SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
August 24, 2007
AIR INDUSTRIES GROUP, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 000-29245 20-4458244
State of Commission IRS Employer
Incorporation File Number I.D. Number
1479 North Clinton Avenue, Bay Shore, NY 11706
Address of principal executive offices
Registrant's telephone number: (631) 968-5000
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Introduction.
On August 24, 2007, Air Industries Group, Inc., a Delaware corporation
("we" or the "Company"), purchased (the "Welding Metallurgy Acquisition")
through a wholly-owned indirect subsidiary all of the issued and outstanding
capital stock of Welding Metallurgy, Inc. ("Welding Metallurgy"), pursuant to
that certain Stock Purchase Agreement, dated as of March 9, 2007, by and among
the Company, as purchaser thereunder, and each of John Gantt and Lugenia Gantt,
the shareholders of Welding Metallurgy and sellers thereunder (the "Sellers"),
as amended by Amendment No.1 thereto dated as of August 2, 2007 (the "Stock
Purchase Agreement"). A more detailed description of the Welding Metallurgy
Acquisition is set forth below under the heading "Item 2.01--Completion of
Acquisition or Disposition of Assets."
In consideration for the Welding Metallurgy stock, we paid the Sellers
$6,050,000, in a combination of cash and by our issuance to the Sellers of a
promissory note and restricted shares of our common stock. The cash portion of
the purchase price was provided by the proceeds of a term loan of $4,500,000
under a Loan and Security Agreement dated as of August 24, 2007 by and among our
wholly-owned subsidiaries, Air Industries Machining, Corp. ("AIM"), Sigma
Metals, Inc.("Sigma") and Welding Metallurgy, and Steel City Capital Funding LLC
(the SCCF Loan Agreement").
Also in connection with the acquisition, Welding Metallurgy entered into
a consulting agreement with John Gantt.
Item 1.01 Entry into a Material Definitive Agreement.
Loan and Security Agreement with Steel City Funding LLC
In connection with the Welding Metallurgy Acquisition, AIM, Sigma and
Welding Metallurgy entered into the SCCF Loan Agreement, under which they
borrowed $4,500,000 in connection with the Welding Metallurgy Acquisition. The
indebtedness under the SCCF Loan Agreement is junior and subordinate to the
indebtedness under our Revolving Credit, Term Loan and Security Agreement dated
as of November 30, 2005 ( the "PNC Bank Credit Facility") with the financial
institutions named therein (the "Lenders") and PNC Bank N.A., as agent for the
Lenders, as amended. We also entered into the Fourth Amendment to the PNC Bank
Credit Facility, dated as of August 24, 2007, which adds Welding Metallurgy as a
borrower under the PNC Bank Credit Facility and us as a guarantor of the
obligations under the PNC Bank Credit Facility.
Private Debt Financing -- Promissory Note
In partial consideration of the purchase of the Welding Metallurgy capital
stock, we issued to the Sellers a 7% promissory note in the principal amount of
$2,000,000 due August 31, 2011.
Consulting Agreement
Also in connection with the Welding Metallurgy Acquisition, Welding
Metallurgy entered into a consulting agreement under which John Gantt, one of
the Sellers and the former president of Welding Metallurgy, has agreed to serve
as a consultant with respect to the ongoing operations of Welding Metallurgy.
The agreement is for an initial term of three months, and will be extended
automatically for an additional three months, unless terminated by either party
and provides compensation to Mr. Gantt of $30,000 per month.
Item 2.01 Completion of Acquisition or Disposition of Assets.
On August 24, 2007 (the "Closing Date"), pursuant to the Stock Purchase
Agreement, we closed (the "Closing") the Welding Metallurgy Acquisition, by
which we acquired through a wholly-owned indirect subsidiary all of the issued
and outstanding capital stock of Welding Metallurgy. At Closing we paid the
Sellers $3,500,000 in cash, and issued to Sellers a promissory note in the
principal amount of $2,000,000 which bears no interest until August 24, 2008,
and thereafter bears interest at the rate of 7% per annum, together with
2,035,529 restricted shares of our common stock, having a value of $550,000. To
secure payment of the indebtedness under the promissory note, AIM and Sigma
pledged to the Sellers, and granted the Sellers a security interest in, all of
the outstanding shares of Welding Metallurgy, subject to the prior rights of
Steel City Capital Funding LLC. We have agreed to register for resale under the
Securities Act the shares of our common stock issued to the Sellers, at the
request of the Sellers, in connection with certain registration statements we
may file in the future. One half of the shares of our common stock issued to the
Sellers have been deposited in escrow to secure the indemnity obligations of
Sellers under the Stock Purchase Agreement for a period of eighteen months from
the Closing Date. Under the terms of the Stock Purchase Agreement, the Sellers
have agreed that they will not, for a period of five years from the Closing
Date, engage in a business which competes with ours, solicit or interfere with
our business relationships with our customers, or employ, solicit or otherwise
persuade any of our employees to discontinue or alter his or her relationship
with us.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
In connection with the Welding Metallurgy Acquisition, AIM, Sigma and
Welding Metallurgy borrowed $4,500,000 under the SCCF Loan Agreement. Borrowings
under the SCCF Loan Agreement bear interest generally at a rate of 6% over the
base commercial lending rate of PNC Bank as publicly announced to be in effect
from time to time, except under certain circumstances. To secure the payment of
the indebtedness under the SCCF Loan Agreement, AIM, Sigma and Welding
Metallurgy each granted Steel City Capital Funding LLC a security interest in
all its assets, which security interest is junior and subordinate to the
security interest granted to the Lenders under the PNC Bank Credit Facility. The
indebtedness under the SCCF Loan Agreement is junior and subordinate to the
indebtedness under the PNC Bank Credit Facility and is payable on August 24,
2010, or earlier upon the termination of the PNC Bank Credit Facility,
acceleration following the occurrence of an Event of Default (as defined) or
certain other circumstances. On the Closing Date, we also entered into the
Fourth Amendment to the PNC Bank Credit Facility, dated as of August 24, 2007,
which adds Welding Metallurgy as a borrower under that credit facility and us as
a guarantor of the obligations thereunder. To secure payment of the indebtedness
under the SCCF Loan Agreement, AIM and Sigma pledged all of the outstanding
shares of Welding Metallurgy to Steel City Capital Funding LLC. We also issued a
promissory note to the Sellers in the principal amount of $2,000,000 due August
31, 2011.
Item 3.02 Unregistered Sale of Equity Securities.
The information required by this Item 3.02 is set forth above under the
heading "Item 2.01-- Completion of Acquisition or Disposition of Assets" and in
this Item 3.02. The issuance and sale of the promissory note and shares of our
common stock to the Sellers in consideration of the purchase of all the
outstanding shares of Welding Metallurgy were exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act and Regulation D promulgated thereunder.
Item 9.01 Financial Statements and Exhibits.
Financial Statements.
(a) Financial Statements of business acquired. To be filed by amendment
not later than 71 days after the date of the filing of this Current Report.
(b) Pro forma financial information. To be filed by amendment not later
than 71 days after the date of the filing of this Current Report.
Exhibits.
Exhibit No. Description
10.1 7% Promissory Note of Registrant in the principal amount of
$2,000,000 in favor of John and Lugenia Gantt.
10.2 Consulting Agreement by and among Welding Metallurgy, Inc., Gantt
Associates Ltd. and John Gantt, dated as of August 24, 2007.
10.3 Escrow Agreement dated as of August 24, 2007 by and among the
Registrant, John and Lugenia Gantt and Eaton & Van Winkle LLP, as
escrow agent.
10.4 Registration Rights Agreement dated as of August 24, 2007 by and
among the Registrant and John and Lugenia Gantt.
10.5 Fourth Amendment to the Revolving Credit, Term Loan and Security
Agreement dated as of November 30, 2005 with the financial
institutions named therein (the "Lenders") and PNC Bank N.A., as
agent for the Lenders, as amended, dated as of August 24, 2007.
10.6 Loan and Security Agreement dated as of August 24, 2007 among Air
Industries Machining, Corp., Sigma Metals, Inc., Welding
Metallurgy, Inc. and Steel City Capital Funding LLC.
10.7 Pledge Agreement dated as of August 24, 2007 by and among Air
Industries Machining, Corp. and Sigma Metals, Inc., as pledgors,
and Steel City Capital Funding LLC., as pledgee.
10.8 Pledge Agreement dated as of August 24, 2007 by and among Air
Industries Machining, Corp. and Sigma Metals, Inc., as pledgors,
and John and Lugenia Gantt, as pledgees.
10.9 Pledge Agreement dated as of August 24, 2007 by and between Air
Industries Group, Inc., as pledgor, and Steel City Capital
Funding LLC, as pledgee.
10.10 Guarantor Suretyship Agreement dated as of August 24, 2007
between the Registrant and Steel City Capital Funding LLC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 28, 2007
AIR INDUSTRIES GROUP, INC.
By: /s/ Peter Rettaliata
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Peter Rettaliata
Chief Executive Officer
Exhibit Index
Exhibit No. Description
10.1 7% Promissory Note of Registrant in the principal amount of
$2,000,000 in favor of John and Lugenia Gantt.
10.2 Consulting Agreement by and among Welding Metallurgy, Inc., Gantt
Associates Ltd. and John Gantt, dated as of August 24, 2007.
10.3 Escrow Agreement dated as of August 24, 2007 by and among the
Registrant, John and Lugenia Gantt and Eaton & Van Winkle LLP, as
escrow agent.
10.4 Registration Rights Agreement dated as of August 24, 2007 by and
among the Registrant and John and Lugenia Gantt.
10.5 Fourth Amendment to the Revolving Credit, Term Loan and Security
Agreement dated as of November 30, 2005 with the financial
institutions named therein (the "Lenders") and PNC Bank N.A., as
agent for the Lenders, as amended, dated as of August 24, 2007.
10.6 Loan and Security Agreement dated as of August 24, 2007 among Air
Industries Machining, Corp., Sigma Metals, Inc., Welding
Metallurgy, Inc. and Steel City Capital Funding LLC.
10.7 Pledge Agreement dated as of August 24, 2007 by and among Air
Industries Machining, Corp. and Sigma Metals, Inc., as pledgors,
and Steel City Capital Funding LLC., as pledgee.
10.8 Pledge Agreement dated as of August 24, 2007 by and among Air
Industries Machining, Corp. and Sigma Metals, Inc., as pledgors,
and John and Lugenia Gantt, as pledgees.
10.9 Pledge Agreement dated as of August 24, 2007 by and between Air
Industries Group, Inc., as pledgor, and Steel City Capital
Funding LLC, as pledgee.
10.10 Guarantor Suretyship Agreement dated as of August 24, 2007
between the Registrant and Steel City Capital Funding LLC.
