawful money of the
United States. In any action brought under or arising out of this Note, each
obligor, including successor(s) or assign(s), hereby consents to the application
of California law, with the exception of provisions on conflicts of laws, to the
jurisdiction of any competent court within the State of California, and to
service of process by any means authorized by California law.
SKYMALL, INC., A NEVADA CORPORATION
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
A2
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EXHIBIT B TO CREDIT AND SECURITY AGREEMENT
NAMES
SkyMall, Inc.
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
1520 East Pima Street
Phoenix, Arizona 85034
OTHER INVENTORY AND EQUIPMENT LOCATIONS
1432 South 16th Street
Phoenix, Arizona 85034
SUBSIDIARIES
None
B1
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EXHIBIT C TO CREDIT AND SECURITY AGREEMENT
PERMITTED LIENS, INDEBTEDNESS AND GUARANTIES
LIENS
Those existing security interests as perfected through the following UCC1
Financing Statements, as filed with the Arizona Secretary of State, as of
December 16, 1996, covering only the collateral listed in said UCC1 Financing
Statements:
1. Arizona Wholesale Supply Co./QDI, Inc. filed March 5, 1991 at Document No.
655865
2. Handling Systems, Inc. filed April 4, 1991 at Document No. 659367
3. Eaton Financial Corporation filed March 30, 1992 at Document No. 699677
4. Imperial Business Credit filed August 30, 1993 at Document No. 756362,
pursuant to Assignment filed May 20, 1994 from AVCO Leasing
5. Leverage Leasing filed January 19, 1994 at Document No. 772389
6. American Business Credit Corporation filed April 22, 1994 at Document No.
783706
7. Amersig Graphics, Inc. filed May 17, 1994 at Document No. 786802
8. Amersig Graphics, Inc. filed July 8, 1994 at Document No. 793131
9. Bank One, Arizona, NA filed July 8, 1994 at Document No. 793146
10. Amersig Graphics, Inc. filed August 26, 1994 at Document No. 799473
11. Pitney Bowes Credit filed July 17, 1995 at Document No. 839081
12. Colonial Pacific Leasing filed March 6, 1996 at Document No. 888143
13. Colonial Pacific Leasing filed May 2, 1996 at Document No. 896115
14. Colonial Pacific Leasing filed June 13, 1996 at Document No. 921301
15. Amersig Graphics filed May 20, 1994 at Document No. 787334
16. AT&T Capital Leasing filed February 29, 1996 at Document No. 868116
The following existing security interests as perfected through the following
UCC1 Financing Statements, as filed with the Arizona Secretary of State, as of
December 16, 1996, covering only the collateral listed in said UCC1 Financing
Statements, are permitted liens ONLY THROUGH AND INCLUDING APRIL 29, 1997:
17. Saint Lawrence Holding Company filed April 20, 1994 at Document number
783315
18. Quad/Graphics, Inc. filed December 28, 1995 at Document number 860472.
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INDEBTEDNESS
Any existing indebtedness evidenced under any of the above UCC Financing
Statements, subject to the condition stated with respect to items 17 and 18
above; any existing indebtedness evidenced under that certain Sublease dated
August 1, 1984 between Smitty's Super Valu, Inc., an Iowa corporation, as
Sublessor, and Schwan Brothers Properties, an Arizona general partnership, as
Sublessee, the Borrower being the successor in interest of the Sublessee's
interest in the Sublease; and any existing indebtedness evidenced under that
certain Sublease dated April 19, 1994 between Saint Lawrence Holding Company, a
Delaware corporation, as Sublessor and Borrower as Sublessee.
GUARANTIES
None
C2
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EXHIBIT D TO CREDIT AND SECURITY AGREEMENT
COMPLIANCE CERTIFICATE
To: __________________
Imperial Bank, a California banking corporation
Date: __________________
Subject: __________________
Financial Statements
In accordance with our Credit and Security Agreement dated as of __________
(the "Credit Agreement"), attached are the financial statements of SkyMall, Inc.
(the "Borrower") for the period ending and the yeartodate period then ended (the
"Current Financials"). All terms in this certificate have the meanings given in
the Credit Agreement.
I certify that the Current Financials have been prepared in accordance with
GAAP, subject to yearend audit adjustments, and fairly present the financial
condition of the Borrower as of the date thereof.
EVENTS OF DEFAULT. (Check one):
___ The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
___ The undersigned has knowledge of the occurrence of a Default or
Event of Default under the Credit Agreement and attached hereto is a
statement of the facts with respect to thereto.
FINANCIAL COVENANTS. I further hereby certify with respect to the
Borrower's most recently ended fiscal quarter as follows:
A QUICK RATIO. Pursuant to Section 6.12 of the Credit Agreement, as
of the Reporting Date, the Borrower's Quick Ratio was ___ to 1.00, which
____ satisfies ____ does not satisfy the requirement that such ratio be no
less than 1.50 to 1.00 for the Applicable Period ending on the Reporting
Date.
B DEBT TO WORTH RATIO. Pursuant to Section 6.13 of the Credit
Agreement, as of the Reporting Date, the Borrower's Debt to Worth Ratio was
___ to 1.00, which ____
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satisfies ____ does not satisfy the requirement that such ratio be no more
than 2.00 to 1.00 for the Applicable Period ending on the Reporting Date.
C CASH FLOW RATIO. Pursuant to Section 6.14 of the Credit Agreement,
as of the Reporting Date, the Borrower's Cash Flow Ratio was times, which
____ satisfies ____ does not satisfy the requirement that such ratio be no
more than 2.5 times for the Applicable Period ending on the Reporting Date.
4. CONSECUTIVE NET LOSS. Pursuant to Section 6.15 of the Credit
Agreement, for the applicable period ending on the Reporting Date, the
Borrower ____ satisfies ____ does not satisfy the requirement that the
Borrower not incur a Net Loss in any two consecutive quarters.
Attached hereto are all relevant facts in reasonable detail to evidence,
and the computations of the financial covenants referred to above. These
computations were made in accordance with GAAP.
SKYMALL, INC., A NEVADA CORPORATION
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
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EXHIBIT E TO CREDIT AND SECURITY AGREEMENT
PREMISES
The Premises referred to in the Credit and Security Agreement are legally
described as follows:
Street address:
1520 East Pima Street
Phoenix, Arizona 85034
Legal description: see attached Exhibit E1
Street address:
1432 South 16th Street
Phoenix, Arizona, 85034
Legal description: see attached Exhibit E2
E1