Exhibit 10.1
SUBORDINATED PROMISSORY NOTE
$2,000,000.00 August 24, 2007
New York, New York
For good and valuable consideration, the receipt of which is hereby
acknowledged, Air Industries Group, Inc., a Delaware corporation (the
"Company"), promises to pay to the order of John Gantt and Lugenia Gantt or
their assigns (collectively, the "Holder"), the principal sum of Two Million
Dollars ($2,000,000.00), as such amount may be increased pursuant to Section
1(d) of this Note, together with interest thereon as provided for herein, which
shall be payable (i) in one instalment in the principal amount of $500,000 due
on August 24, 2008 and (ii) twelve consecutive quarterly installments of
principal in the amount of one-hundred twenty-five thousand dollars, commencing
on the November 30, 2008 and continuing through August 31, 2011, as such amount
may be increased pursuant to Section 1(d) of this Note, plus accrued interest
thereon from August 24, 2008, payable on the last business day of each February,
May, August and November, commencing November 28, 2008, and continuing through
and including August 31, 2011, or, if earlier, (ii) when, upon or after the
occurrence of an Event of Default (as defined below), such amount is declared
due and payable by the Holder or made automatically due and payable in
accordance with the terms hereof (the "Maturity Date").
Interest shall be accrue on any portion of the principal amount of this
Note outstanding from time to time until payment thereof in full, at a simple
rate of seven percent (7%) per annum, commencing on August 24, 2008.
Notwithstanding the foregoing, effective upon and during the continuance of
occurrence of an Event of Default (as hereinafter defined), the outstanding
balance of any amount owed under this Note shall bear interest ("Default
Interest") at the rate of eleven percent (11%) per annum, with the Default
Interest accruing from and including such date of the occurrence of an Event of
Default. Interest shall be calculated on the basis of a 365/366 day year and the
actual number of days elapsed. In no event shall the Holder hereof, or any
permitted successor or assign, be entitled to receive, collect or retain any
amount of interest paid hereon in excess of that permitted by applicable law.
This Note may be prepaid in whole or in part at any time. All payments
made pursuant to this Note shall be applied first to reimbursable expenses
(including the expenses and costs described in Section 4(f) below), interest
accrued, if any, and then principal.
This Note is issued pursuant to that certain Stock Purchase Agreement,
dated as of March 9, 2007, as amended by Amendment No.1 thereto dated as of
August 2, 2007 (the "Stock Purchase Agreement"), entered into between the
Company and the Holder.
The following is a statement of rights of the Holder and the conditions to
which this Note is subject, and to which the Holder, by acceptance of this Note,
agrees:
1. Subordination. (a) This Note will be subordinate and inferior to the
Company's Senior Indebtedness (as hereinafter defined). The Company for itself,
its successors and assigns, covenants and agrees and the Holder of this Note,
for himself, his successors and assigns, by his acceptance of this Note likewise
covenants and agrees that, to the extent provided
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below, the payment of all amounts due pursuant to this Note is hereby expressly
subordinated and junior in right of payment to the extent and in the manner
hereinafter set forth, to the Company's Senior Indebtedness. As used herein, the
term "Senior Indebtedness" shall mean the principal of, and interest and
premium, if any, on any and all, (i) indebtedness of the Company for borrowed
money or obligations with respect to which the Company is a guarantor, to banks,
insurance companies, or other financial institutions or entities regularly
engaged in the business of lending money, in each case as in effect as of the
date hereof or as may be borrowed hereafter for working capital of the Company
or one of its subsidiaries, or the acquisition by the Company of one or more
businesses, and (ii) any such indebtedness or any debentures, notes or other
evidence of indebtedness issued in exchange for or to refinance such Senior
Indebtedness, or any indebtedness arising from the satisfaction of such Senior
Indebtedness by a guarantor, provided that such indebtedness issued in exchange
for or to refinance Senior Indebtedness or arising from the satisfaction of
Senior Indebtedness by a Guarantor is on commercially reasonable terms as of the
date of incurrence not to exceed the principal amount under such Senior
Indebtedness and provided further that the Company provides the Holder with
prior written notice of such action.
(b) Upon the acceleration of any Senior Indebtedness or upon the
maturity of all or any portion of the principal amount of any Senior
Indebtedness by lapse of time, acceleration or otherwise, all such Senior
Indebtedness which has been so accelerated or matured shall first indefeasibly
be paid in full before any payment is made by the Company or any person acting
on behalf of the Company on account of any obligations evidenced by this Note.
(c) The Company shall not pay any principal portion of this Note, or
interest accrued thereon, before the scheduled due date thereof if at such time
there exists a Blockage Event (as hereafter defined) and written notice thereof
has been given to the Company and the Holder by the holders of the Senior
Indebtedness.
(d) A "Blockage Event" is deemed to exist for the period of time
commencing on the date of receipt by the Holder of written notice of the
occurrence of a Default or an Event of Default (as defined in the instruments
evidencing the Senior Indebtedness), which notice shall specify such Default or
Event of Default, and ending on:
(i) the date such Default or Event of Default under the Senior
Indebtedness, as applicable, is cured or waived, provided that such Default or
Event of Default is in the payment of any amount due thereunder; or
(ii) in the case of any other Default or Event of Default
under the Senior Indebtedness, the earlier of (A) the date on which such Default
or Event of Default shall have been cured or waived and (B) the date that is 180
days after the occurrence of such Default or Event of Default, provided that a
Blockage Event with respect to a single specified Default or Event of Default
may be deemed to occur only once for each twelve-month period, provided,
further, that no Default or Event of Default that existed at the commencement
of, or during the pendency of, a Blockage Event shall serve as the basis for the
institution of any subsequent Blockage Event.
The Holder has the right, but not the obligation, to cure any such Default
or Event of Default under Senior Indebtedness to the extent it can be
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cured by the payment of money. If the Holder shall have cured any such Default
or Event of Default under Senior Indebtedness to the extent such Default or
Event of Default can be cured by the payment of money, then such amount of
interest as shall have accrued on this Note during the continuance of the
Blockage Event (each, an "Additional Principal Amount") shall be added to the
aggregate principal amount then owing to the Holder pursuant to this Note. The
Company shall pay equal quarterly installments of each Additional Principal
Amount pursuant to the first paragraph of this Note from the date such
Additional Principal Amount is incurred pursuant to the first paragraph through
and including August 31, 2011, subject to all principal amounts being declared
due and payable or made automatically due and payable when, upon or after the
occurrence of an Event of Default under this Note.
(e) At any time there exists a Blockage Event, (i) the Company shall
not, directly or indirectly, make any payment of any part of this Note, (ii) the
Holder shall not demand or accept from the Company or any other person any such
payment or cancel, set-off or otherwise discharge any part of the indebtedness
represented by this Note, and (iii) neither the Company nor the Holder shall
otherwise take or permit any action prejudicial to or inconsistent with the
priority position of any holder of Senior Indebtedness over the Holder of this
Note.
(f) No right of any holder of Senior Indebtedness to enforce the
subordination provisions of this obligation shall be impaired by any act or
failure to act by the Company or the Holder or by their failure to comply with
this Note or any other agreement or document evidencing, related to or securing
the obligations hereunder. Without in any way limiting the generality of the
preceding sentence, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Holder, without incurring
responsibility to the Holder and without impairing or releasing the
subordination provided in this Note or the obligations of the Holder to the
holders of Senior Indebtedness, do any one or more of the following: (i) change
the manner, place or terms of payment of any Senior Indebtedness provided that
such change does not materially impact Holder in an adverse manner; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing any Senior Indebtedness; (iii) release any person or entity
liable in any manner for the collection of any Senior Indebtedness; and (iv)
exercise or refrain from exercising any rights against the Company or any other
person or entity.
(g) In the event that the Company shall make any payment or
prepayment to the Holder on account of the obligations under this Note which is
prohibited by this Section, such payment shall be held by the Holder, in trust
for the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Indebtedness (pro rata as to each of such holders on the basis
of the respective amounts and priorities of Senior Indebtedness held by them) to
the extent necessary to pay all Senior Indebtedness due to such holders of
Senior Indebtedness in full in accordance with its terms (whether or not such
Senior Indebtedness is due and owing), after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.
(h) After all Senior Indebtedness indefeasibly is paid in full and
until the obligations under the Note are paid in full, the Holder shall be
subrogated to the rights of holders of Senior Indebtedness to the extent that
distributions otherwise payable to the Holder have been applied to the payment
of Senior Indebtedness. For purposes of such subrogation, no payments or
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distributions to holders of such Senior Indebtedness of any cash, property or
securities to which the Holder would be entitled except for the provisions of
this Section and no payment over pursuant to the provisions of this Section to
holders of such Senior Indebtedness by the Holder, shall, as between the
Company, its creditors other than holders of such Senior Indebtedness, and the
Holder, be deemed to be a payment by the Company to or on account of such Senior
Indebtedness, it being understood that the provisions of this Section are solely
for the purpose of defining the relative rights of the holders of such Senior
Indebtedness, on the one hand and the Holder, on the other hand.
(i) In any insolvency, receivership, bankruptcy, dissolution,
liquidation or reorganization proceeding, or in any other proceeding, whether
voluntary or involuntary, by or against the Company under any bankruptcy or
insolvency law or laws relating to relief of debtors, to compositions,
extensions or readjustments of indebtedness:
(i) the claims of any holders of Senior Indebtedness against
the Company shall be paid indefeasibly in full in cash or such payment shall
have been provided for in a manner acceptable to the holders of at least a
majority of the then outstanding principal amount of the Senior Indebtedness
before any payment is made to the Holder;
(ii) until all Senior Indebtedness is indefeasibly paid in
full in cash or such payment shall have been provided for in a manner acceptable
to the holders of at least a majority of the then outstanding principal amount
of the Senior Indebtedness before any payment is made to the Holder, any
distribution to which the Holder would be entitled but for this Section shall be
made to holders of Senior Indebtedness, except for distribution of securities
issued by the Company which are subordinate and junior in right of payment to
the Senior Indebtedness; and
(iii) the holders of Senior Indebtedness shall have the right
to enforce, collect and receive every such payment or distribution and give
acquittance therefor. If, in or as a result of any action case or proceeding
under Title 11 of the United States Code, as amended from time to time, or any
comparable statute, relating to the Company, the holders of the Senior
Indebtedness return, refund or repay to the Company, or any trustee or committee
appointed in such case or proceeding receive any payment or proceeds of any
collateral in connection with such action, case or proceeding alleging that the
receipt of such payments or proceeds by the holders of the Senior Indebtedness
was a transfer voidable under state or federal law, then the holders of the
Senior Indebtedness shall not be deemed ever to have received such payments or
proceeds for purposes of this Note in determining whether and when all Senior
Indebtedness has been paid in full and the Company shall pay or cause to be
paid, and the Holder shall be entitled to receive any such funds, proceeds or
collateral to satisfy all amounts due hereunder.. In the event the holders of
Senior Indebtedness receive amounts in excess of payment in full (cash) of
amounts outstanding in respect of Senior Indebtedness (without giving effect to
whether claims in respect of the Senior Indebtedness are allowed in any
insolvency proceeding), the holders of Senior Indebtedness shall pay such excess
amounts to the Holder.
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(k) By its acceptance of this Note, the Holder agrees to execute and
deliver such documents as may be reasonably requested from time to time by the
Company or the holder of any Senior Indebtedness in order to implement the
foregoing provisions of this Section.
2. Events of Default. If any of the events specified in this Section shall
occur (herein individually referred to as an "Event of Default"), the Holder
may, so long as such condition exists, in addition to any other right, power or
remedy granted to the Holder under this Note, the Stock Purchase Agreement, the
Security Agreement (as hereinafter defined), or applicable law, either by suit
in equity or by action at law, or both, declare the entire principal amount (and
accrued interest thereon) and all other amounts immediately due and payable,
without presentment, demand or notice of any kind, all of which are expressly
waived, provided, however, that upon the occurrence of any Event of Default
described in Section 2(c) or 2(d) hereof, the entire principal amount (and
accrued interest thereon) and all other amounts shall automatically become due
and payable:
(a) Payment of any portion of the principal of this Note or interest
accrued thereon shall be delinquent for a period of 10 days or more after the
due date thereof;
(b) If the Company shall fail to observe any covenant or other
provision contained in this Note (other than with respect to payment), the Stock
Purchase Agreement or the Security Agreement and such failure of observance
shall be continuing for 10 days after the Holder has given written notice
thereof;
(c) The institution by the Company of proceedings to be adjudicated
as bankrupt or insolvent, or the consent by it to institution of bankruptcy or
insolvency proceedings against it or the filing by it of a petition or answer or
consent seeking reorganization or release under the federal Bankruptcy Act, or
any other applicable federal or state law, or the consent by it to the filing of
any such petition or the appointment of a receiver, liquidator, assignee,
trustee or other similar official of the Company, or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the taking of corporate action by the Company in furtherance of any such
action;
(d) If, within 45 days after the commencement of an action against
the Company (and service of process in connection therewith on the Company)
seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or
similar relief under any present or future statute, law or regulation, such
action shall not have been resolved in favor of the Company or all orders or
proceedings thereunder affecting the operations or the business of the Company
stayed, or if the stay of any such order or proceeding shall thereafter be set
aside, or if there is appointed without the consent or acquiescence of the
Company of any trustee, receiver or liquidator of the Company or of all or any
substantial part of the properties of the Company, such appointment shall not
have been vacated;
(e) Any declared default of the Company under any Senior
Indebtedness whether now existing or hereafter created that gives the holder
thereof the right to accelerate such Senior Indebtedness, and such Senior
Indebtedness is in fact accelerated by the holder.
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(f) One or more judgments for the payment of money in an amount in
excess of $100,000 in the aggregate shall be rendered against the Company or any
of its subsidiaries (or any combination thereof) and shall remain undischarged
for a period of ten consecutive days during which execution shall not be
effectively stayed, or any action is legally taken by a judgment creditor to
levy upon any such judgment; or
(g) Any representation or warranty made by the Company in the
Security Agreement or any other agreement between the Company and Holder is
false or incorrect in any material respect when made.
4. Miscellaneous.
(a) Waiver and Amendment. The rights and remedies herein reserved to
any party shall be cumulative and in addition to any other or further rights and
remedies available at law or in equity. The waiver by any party hereto of any
breach of any provision of this Note shall not be deemed to be a waiver of the
breach of any other provision or any subsequent breach of the same provision.
This Note and its terms may be changed, waived or amended only by the written
consent of the Company and the Holder and, if any such change, waiver, or
amendment is with respect to the subordination provisions, the holders of at
least a majority in the then-outstanding principal amount of the Senior
Indebtedness.
(b) Governing Law. This Note shall be governed by and construed in
accordance with the law of the State of New York without regard to conflict of
law provisions. Any legal suit, action or proceeding arising out of or based
upon this Note shall be instituted in any federal or state court only in the
County of Suffolk, State of New York. The aforementioned choice of venue is
intended to be mandatory and not permissive in nature, thereby precluding the
possibility of litigation arising out of this Note in any jurisdiction other
than that specified in this Section. The Holder and the Company each waive, to
the fullest extent permitted by applicable law, any right it may have to assert
the doctrine of forum non conveniens or similar doctrine or to object to venue
with respect to any proceeding brought in accordance with this Section, and
stipulates that the state and federal courts located in the City and County of
New York, State of New York, shall have in personam jurisdiction and venue over
them for the purpose of litigation any dispute, controversy or proceeding
arising out of or related to this Note.
(c) Successors and Assigns. All of the terms and provisions of this
Note shall be binding upon and inure to the benefit of the parties hereto and
their respective successors, heirs and permitted assigns.
(d) Headings. The section headings contained in this Note are
intended solely for convenience of reference and do not themselves constitute a
part of this Note.
(e) Severability. In case any provision contained herein (or part
thereof) shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or other unenforceability shall not
affect any other provision (or the remaining part of the affected provision)
hereof; but this Note shall be construed as if such invalid, illegal, or
unenforceable provision (or part thereof) had never been contained herein, but
only to the extent that such provision is invalid, illegal, or unenforceable.
6
(f) Costs of Collection. The Company shall reimburse Holder for all
reasonable costs and expenses, including without limitation, reasonable
attorneys' fees and expenses, incurred in connection with (i) drafting,
negotiating, executing and delivering any amendment, modification or waiver of,
or consent with respect to, any matter relating to the rights of Holder
hereunder; (ii) creating, perfecting and maintaining perfection of the Liens (as
defined in the Security Agreement) and security interests in the Collateral (as
defined in the Security Agreement) in favor of the Holder and (iii) enforcing
any provisions of this Note or the Security Agreement and/or collecting any
amounts due under this Note.
(g) Notices. All notices, requests, demands or other communications
which are required to be or may be given or permitted hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person or
after dispatch by a recognized overnight courier to the appropriate party to
whom the same is so given or made:
To Holder at: John Gantt
Lugenia Gantt
183 Montecito Crescent
Melville, New York 11747
with a copy to: Ruskin Moscou Faltischek, P.C.
1425 Rexcorp Plaza
East Tower, 15th Floor
Uniondale, New York 11556
Attention: Adam P. Silvers, Esq.
To Company at: Air Industries Group, Inc.
1479 North Clinton Avenue
Bay Shore, NY 11706
or to such other address as a party has designated by notice in writing to the
other party in the manner provided by this Section. All such notices, requests,
demands or other communications shall be deemed to have been received on the
date of delivery thereof (if delivered by hand) and on the next day after
sending thereof (if by overnight courier).
(h) Assignment by the Company. Neither this Note nor any of the
rights, interests or obligations hereunder may be assigned, by operation of law
or otherwise, in whole or in part, by the Company, without the prior written
consent of the Holder.
(i) No Set-Off. All payments by the Company under this Note shall be
made free and clear of and without any deduction for or on account of any
set-off or counterclaim.
(j) Waiver of Presentment, Demand, Etc. To the fullest extent
permitted by applicable law, the Company expressly waives presentment, demand,
protest, notice of dishonor, notice of non-payment, notice of maturity, notice
of protest, presentment for the purpose of accelerating maturity of the
obligations under this Note, diligence in collection, and the benefit of any
exemption or insolvency laws.
7
(k) Senior Lenders. For so long as any amount shall be outstanding
hereunder, upon request of a Holder the Company shall promptly advise the Holder
of the identity of the holders of the Senior Indebtedness and of the amount,
principal and interest, due each such lender.
(l) Blockage Event. Within ten days of the occurrence thereof, the
Company shall advise each Holder of the occurrence of a Blockage Event and of
the termination of a Blockage Event.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
and issued as of the date first written above.
AIR INDUSTRIES GROUP, INC.
By: /s/ Peter D. Rettaliata
---------------------------
Name: Peter D. Rettaliata
Title: CEO and President
8
Exhibit 10.2
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement"), dated as of the 24th day of
August, 2007, by and between Welding Metallurgy Inc., a New York corporation
with an address c/o Air Industries Group, Inc., 1479 Clinton Avenue, Bay Shore,
New York, 11706 ("WMI" or the "Company") and Gantt Associates LTD, a New York
corporation having an office at 31 & 31A Lamar Streeet, West Babylon, New York
("Gantt Associates") and John Gantt, an individual having an address at 183
Montecito Crescent Melville, New York (the "Consultant"). WMI, Gantt Associates
and the Consultant are hereinafter sometimes individually referred to as a
"Party" and jointly as the "Parties."
RECITALS:
WHEREAS, WMI desires that Gantt Associates make the services of the
Consultant available to serve as a consultant and the Consultant desires to
serve WMI in such capacity on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Parties hereto, intending to be legally bound, agree as
follows:
1. Engagement. WMI hereby engages Gantt Associates to make the Consultant
available to serve as a consultant and the Consultant agrees to serve in such
capacity. During the Term (as hereinafter defined), Consultant shall report
directly to WMI's President, or to such person(s) as may be directed by WMI's
President, and shall discharge to the best of his abilities all duties and
responsibilities as may be reasonably assigned to him from time to time. During
the Term, the Consultant shall be required to devote no more than twenty (20)
hours of work per week, it being further agreed that when practicable, the
Company shall allow the Consultant to provide his services by telephonic
communication.
2. Term. The initial term of the engagement under this Agreement shall be
for a period of approximately three months commencing on the date hereof and
ending on November 24, 2007 (the "Initial Term"). Upon expiration of the Initial
Term, the engagement under this Agreement shall continue for an additional three
month period unless either Gantt Associates or the Company gives written notice
to the other no later than November 1, 2007, of his or its determination to
allow this Agreement to expire as of the end of the Initial Term. The engagement
under this Agreement shall terminate immediately upon the death of the
Consultant or upon the onset of any disability which prevents the Consultant
from rendering services to WMI. The period during which Gantt Associates is
engaged by WMI is referred to as the "Term."
3. Compensation. The compensation for the services to be provided to WMI
hereunder during the Term shall be Thirty Thousand Dollars ($30,000.00) per
month, payable to Gantt Associates in accordance with WMI's regular payroll
practices, but no less frequently than twice a month and no later than the end
of the month during which services are rendered. If the first or the last month
of the Term begins or ends other than on the first or last day of a calendar
month the amount due Gantt Associates for services rendered during such month
shall be pro-rated based upon the number of days in such month during which the
Consultant is engaged by WMI.
In addition to the foregoing, WMI shall promptly reimburse Gantt
Associates for all expenses incurred by it in
the performance of its duties hereunder, including, without limitation, those
incurred for business travel, provided that without the prior consent of the
President of WMI Consultant shall not incur more than $2,000 of expenses in any
month and further provided that Gantt Associates provides the Company with such
receipts or other evidence of its expenses as are required by the Company's
policies.
4. Nonsolicitation of Customers and Employees. At all times during the
Term and for a period of five (5) years from the date hereof, (a) the Consultant
shall not, directly or indirectly, for himself or on behalf of or in conjunction
with any other person, solicit or attempt to solicit the business or patronage
of any customer of the Company on behalf of a business which provides products
or services competitive with those of WMI, nor shall Consultant interfere with
the business relationship of WMI with any customer of WMI, and (b) the
Consultant shall whether individually, as a director, manager, member,
stockholder, partner, owner, employee, consultant or agent of any business, or
in any other capacity, directly or indirectly, employ, solicit, disturb, entice
away, or in any other manner persuade any employee of WMI or its affiliated
entities (the "Corporation") to discontinue or alter his or her relationship
with the Corporation.
5. Noncompetition. At all times during the Term and for a period of five
(5) years from the date hereof, the Consultant whether individually, as a
director, manager, member, stockholder, partner, owner, employee, consultant or
agent of any business, or in any other capacity, shall not engage, directly or
indirectly through any other person, in any business, enterprise or employment
which competes with the business of the Corporation as conducted on the date
hereof. The Consultant acknowledges and agrees that the business of the
Corporation is of a worldwide nature and that any geographic limitation on the
foregoing covenant would be ineffective to adequately protect the interests of
the Corporation. The Consultant further acknowledges and agrees that the
foregoing covenant is an integral part of his agreement to be engaged hereunder,
is fair and reasonable in light of all of the facts and circumstances of the
relationship between the Consultant, WMI and the Corporation. In the event any
court of competent jurisdiction determines that, notwithstanding the foregoing
acknowledgments, the scope of the restricted activities of the foregoing
covenant is excessive or not enforceable, or that the foregoing covenant is not
enforceable unless it is subject to a geographic limitation, this Agreement
shall be deemed amended to reflect the maximum restrictions on activities and
geographic scope allowable pursuant to such court's determination.
WMI acknowledges that Consultant is a certified welding inspector and that
nothing contained herein shall be deemed to prevent him from acting as a welding
inspector for any entity not engaged in a business competitive with that of the
Company or, in any event for any of Northrop Grumman, Boeing Corp., Lockheed
Martin, Senior Flexonic and Sandia Laboratories. Further, Consultant shall be
permitted to perform welding inspection services for businesses competitive with
2
the Company so long as Consultant provides no other services to any such entity
and upon request of WMI advises such entity of the restrictions contained
herein. To the extent that there is an inconsistency or ambiguity between this
section and Section 7.1 of that certain Stock Purchase Agreement dated as of
March 9, 2007 by and between Air Industries Group, Inc. ("Air Industries"),
formerly, Gales Industries Incorporated, and John Gantt and Lugenia Gantt, the
terms of this Agreement shall govern.
6. Promissory Note. The Parties and the Consultant agree that the
covenants contained in Sections 4 and 5 of this Agreement shall terminate in the
event of a default by Air Industries Group, Inc. under that certain Subordinated
Promissory Note pursuant to which Air Industries has agreed to pay to the
Consultant and Lugenia Gantt or their assigns, the principal sum of Two Million
Dollars ($2,000,000.00).
7. Protection of Confidential Information. Consultant acknowledges that he
has been and will be provided with information about, and his engagement by WMI
will, throughout the Term, bring him into close contact with, many confidential
affairs of the Corporation, including proprietary information about the business
of the Corporation for example, but not by way of limitation, costs, finances,
internal financial statements, projections, markets, sales, customers, vendors,
products, key personnel, operational methods, formulas, methods of production,
technical processes and methods, plans for future developments, software, data
bases, computer programs, specifications, documentation, designs, trade secrets,
technology, know-how, research and development, inventions, patents and
copyrights (and any renewals, reissues, extensions, divisions, continuations and
continuations in part thereof and registrations, applications, patents of
addition and inventors certificates) and other information not available to the
public (collectively "Confidential Information"), all of which are highly
confidential and proprietary and all of which were or will be developed or
acquired by the Corporation great effort and expense. Consultant further
acknowledges that the services to be performed by him under this Agreement are
of a special unique, unusual, extraordinary and intellectual character and that
the nature of the relationship of Consultant with the Corporation is such that
Consultant is capable of competing with the Corporation. In recognition of the
foregoing, Consultant agrees that during the Term and thereafter he will:
(a) keep secret all Confidential Information of the Corporation and
not disclose the same to anyone outside of the Corporation except in
furtherance of WMI's affairs or with WMI's prior written consent;
(b) not make use of any of such Confidential Information for his own
purposes or the benefit of anyone other than the Corporation, provided,
however, that the restrictions contained in clauses (a) and (b) shall not
apply at any time to Confidential Information which is then in the public
domain (provided the Consultant was not responsible directly or indirectly
for the fact that such secrets or information have entered the public
domain without WMI's consent), and that these restrictions shall not apply
to Confidential Information that is required to be disclosed by law, by
subpoena or by any government, regulatory or self regulatory body,
provided the Consultant uses reasonable efforts to advise WMI of the
prospective disclosure of Confidential Information and discloses only such
Confidential Information which counsel advises needs to be disclosed; and
3
(c) deliver promptly to WMI on termination of this Agreement, or at
any time WMI may so request, all Confidential Information, including but
not limited to memoranda, notes, records, computer software discs, reports
and other confidential documents (and all copies thereof) relating to the
business and affairs of the Corporation, that he may then possess or have
under his control, except that he may retain personal notes, notebooks,
journals and diaries provided that such materials do not contain
Confidential Information.
8. Property Rights and Inventions. All rights in and to all data,
information, reports, inventions, know-how, improvements, designs, devices,
apparatus, practices, processes, methods or products, whether patentable or not,
which are made, developed, perfected, devised, conceived or first reduced to
practice by Consultant either solely or jointly with others, derived in whole or
in part from Confidential Information (the "Inventions") (i) shall be and remain
the sole and exclusive property of WMI, (ii) shall be considered trade secrets
of WMI subject to the confidential requirement herein, and (iii) shall remain
free of any claim of Consultant or any person deriving any rights or interest
from Consultant.
9. Specific Remedies. It is understood by the Consultant that the
covenants contained in Sections 4, 5, 6 and 7 are essential elements of this
Agreement and that, but for the agreement of the Consultant to comply with such
covenants, WMI would not have agreed to enter into this Agreement. The
Consultant acknowledges that the Corporation may have no adequate remedy at law
if he violates any of the terms of Sections 4, 5, 6 or 7. The Consultant
therefore understands and agrees that the Corporation shall have, without
prejudice as to any other remedies, the right upon application to any court of
proper jurisdiction and without posting of any bond or other security
whatsoever, to a temporary restraining order, preliminary injunction,
injunction, specific performance or other equitable relief, it being
acknowledged and agreed that any such breach will cause irreparable injury to
the Corporation and that money damages will not provide an adequate remedy to
the Corporation.
10. Independent Contractor. This Agreement does not create an
employer/employee relationship between the Consultant and WMI. The Consultant
agrees that he renders all services hereunder as an independent contractor and
not as an employee or agent of WMI. The Consultant also agrees that he shall not
have any rights to receive any employee benefits, such as health and accident
insurance, sick leave or vacation as are in effect generally for employees of
WMI. The Consultant will not enter into any agreements or incur obligations on
behalf of WMI nor commit WMI in any other manner without prior written consent
from a duly authorized officer or representative of WMI.
11. Conflicts of Interests. Gantt Associates represents and warrants that
it has the full power and right to enter into this Agreement and that there are
no outstanding agreements, assignments, licenses, encumbrances or rights in
other parties, private or public, which might interfere with, or preclude the
carrying out of, the obligations under this Agreement.
12. Successors; Binding Effect; Third Party Beneficiaries. WMI may assign
this Agreement in whole or in part without the Consultant's consent. No
assignment shall enlarge or expand the scope of the Consultant's services
hereunder without the prior written consent of the Consultant.
4
This Agreement is personal to Gantt Associates and the Consultant
and, without the prior written consent of WMI, shall not be assignable by Gantt
Associates or the Consultant. Air Industries and its subsidiaries shall each be
deemed third party beneficiaries of this Agreement with the right to enforce the
provisions of Sections 4,5,6 and 7 hereof. Except for the foregoing, this
Agreement shall not create any rights in favor of any party other than the
parties hereto or their respective successors and assigns.
13. Law Governing; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (without giving
effect to the principles of conflicts of law). The Parties agree that the
federal or state courts located in the State of New York shall have exclusive
jurisdiction in connection with any dispute arising out of this Agreement. Any
litigation proceeding under this Agreement shall be confidential in nature to
the fullest extent permitted by applicable law.
14. Severability. If any provision of this Agreement, or any part of any
of them, is hereafter construed or adjudicated to be invalid or unenforceable,
the same shall not affect the remainder of the covenants or rights or remedies
which shall be given full effect without regard to the invalid portions provided
that as so construed each of the parties receives substantially all of the
benefits and remains subject to all of the burdens contemplated hereby. If any
of the covenants set forth herein is held to be invalid or unenforceable because
of the duration of such provision or the area covered thereby, the parties agree
that the court making such determination shall have the power to reduce the
duration and/or area of such provision and in its reduced form said provision
shall then be enforceable.
15. Headings. The headings of this Agreement are for convenience of
reference only and shall not affect in any manner any of the terms and
conditions hereof.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same agreement.
17. Modifications and Waivers. No term, provision or condition of this
Agreement may be modified or discharged unless such modification or discharge is
agreed to in writing and signed by each of the Parties hereto. No waiver by
either Party hereto of any breach by the other party hereto of any term,
provision or condition of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
18. Entire Agreement. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter herein and supersedes all
prior agreements, negotiations and discussions between the parties hereto, there
being no extraneous agreements. This Agreement may be amended only in writing
executed by the parties hereto affected by such amendment.
5
19. Notices. Any notice or other written communications required or
permitted to be given or made under this Agreement shall be given or made by
either Party to the other in writing and shall be delivered by personal service
or first class mail, postage prepaid, or overnight courier addressed to a Party
at the address set forth above or at such other address as one Party may give
notice of to the other Party. Notices or written communications shall be deemed
to have been sufficiently given or made: (i) if by personal service, when
performed; (ii) if mailed, three (3) days after being deposited in the mail,
postage prepaid; or (iii) if by overnight courier, one (1) day after delivery to
the overnight courier company.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
day and year first set forth above.
WELDING METTALURGY INC.
By: /s/ Peter D. Rettaliata
---------------------------
Name: Peter D. Rettaliata
Title: President
GANTT ASSOCIATES LTD
By: /s/ John Gantt
---------------------------
Name: John Gantt
Title: President
By: /s/ John Gantt
---------------------------
JOHN GANTT
6
Exhibit 10.3
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is made and entered into as of
August 24, 2007, by and among Air Industries Group, Inc. (formerly known as
Gales Industries Incorporated), a Delaware corporation (the "Purchaser"), John
Gantt and Lugenia Gantt (the "Sellers"), and Eaton & Van Winkle LLP (the "Escrow
Agent").
WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as of
March 9, 2007, as amended by Amendment No 1. to the Stock Purchase Agreement
dated as of August 2, 2007 (the "Purchase Agreement"), by and between the
Purchaser and the Sellers, the Purchaser has agreed to purchase, and the
Sellers, who own all of the outstanding capital stock of Welding Metallurgy,
Inc. (the "Company"), have agreed to sell and transfer to the Purchaser, all of
the outstanding shares of common stock of the Company in exchange for
consideration ("Consideration"), consisting of cash amounts and newly issued
shares of the Purchaser's common stock, $.001 par value per share (the
"Purchaser Common Stock") and otherwise on the terms and conditions set forth in
the Purchase Agreement (such transaction, the "Acquisition");
WHEREAS, as an inducement for the Purchaser to enter into the Purchase
Agreement, Purchaser has required that certificates for an aggregate of
1,017,764 of the shares of Purchaser Common Stock representing the Consideration
(the "Escrow Shares") be deposited with the Escrow Agent to provide the
Purchaser collateral security for the indemnity obligations of the Sellers to
the Purchaser under the Purchase Agreement, subject to the terms and conditions
set forth herein;
WHEREAS, the Purchaser, the Sellers and the Escrow Agent desire to set
forth the terms and conditions pursuant to which the Escrow Shares will be held
by the Escrow Agent and disbursed to Purchaser and/or the Sellers, as the case
may be.
NOW, THEREFORE, in consideration of the mutual premises, agreements and
covenants set forth herein and in the Purchase Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending legally to be bound, hereby agree as
follows. Any capitalized terms used herein and not otherwise defined shall have
the meanings given to such terms in the Purchase Agreement.
1. The Purchaser and each of the Sellers does hereby appoint and designate
the Escrow Agent as Escrow Agent for the purposes set forth herein, and Escrow
Agent does hereby accept such appointment under the terms and conditions set
forth herein.
2. (a) Simultaneously with the execution of this Agreement, Purchaser
is depositing with the Escrow Agent the Escrow Shares, together with a stock
power duly executed by each of the Sellers with respect thereto.
(b) The Escrow Agent shall hold, subject to the terms and conditions
hereof, the Escrow Shares. In the event of any stock split, corporate
reorganization, recapitalization, merger, consolidation or any other non-cash
dividend or distribution with respect to the Escrow Shares, the Sellers shall
promptly deposit such securities or other property received by them in
connection with such event with the Escrow Agent, together with any necessary
stock powers, and such property will be held pursuant to the terms of this
Agreement.
3. The Escrow Shares shall be held by Escrow Agent to satisfy any
potential amounts owed to Purchaser by the Sellers with respect to their
indemnification obligations pursuant to Article 10 of the Purchase Agreement.
The Escrow Shares shall be valued at a per share price equal to the average of
the last sales prices of the Purchaser Common Stock for the five (5) trading
days immediately preceding the date on which shares of Escrow Shares are applied
to satisfy the Sellers' indemnification obligation to the Purchaser.
4. (a) If at any time prior to the termination of this Agreement, the
Escrow Agent receives joint written instructions from Purchaser and the Sellers
to make a payment to Purchaser as required under the Purchase Agreement and
pursuant to Section 6 and 7 hereof, then Escrow Agent shall make payments out of
the Escrow Shares to Purchaser in accordance with such instructions.
(b) On the first business day after the three-year anniversary of
the date of this Agreement (the "Termination Date"), Escrow Agent shall return
to the Sellers any remaining portion of the Escrow Shares still held in escrow
pursuant to the terms of this Agreement, reduced by the amounts, if any, which
are the subject of Unresolved Claims (as hereinafter defined).
(c) Subsequent to the Termination Date, the Escrow Agent shall
retain the portion of the Escrow Shares which relate to all Unresolved Claims
until such time as such Unresolved Claims are resolved in accordance with the
terms hereof, at which time the portion of the Escrow Shares relating to the
settled Unresolved Claim, if any, shall be distributed to the appropriate party
in accordance with joint written instructions from Purchaser and the Sellers.
5. The term "Unresolved Claims" shall mean any claim or request for
indemnification by the Purchaser against the Sellers pursuant to the Purchase
Agreement made against the Escrow Shares in accordance with this Agreement prior
to the Termination Date, which claim or request shall be the subject of a Notice
of Request as referred to in Section 6 below. All Unresolved Claims shall remain
as such until such time as they have been paid in full or otherwise fully
settled or discharged in accordance with the provisions of Section 7 below.
6. If at any time during the term of this Agreement, the Purchaser
believes that it is entitled to any portion of the Escrow Shares by way of
indemnification from the Seller pursuant to the Purchase Agreement, the
Purchaser shall furnish to the Escrow Agent (with a simultaneous copy to the
Sellers, with proof of such delivery provided to the Escrow Agent), a written
notice (the "Notice of Request") setting forth the dollar amount (and the
corresponding number of Escrow Shares) to which the Purchaser believes it is
entitled and the reasons for such belief. If the Escrow Agent and the Purchaser
do not receive, within twenty (20) business days after receipt of the Notice of
Request, a notice from the Sellers (the "Dispute Notice") stating that a dispute
(the "Dispute") exists relating to the Purchaser's claim to that portion of the
Escrow Shares claimed in the Notice of Request, the Escrow Agent shall,
immediately after such twenty business day period, deliver the certificates
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representing all of the Escrow Shares to the Purchaser, who shall simultaneously
deliver to the Escrow Agent new certificates for a number of shares of Purchaser
Common Stock representing the Escrow Shares equal to the difference between (a)
the number of Escrow Shares then being held in escrow less (b) the number of
Escrow Shares to which the Purchaser is entitled to as set forth in its Notice
of Request. The Dispute Notice shall set forth in reasonable detail the amount
disputed and the reasons for the Dispute. The Purchaser and the Sellers shall
attempt to resolve the Dispute in good faith for a period of thirty (30) days
following the receipt by the Escrow Agent and the Purchaser of the Dispute
Notice. If the Purchaser and the Sellers are unable to resolve the Dispute
within such thirty day period, the Dispute shall be submitted by the Purchaser
and the Sellers to arbitration as hereinafter provided and the Escrow Agent
shall be so notified. It is understood and agreed that (x) the arbitrator's
award in such arbitration shall relate solely to the Dispute, (y) shall
determine only whether or not the Purchaser is entitled to all or part of the
Escrow Shares claimed for in the Notice of Request and whether the Sellers are
entitled to offset any of their indemnification obligations under the Purchase
Agreement, and (z) shall in no way involve any other matter relating to the
Purchase Agreement or this Agreement including, without limitation, any claim
for indemnification by the Purchaser or the Sellers. Further, in the event that
the resolution of such Dispute shall depend on the final disposition of a claim
made by an unaffiliated third party against the Purchaser for which the
Purchaser is seeking indemnification from the Sellers, such arbitrator shall
defer final resolution of such Dispute until such third party claim has been
resolved or appropriate provision therefor has been made. The Purchaser and the
Sellers each agree that the arbitrator's award shall be final and binding upon
them with respect to the Dispute.
7. In the event Escrow Agent receives a Dispute Notice in accordance with
Section 6 above that a Dispute exists, the Escrow Agent shall retain custody of
that portion of the Escrow Shares which relates to the Unresolved Claim until
the first to occur of the following events:
(a) Receipt by Escrow Agent of a notice ("Settlement Notice") signed
by the Purchaser and the Sellers that the Dispute has been resolved, which
notice shall contain instructions to the Escrow Agent regarding delivery of that
portion of the Escrow Shares which relates to the Unresolved Claim; or
(b) Receipt by Escrow Agent of a copy of the Arbitrator's Award (as
hereinafter defined) issued by the American Arbitration Association acknowledged
by the Purchaser and the Sellers; or
(c) Receipt by Escrow Agent of official notice of the confirmation
by a court of competent jurisdiction of the arbitrator's award (the
"Arbitrator's Award") resolving the Dispute, which confirmation has become a
final order from which no appeal has been or can be had.
After the occurrence of any of the foregoing events, the Escrow Agent
shall promptly deliver that portion of the Escrow Shares which relates to the
Unresolved Claim in accordance with the Settlement Notice or the Arbitrator's
Award.
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8. Any controversy or claim arising out of the interpretation of the
provisions of this Agreement or the obligations of the parties hereto in
connection with this Agreement (an "Escrow Dispute") shall be settled either by
mutual written agreement of the parties to such Escrow Dispute or by a binding
and final arbitration award, as provided below. In the event the terms of a
settlement of an Escrow Dispute increase the duties or obligations of the Escrow
Agent hereunder and the Escrow Agent has not participated in such settlement so
as to be bound thereby, then the settlement of such Escrow Dispute shall be
effective as to the Escrow Agent in respect of such increase in duties or
liabilities only upon the Escrow Agent's written assent thereto.
Any Escrow Dispute not resolved by mutual agreement of the Sellers and the
Purchaser shall be settled by arbitration in New York, New York, or in such
other location as the parties may mutually agree, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). In the event of an Escrow Dispute, any party hereto may demand
arbitration by written notice to the other parties and, within fifteen (15) days
after receipt of such demand, each party shall appoint an arbitrator (each, an
"Appointed Arbitrator") who shall together agree on a third Arbitrator, failing
which agreement they shall request the AAA to appoint a third and presiding
arbitrator ("Presiding Arbitrator", together with the Appointed Arbitrators, the
"Arbitrators"), in accordance with the then existing rules of the AAA or any
successor organization thereto. The parties acknowledge and agree that
individuals may be designated as Appointed Arbitrators by each respective party,
whether or not such Appointed Arbitrators are listed on the National Panel of
Arbitrators as such list is maintained by the AAA. The parties hereby
acknowledge that it is their intent to allow for a reasonable period of time in
which the parties may conduct discovery relating an Escrow Dispute. The decision
of 2 out of the 3 Arbitrators shall be final and binding on the parties and
judgment upon the award rendered by the Arbitrators may be entered in any court
having jurisdiction thereof. The costs of the arbitration (including, but not
limited to, fees and disbursements of counsel and the Arbitrators) shall be
borne by the non-prevailing party or as otherwise determined by the Arbitrators.
9. Upon the later to occur of (a) the Termination Date and (b) the date on
which all Unresolved Claims, if any, are settled after the Termination Date (x)
the portion of the Escrow Shares remaining on such date shall be distributed in
accordance with this Agreement, (y) this Agreement shall be deemed to be
terminated, and (z) the Escrow Agent shall be released and discharged from all
further obligations hereunder. Under such circumstances, the Purchaser agrees
that it shall divide and transfer the Escrow Shares to the distributees of the
Sellers in accordance with the Sellers' written instructions.
10. (a) The Escrow Agent undertakes to perform only such duties as are
expressly set forth herein. The Escrow Agent may rely and shall be protected in
acting or refraining from acting upon any written notice, instruction or request
furnished to it hereunder and believed by it to be genuine and to have been
signed or presented by the proper party or parties. The Escrow Agent shall be
under no duty to inquire into or investigate the validity, accuracy or content
of any such document. The Escrow Agent shall have no duty to solicit any
payments that may be due it hereunder.
4
(b) The Escrow Agent shall not be liable for any action taken or
omitted by it in good faith unless a court of competent jurisdiction determines
that the Escrow Agent's willful misconduct was the primary cause of any loss to
the Purchaser or the Sellers. In the administration of the escrow account
hereunder, the Escrow Agent may execute any of its powers and perform its duties
hereunder directly or through agents or attorneys and may consult with counsel,
accountants and other skilled persons to be selected and retained by it. The
Escrow Agent shall not be liable for the performance of agents or for anything
done, suffered or omitted in good faith by it in accordance with the advice or
opinion of any such counsel, accountants or other skilled persons.
(c) The Escrow Agent may resign and be discharged from its duties or
obligations hereunder by giving notice in writing of such resignation specifying
a date when such resignation shall take effect. Such resignation shall not
relieve the Escrow Agent of any potential liability of the Escrow Agent
hereunder. Upon such resignation, the Purchaser and the Sellers shall mutually
select a successor escrow agent.
(d) The Purchaser hereby agrees to pay or reimburse the Escrow
Agent, upon request, for all expenses, disbursement and advances, including
reasonable attorney's fees, incurred or made by it in connection with the
preparation, execution, performance, delivery modification and termination of
this Agreement.
(e) The Purchaser and the Sellers jointly and severally shall
indemnify, defend and save harmless the Escrow Agent from all loss, liability or
expense (including the reasonable fees and expenses of outside counsel) arising
out of or in connection with (i) its execution and performance of this
Agreement, except to the extent that such loss, liability or expense is due to
the gross negligence or willful misconduct of the Escrow Agent, or (ii) its
following any instructions or other directions from the Purchaser or the
Sellers, except to the extent that its following any such instruction or
direction is expressly forbidden by the terms hereof. Notwithstanding anything
in this Agreement to the contrary, in no event shall the Escrow Agent be liable
for special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action. The parties hereto acknowledge that the foregoing indemnities shall
survive the resignation or removal of the Escrow Agent or the termination of
this Agreement.
(f) The duties and responsibilities of the Escrow Agent hereunder
shall be determined solely by the express provisions of this Agreement and no
other or further duties or responsibilities shall be implied. The Escrow Agent
shall not have any liability under, nor duty to inquire into the terms and
provisions of any agreement or instructions, other than outlined in this
Agreement.
(g) The Sellers acknowledge that the Escrow Agent is acting as
counsel to the Purchaser in the negotiation, preparation and execution of this
Agreement and the Purchase Agreement, and agrees that Eaton & Van Winkle LLP may
represent the Purchaser in any dispute under this Agreement or the Purchase
Agreement.
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(h) The Escrow Agent shall not be bound by any waiver, modification,
cancellation or rescission of this Agreement unless made in writing and signed
by the parties hereto, and a copy thereof is delivered to the Escrow Agent.
(i) In the event of any dispute over the disposition of the Escrow
Shares, the Escrow Agent may deposit it with a court of competent jurisdiction
in the State of New York and thereafter be relieved of any further liability or
obligation under this Agreement.
11. All notices and communications hereunder shall be in writing and shall
be deemed to be duly given if sent (i) by registered mail, return receipt
requested or (ii) by facsimile transmission, as follows:
If to the Escrow Agent, to:
Eaton & Van Winkle LLP
3 Park Avenue, 16th Fl.
New York, New York 10016
Attention: Vincent J. McGill
Facsimile No.: (212) 779-9928
If to Purchaser, to:
Air Industries Group, Inc.
1479 North Clinton Avenue
Bay Shore, New York 11706
Attention: Peter D. Rettaliata
Facsimile No.: (631) 968-5377
with a copy to:
Eaton & Van Winkle LLP
3 Park Avenue, 16th Fl.
New York, New York 10016
Attention: Vincent J. McGill
Facsimile No.: (212) 779-9928
If to Seller, to:
John Gantt and Lugenia Gantt
183 Montecito Crescent
Melville, New York 11747
with a copy to:
Adam P. Silvers, Esq.
Ruskin Moscou Faltischek, P.C.
1425 Reckson Plaza
Uniondale, New York 11556
(516) 663-6519 direct
(516) 663-6719 fax
6
or at such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested, or facsimile,
and any such notice or communication given in the manner specified in this
Paragraph 11 shall be deemed to have been given as of the date so mailed except
with respect to the Escrow Agent as to which date shall be deemed to have been
given on the date received by the Escrow Agent. In the event that the Escrow
Agent, in its sole discretion, shall determine that an emergency exists, the
Escrow Agent may use such other means of communications as the Escrow Agent
deems advisable.
12. The provisions of this Agreement may be waived, altered, amended or
supplemented, in whole or in part, only by a writing signed by all of the
parties hereto.
13. Neither this Agreement nor any right or interest hereunder may be
assigned in whole or in part by any party without the prior consent of the other
parties.
14. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. All signatures of the parties to this Agreement may
be transmitted by facsimile, and such facsimile will, for all purposes, be
deemed to be the original signature of such party whose signature it reproduces
and will be binding upon such party.
15. In the event that the Escrow Agent shall be uncertain as to its duties
or rights hereunder or shall receive instructions, claims or demands from any
party hereto which, in its opinion, conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action and its sole
obligation shall be to keep safely the Escrow Shares until it shall be directed
otherwise in writing by all of the other parties hereto or by a final order or
judgment of a court of competent jurisdiction.
16. Any corporation or other business entity into which the Escrow Agent
may be merged or converted or with which it may be consolidated, or any
corporation or other business entity resulting from any merger, conversion or
consolidation to which the Escrow Agent shall be a party, or any corporation or
other business entity to which substantially all the corporate trust business of
the Escrow Agent may be transferred, shall be the successor Escrow Agent under
this Agreement without any further action of the parties hereto.
17. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to its principles of conflicts
of laws and, except as provided in Section 8 hereof, any action brought
hereunder shall be brought in the courts of the State of New York, located in
the County of New York or the court of the United States of America for the
Southern District of New York. Each party hereto irrevocably waives any
objection on the grounds of venue, forum non-conveniens or any similar grounds
and irrevocably consents to service of process by mail or in any other manner
permitted by applicable law and consents to the jurisdiction of said courts.
7
18. In the event that any party to this Agreement is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other cause reasonably beyond its control, such party shall not be liable for
damages to the other parties for any unforeseeable damages resulting from such
failure to perform or otherwise from such causes. Performance under this
Agreement shall resume when the affected party is able to perform substantially
that party's duties.
[Signature page follows]
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date and year first above written.
EATON & VAN WINKLE LLP
By: /s/ Vincent McGill
---------------------------
Name:Vincent McGill
Title:Partner
AIR INDUSTRIES GROUP, INC.
By: /s/ Peter D. Rettaliata
---------------------------
Name:Peter D. Rettaliata
Title:President
SELLERS:
/s/ John Gantt
--------------
JOHN GANTT
/s/ Lugenia Gantt
-----------------
LUGENIA GANTT
Exhibit 10.4
This REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of the
24th day of August, 2007, by and among AIR INDUSTRIES GROUP, INC., a Delaware
corporation (the "Company"), and JOHN GANTT and LUGENIA GANTT (together, the
"Investors", and each an "Investor").
R E C I T A L S:
The Investors and the Company desire to enter into this Agreement to
provide the Investors with certain rights relating to the registration of shares
of Common Stock (as defined below) held by them.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. The following capitalized terms used herein have the
following meanings:
"Agreement" means this Agreement, as amended, restated,
supplemented, or otherwise modified from time to time.
"Commission" means the Securities and Exchange Commission, or any
other federal agency then administering the
Securities Act or the Exchange Act.
"Common Stock" means the common stock, par value $0.001 per share,
of the Company.
"Company" is defined in the preamble to this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder,
all as the same shall be in effect at the time.
"Indemnified Party" is defined in Section 4.3.
"Indemnifying Party" is defined in Section 4.3.
"Investor" is defined in the preamble to this Agreement.
"Investor Indemnified Party" is defined in Section 4.1.
"Maximum Number of Shares" means the dollar amount or number of any
securities that can be sold in such offering without adversely affecting the
proposed offering price, the timing, the distribution method, or the probability
of success of such offering.
"Notices" is defined in Section 6.3.
"Piggy-Back Registration" is defined in Section 2.2.1.
"Register," "registered" and "registration" means a registration
effected by preparing and filing a registration statement or similar document in
compliance with the requirements of the Securities Act, and the applicable rules
and regulations promulgated thereunder, and such registration statement becoming
effective.
"Registrable Securities" means all of the shares of Common Stock
acquired by the Investors pursuant to the Stock Purchase Agreement dated March
9, 2007 between the Investors and the Company, as amended by Amendment No. 1
thereto dated as of August 2, 2007. Registrable Securities include any warrants,
shares of capital stock or other securities of the Company issued as a dividend
or other distribution with respect to or in exchange for or in replacement of
such shares of Common Stock, as applicable. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when: (a) a
Registration Statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
sold, transferred, disposed of or exchanged in accordance with such Registration
Statement; (b) such securities shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent public distribution of them
shall not require registration under the Securities Act; (c) such securities
shall have ceased to be outstanding, or (d) counsel for the Company makes a
definitive determination to the Company that the Registrable Securities are
salable under Rule 144(k) or are salable under Rule 144 and represent less than
1% of the outstanding shares of the Company and may be sold in one or more
transactions without regard to the trading volume of the Company's Common Stock.
"Registration Statement" means a registration statement filed by the
Company with the Commission in compliance with the Securities Act and the rules
and regulations promulgated thereunder for a public offering and sale of Common
Stock (other than a registration statement on Form S-4 or Form S-8, or its
successor, or any registration statement covering only securities proposed to be
issued in exchange for securities or assets of another entity).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder, all as the
same shall be in effect at the time.
"Underwriter" means a securities dealer who purchases any
Registrable Securities as principal in an underwritten offering and not as part
of such dealer's market-making activities.
2. REGISTRATION RIGHTS.
2.1 Piggy-Back Registration.
2.1.1. Piggy-Back Rights. If the Company proposes to file a
Registration Statement under the Securities Act with respect to an offering of
equity securities, or securities or other obligations exercisable or
exchangeable for, or convertible into, equity securities, by the Company for its
own account or for shareholders of the Company for their account (or by the
Company and by shareholders of the Company), other than a Registration Statement
(i) filed in connection with any employee stock option or other benefit plan,
2
(ii) for an exchange offer or offering of securities solely to the Company's
existing shareholders, (iii) for an offering of debt that is convertible into
equity securities of the Company or (iv) for a dividend reinvestment plan, then
the Company shall (x) give written notice of such proposed filing to the holder
of Registrable Securities as soon as practicable but in no event less than ten
(10) days before the anticipated filing date, which notice shall describe the
amount and type of securities to be included in such offering, the intended
method(s) of distribution, and the name of the proposed managing Underwriter or
Underwriters, if any, of the offering, and (y) offer to the holder of
Registrable Securities in such notice the opportunity to register the sale of
such number of shares of Registrable Securities as such holders may request in
writing within five (5) days following receipt of such notice (a "Piggy-Back
Registration"). The Company shall cause such Registrable Securities to be
included in such registration and shall use reasonable efforts to cause the
managing Underwriter or Underwriters of a proposed underwritten offering to
permit the Registrable Securities requested to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company and to permit the sale or other disposition of such
Registrable Securities in accordance with the intended method(s) of distribution
thereof. The holder of Registrable Securities proposing to distribute their
securities through a Piggy-Back Registration that involves an Underwriter or
Underwriters shall enter into an underwriting agreement in customary form with
the Underwriter or Underwriters selected for such Piggy-Back Registration.
2.1.2. Reduction of Offering. If the managing Underwriter or
Underwriters for a Piggy-Back Registration that is to be an underwritten
offering advises the Company and the holder of Registrable Securities in writing
that the dollar amount or number of shares of Common Stock which the Company
desires to sell, taken together with shares of Common Stock, if any, as to which
registration has been demanded pursuant to written contractual arrangements with
persons having the right to demand that the Company register their shares and
the Registrable Securities as to which registration has been requested under
this Section 2.1, and the shares of Common Stock, if any, as to which
registration has been requested pursuant to the written contractual piggy-back
registration rights of other shareholders of the Company, exceeds the Maximum
Number of Shares, then the Company shall include in any such registration:
(i) If the registration is undertaken for the Company's
account: (A) first, the shares of Common Stock or other securities that the
Company desires to sell that can be sold without exceeding the Maximum Number of
Shares; (B) second, to the extent that the Maximum Number of Shares has not been
reached under the foregoing clause (A), the shares of Common Stock, if any,
including the Registrable Securities, as to which registration has been
requested pursuant to written contractual piggy-back registration rights of
security holders (pro rata in accordance with the number of shares of Common
Stock which each such person has actually requested to be included in such
registration, regardless of the number of shares of Common Stock with respect to
which such persons have the right to request such inclusion) that can be sold
without exceeding the Maximum Number of Shares; and
(ii) If the registration is a "demand" registration
undertaken at the demand of persons pursuant to written contractual arrangements
with such persons, (A) first, the shares of Common Stock for the account of the
demanding persons that can be sold without exceeding the Maximum Number of
Shares; (B) second, to the extent that the Maximum Number of Shares has not been
reached under the foregoing clause (A), the shares of Common Stock or other
securities that the Company desires to sell that can be sold without exceeding
the Maximum Number of Shares; and (C) third, to the extent that the Maximum
Number of Shares has not been reached under the foregoing clauses (A) and (B),
the shares of Common Stock, if any, including the Registrable Securities as to
which registration has been requested pursuant to written contractual piggy-back
registration rights (pro rata in accordance with the number of shares of Common
Stock which each such person has actually requested to be included in such
registration, regardless of the number of shares of Common Stock with respect to
which such persons have the right to request such inclusion) that can be sold
without exceeding the Maximum Number of Shares.
3
2.1.3. Withdrawal. The holder of Registrable Securities may
elect to withdraw such holder's request for inclusion of Registrable Securities
in any Piggy-Back Registration by giving written notice to the Company of such
request to withdraw prior to the effectiveness of the Registration Statement.
The Company may also elect to withdraw a registration statement at any time
prior to the effectiveness of the Registration Statement. Notwithstanding any
such withdrawal, the Company shall pay all expenses incurred by the holders of
Registrable Securities in connection with such Piggy-Back Registration as
provided in Section 3.3.
3. REGISTRATION PROCEDURES.
3.1 Filings; Information. Whenever the Company elects to file a
Registration Statement and in connection therewith is required to include any
Registrable Securities pursuant to Section 2, the Company shall use commercially
reasonable efforts to effect the registration and sale of such Registrable
Securities in accordance with the intended method(s) of distribution thereof as
expeditiously as practicable, and in connection with any such request:
3.1.1. Filing Registration Statement. The Company shall
prepare and file with the Commission a Registration Statement on any form for
which the Company then qualifies or which counsel for the Company shall deem
appropriate and which form shall be available for the sale of all Registrable
Securities to be registered thereunder in accordance with the intended method(s)
of distribution thereof, and shall cause such Registration Statement to become
and remain effective for the period required by Section 3.1.3; provided,
however, that the Company shall have the right to defer any Piggy-Back
Registration for such period as may be applicable to deferment of any demand
registration to which such Piggy-Back Registration relates, in each case if the
Company shall furnish to the holders a certificate signed by the Chief Executive
Officer of the Company stating that, in the good faith judgment of the Board of
Directors of the Company, it would be materially detrimental to the Company and
its shareholders for such Registration Statement to be effected at such time.
3.1.2. Copies. The Company shall, prior to filing a
Registration Statement or prospectus, or any amendment or supplement thereto,
furnish without charge to the holder of Registrable Securities included in such
registration, and such holder's legal counsel, copies of such Registration
Statement as proposed to be filed, each amendment and supplement to such
Registration Statement (in each case including all exhibits thereto and
documents incorporated by reference therein), the prospectus included in such
Registration Statement (including each preliminary prospectus), and such other
documents as the holder of Registrable Securities included in such registration
or legal counsel for the holder may request in order to facilitate the
disposition of the Registrable Securities owned by the holder.
4
3.1.3. Amendments and Supplements. The Company shall prepare
and file with the Commission such amendments, including post-effective
amendments, and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective and in compliance with the provisions of the Securities Act
until all Registrable Securities and other securities covered by such
Registration Statement have been disposed of in accordance with the intended
method(s) of distribution set forth in such Registration Statement (which period
shall not exceed the sum of one hundred eighty (180) days plus any period during
which any such disposition is interfered with by any stop order or injunction of
the Commission or any governmental agency or court) or such securities have been
withdrawn or, if earlier, the date the Registrable Securities become eligible
for sale pursuant to Rule 144(k).
3.1.4. Notification. After the filing of a Registration
Statement, the Company shall promptly, and in no event more than two (2)
business days after such filing, notify the holder of Registrable Securities
included in such Registration Statement of such filing, and shall further notify
such holders promptly and confirm such advice in writing in all events within
two (2) business days of the occurrence of any of the following: (i) when such
Registration Statement becomes effective; (ii) when any post-effective amendment
to such Registration Statement becomes effective; (iii) the issuance or
threatened issuance by the Commission of any stop order (and the Company shall
take all actions required to prevent the entry of such stop order or to remove
it if entered); and (iv) any request by the Commission for any amendment or
supplement to such Registration Statement or any prospectus relating thereto or
for additional information or of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of the securities covered by such
Registration Statement, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and promptly make
available to the holder of Registrable Securities included in such Registration
Statement any such supplement or amendment; except that before filing with the
Commission a Registration Statement or prospectus or any amendment or supplement
thereto, including documents incorporated by reference, the Company shall
furnish to the holder of Registrable Securities included in such Registration
Statement and to the legal counsel for the holder, copies of all such documents
proposed to be filed sufficiently in advance of filing to provide such holders
and legal counsel with a reasonable opportunity to review such documents and
comment thereon, and the Company shall not file any Registration Statement or
prospectus or amendment or supplement thereto, including documents incorporated
by reference, to which the holder or their legal counsel shall object.
3.1.5. State Securities Laws Compliance. The Company shall use
its best efforts to (i) register or qualify the Registrable Securities covered
by the Registration Statement under such securities or "blue sky" laws of such
jurisdictions in the United States as the holder of Registrable Securities
included in such Registration Statement (in light of their intended plan of
distribution) may request and (ii) take such action necessary to cause such
Registrable Securities covered by the Registration Statement to be registered
with or approved by such other Governmental Authorities as may be necessary by
virtue of the business and operations of the Company and do any and all other
5
acts and things that may be necessary or advisable to enable the holder of
Registrable Securities included in such Registration Statement to consummate the
disposition of such Registrable Securities in such jurisdictions; provided,
however, that the Company shall not be required to qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph or subject itself to taxation in any such jurisdiction.
3.1.6. Agreements for Disposition. The Company shall enter
into customary agreements (including, if applicable, an underwriting agreement
in customary form) and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of such Registrable Securities.
The representations, warranties and covenants of the Company in any underwriting
agreement which are made to or for the benefit of any Underwriters, to the
extent applicable, shall also be made to and for the benefit of the holders of
Registrable Securities included in such registration statement. No holder of
Registrable Securities included in such registration statement shall be required
to make any representations or warranties in the underwriting agreement except,
if applicable, with respect to the holder's organization, good standing,
authority, title to Registrable Securities, lack of conflict of such sale with
the holder's material agreements and organizational documents, and with respect
to written information relating to such holder that the holder has furnished in
writing expressly for inclusion in such Registration Statement.
3.1.7. Cooperation. The principal executive officer of the
Company, the principal financial officer of the Company, the principal
accounting officer of the Company and all other officers and members of the
management of the Company shall cooperate fully in any offering of Registrable
Securities hereunder, which cooperation shall include, without limitation, the
preparation of the Registration Statement with respect to such offering and all
other offering materials and related documents, and participation in meetings
with Underwriters, attorneys, accountants and potential investors.
3.1.8. Records. The Company shall make available for
inspection by the holder of Registrable Securities included in such Registration
Statement, any Underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other professional
retained by the holder of Registrable Securities included in such Registration
Statement or any Underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, as shall be necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information requested
by any of them in connection with such Registration Statement.
3.1.9. Opinions and Comfort Letters. The Company shall furnish
to the holder of Registrable Securities included in any Registration Statement a
signed counterpart, addressed to such holder, of (i) any opinion of counsel to
the Company delivered to any Underwriter and (ii) any comfort letter from the
Company's independent public accountants delivered to any Underwriter. In the
event no legal opinion is delivered to any Underwriter, the Company shall
furnish to each holder of Registrable Securities included in such Registration
Statement, at any time that the holder elects to use a prospectus, an opinion of
counsel to the Company to the effect that the Registration Statement containing
such prospectus has been declared effective and that no stop order is in effect.
6
3.1.10. Earnings Statement. The Company shall comply with all
applicable rules and regulations of the Commission and the Securities Act, and
make available to its shareholders, as soon as practicable, an earnings
statement covering a period of twelve (12) months, beginning within three (3)
months after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder.
3.1.11. Listing. The Company shall use its best efforts to
cause all Registrable Securities included in any registration to be listed on
such exchanges or otherwise designated for trading in the same manner as similar
securities issued by the Company are then listed or designated or, if no such
similar securities are then listed or designated, in a manner satisfactory to
the holders of a majority of the Registrable Securities included in such
registration.
Notwithstanding the foregoing, the Company shall be permitted to cease any
activities in furtherance of the registration of the Registrable Securities if
it elects to terminate its efforts to register its securities and, as the case
may be, the securities that were the subject of a demand registration request.
3.2 Obligation to Suspend Distribution. Upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3.1.4(iv), the holder of Registrable Securities included in any registration
shall immediately discontinue disposition of such Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such holder receives the supplemented or amended prospectus contemplated
by Section 3.1.4(iv) and, if so directed by the Company, each such holder will
deliver to the Company all copies, other than permanent file copies then in such
holder's possession, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice.
3.3 Registration Expenses. The Company shall bear all costs and
expenses incurred in connection with any Piggy-Back Registration pursuant to
Section 2.2, and all expenses incurred in performing or complying with its other
obligations under this Agreement, whether or not the Registration Statement
becomes effective, including, without limitation: (i) all registration and
filing fees; (ii) fees and expenses of compliance with securities or "blue sky"
laws (including fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities); (iii) printing expenses; (iv) the
Company's internal expenses (including, without limitation, all salaries and
expenses of its officers and employees); (v) the fees and expenses incurred in
connection with the listing of the Registrable Securities as required by Section
3.1.11; (vi) National Association of Securities Dealers, Inc. fees; (vii) fees
and disbursements of counsel for the Company and fees and expenses for
independent certified public accountants retained by the Company (including the
7
expenses or costs associated with the delivery of any opinions or comfort
letters requested pursuant to Section 3.1.9); (viii) the fees and expenses of
any special experts retained by the Company in connection with such registration
and (ix) the fees and expenses of one legal counsel selected by the holder of
the Registrable Securities included in such registration. The Company shall have
no obligation to pay any underwriting discounts or selling commissions
attributable to the Registrable Securities being sold by the holder thereof,
which underwriting discounts or selling commissions shall be borne by the
holder. Additionally, in an underwritten offering, all selling shareholders and
the Company shall bear the expenses of the underwriter pro rata in proportion to
the respective amount of shares each is selling in such offering.
3.4 Information. The holder of Registrable Securities shall provide
such information as may reasonably be requested by the Company, or the managing
Underwriter, if any, in connection with the preparation of any Registration
Statement, including amendments and supplements thereto, in order to effect the
registration of any Registrable Securities under the Securities Act pursuant to
Section 2 and in connection with the Company's obligation to comply with federal
and applicable state securities laws.
4. INDEMNIFICATION AND CONTRIBUTION.
4.1 Indemnification by the Company. The Company agrees to indemnify
and hold harmless each of the Investors from and against any expenses, losses,
judgments, claims, damages or liabilities, whether joint or several, arising out
of or based upon any untrue statement (or allegedly untrue statement) of a
material fact contained in any Registration Statement under which the sale of
such Registrable Securities was registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arising out of or based upon any omission (or alleged omission) to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration; and the Company shall promptly reimburse
the Investor for any legal and any other expenses reasonably incurred by the
Investors in connection with investigating and defending any such expense, loss,
judgment, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such expense,
loss, claim, damage or liability arises out of or is based upon any untrue
statement or allegedly untrue statement or omission or alleged omission made in
such Registration Statement, preliminary prospectus, final prospectus, or
summary prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by such
selling holder expressly for use therein.
4.2 Indemnification by the Investor. The Investor will, in the event
that any registration is being effected under the Securities Act pursuant to
this Agreement of any Registrable Securities held by the Investor, indemnify and
hold harmless the Company, each of its directors and officers and each
underwriter (if any), and each other person, if any, who controls such
underwriter within the meaning of the Securities Act, against any losses,
claims, judgments, damages or liabilities, whether joint or several, insofar as
such losses, claims, judgments, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or allegedly untrue
statement of a material fact contained in any Registration Statement under which
the sale of such Registrable Securities was registered under the Securities Act,
any preliminary prospectus, final prospectus or summary prospectus contained in
8
the Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or the alleged
omission to state a material fact required to be stated therein or necessary to
make the statement therein not misleading, if the statement or omission was made
in reliance upon and in conformity with information furnished in writing to the
Company by such selling holder expressly for use therein, and shall reimburse
the Company, its directors and officers, and each such controlling person for
any legal or other expenses reasonably incurred by any of them in connection
with investigation or defending any such loss, claim, damage, liability or
action.
4.3 Conduct of Indemnification Proceedings. Promptly after receipt
by any person of any notice of any loss, claim, damage or liability or any
action in respect of which indemnity may be sought pursuant to Section 4.1 or
4.2, such person (the "Indemnified Party") shall, if a claim in respect thereof
is to be made against any other person for indemnification hereunder, notify
such other person (the "Indemnifying Party") in writing of the loss, claim,
judgment, damage, liability or action; provided, however, that the failure by
the Indemnified Party to notify the Indemnifying Party shall not relieve the
Indemnifying Party from any liability which the Indemnifying Party may have to
such Indemnified Party hereunder, except and solely to the extent the
Indemnifying Party is actually prejudiced by such failure. If the Indemnified
Party is seeking indemnification with respect to any claim or action brought
against the Indemnified Party, then the Indemnifying Party shall be entitled to
participate in such claim or action, and, to the extent that it wishes, jointly
with all other Indemnifying Parties, to assume control of the defense thereof
with counsel satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume control of
the defense of such claim or action, the Indemnifying Party shall not be liable
to the Indemnified Party for any legal or other expenses subsequently incurred
by the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that in any action in
which both the Indemnified Party and the Indemnifying Party are named as
defendants, the Indemnified Party shall have the right to employ separate
counsel (but no more than one such separate counsel) to represent the
Indemnified Party and its controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Indemnified Party against the Indemnifying Party, with the fees and expenses of
such counsel to be paid by such Indemnifying Party if, based upon the written
opinion of counsel of such Indemnified Party, representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, consent to entry of judgment or effect any
settlement of any claim or pending or threatened proceeding in respect of which
the Indemnified Party is or could have been a party and indemnity could have
been sought hereunder by such Indemnified Party, unless such judgment or
settlement includes an unconditional release of such Indemnified Party from all
liability arising out of such claim or proceeding.
4.4 Contribution.
4.4.1. If the indemnification provided for in the foregoing
Sections 4.1, 4.2 and 4.3 is unavailable to any Indemnified Party in respect of
any loss, claim, damage, liability or action referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the Indemnified Parties and the
Indemnifying Parties in connection with the actions or omissions which resulted
9
in such loss, claim, damage, liability or action, as well as any other relevant
equitable considerations. The relative fault of any Indemnified Party and any
Indemnifying Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such Indemnified Party or such Indemnifying Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
4.4.2. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding Section
4.4.1. The amount paid or payable by an Indemnified Party as a result of any
loss, claim, damage, liability or action referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.4, no holder of Registrable
Securities shall be required to contribute any amount in excess of the dollar
amount of the net proceeds (after payment of any underwriting fees, discounts,
commissions or taxes) actually received by such holder from the sale of
Registrable Securities which gave rise to such contribution obligation. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
5. MISCELLANEOUS.
5.1 Other Registration Rights. The Company represents and warrants
that no person, other than the holder of the Registrable Securities, has any
right to require the Company to register any shares of the Company's capital
stock for sale or to include shares of the Company's capital stock in any
registration filed by the Company for the sale of shares of capital stock for
its own account or for the account of any other person.
5.2 Assignment; No Third Party Beneficiaries. This Agreement and the
rights, duties and obligations of the Company hereunder may not be assigned or
delegated by the Company in whole or in part. This Agreement and the rights,
duties and obligations of the holder of Registrable Securities hereunder may be
freely assigned or delegated by the holder of Registrable Securities in
conjunction with and to the extent of any transfer of Registrable Securities by
the holder. This Agreement and the provisions hereof shall be binding upon and
shall inure to the benefit of each of the parties and their respective
successors and the permitted assigns of the Investor or holder of Registrable
Securities or of any assignee of the Investor or holder of Registrable
Securities. This Agreement is not intended to confer any rights or benefits on
any persons that are not party hereto other than as expressly set forth in
Article 4 and this Section 6.2.
5.3 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively, "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
10
and shall be personally served, delivered by reputable air courier service with
charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile,
addressed as set forth below, or to such other address as such party shall have
specified most recently by written notice. Notice shall be deemed given on the
date of service or transmission if personally served or transmitted by telegram,
telex or facsimile; provided, that if such service or transmission is not on a
business day or is after normal business hours, then such notice shall be deemed
given on the next business day. Notice otherwise sent as provided herein shall
be deemed given on the next business day following timely delivery of such
notice to a reputable air courier service with an order for next-day delivery.
To the Company:
Air Industries Group, Inc.
1479 North Clinton Avenue
Bay Shore, New York 11706
Attention: Peter D. Rettaliata, President and CEO
with a copy to:
Eaton & Van Winkle
3 Park Avenue
New York, New York 10016
Attn: Vincent J. McGill, Esq.
To the Investors, to:
John Gantt and Lugenia Gantt
183 Montecito Crescent
Melville, New York 11747
5.4 Severability. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.
5.5 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
5.6 Entire Agreement. This Agreement (including all agreements
entered into pursuant hereto and all certificates and instruments delivered
pursuant hereto and thereto) constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements, representations, understandings, negotiations and discussions
between the parties, whether oral or written.
11
5.7 Modifications and Amendments. No amendment, modification or
termination of this Agreement shall be binding upon any party unless executed in
writing by such party.
5.8 Titles and Headings. Titles and headings of sections of this
Agreement are for convenience only and shall not affect the construction of any
provision of this Agreement.
5.9 Waivers and Extensions. Any party to this Agreement may waive
any right, breach or default which such party has the right to waive, provided
that such waiver will not be effective against the waiving party unless it is in
writing, is signed by such party, and specifically refers to this Agreement.
Waivers may be made in advance or after the right waived has arisen or the
breach or default waived has occurred. Any waiver may be conditional. No waiver
of any breach of any agreement or provision herein contained shall be deemed a
waiver of any preceding or succeeding breach thereof nor of any other agreement
or provision herein contained. No waiver or extension of time for performance of
any obligations or acts shall be deemed a waiver or extension of the time for
performance of any other obligations or acts.
5.10 Remedies Cumulative. In the event that the Company fails to
observe or perform any covenant or agreement to be observed or performed under
this Agreement, the Investor or any other holder of Registrable Securities may
proceed to protect and enforce its rights by suit in equity or action at law,
whether for specific performance of any term contained in this Agreement or for
an injunction against the breach of any such term or in aid of the exercise of
any power granted in this Agreement or to enforce any other legal or equitable
right, or to take any one or more of such actions, without being required to
post a bond. None of the rights, powers or remedies conferred under this
Agreement shall be mutually exclusive, and each such right, power or remedy
shall be cumulative and in addition to any other right, power or remedy, whether
conferred by this Agreement or now or hereafter available at law, in equity, by
statute or otherwise.
5.11 Governing Law. This Agreement shall be governed by, interpreted
under, and construed in accordance with the internal laws of the State of New
York applicable to agreements made and to be performed within the State of New
York, without giving effect to any choice-of-law provisions thereof that would
compel the application of the substantive laws of any other jurisdiction.
5.12 Waiver of Trial by Jury. Each party hereby irrevocably and
unconditionally waives the right to a trial by jury in any action, suit,
counterclaim or other proceeding (whether based on contract, tort or otherwise)
arising out of, connected with or relating to this Agreement, the transactions
contemplated hereby, or the actions of the Investors in the negotiation,
administration, performance or enforcement hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be executed and delivered by their duly authorized representatives
as of the date first written above.
AIR INDUSTRIES GROUP, INC.
a Delaware corporation
By: /s/ Peter D. Rettaliata
------------------------------
Name: Peter D. Rettaliata
Title: President
INVESTORS:
/s/ Gohn Gantt
----------------------------------
John Gantt
/s/ Lugenia Gantt
----------------------------------
Lugenia Gantt
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EXECUTION ORIGINALS
FOURTH AMENDMENT TO REVOLVING CREDIT, TERM LOAN, EQUIPMENT LINE OF
CREDIT AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO REVOLVING CREDIT, TERM LOAN, EQUIPMENT LINE OF
CREDIT AND SECURITY AGREEMENT (this "Agreement") is entered into August 24, 2007
by and among AIR INDUSTRIES MACHINING, CORP. (as successor by merger with Gales
Industries Acquisition Corp., Inc.), a corporation organized under the laws of
the State of New York ("Air"), SIGMA METALS, INC. (as successor by merger with
GMS Sub, Corp.), a corporation organized under the laws of the State of New York
("Sigma" and collectively with Air, the "Borrower"), WELDING METALLURGY, INC.
(as successor by merger with WMS MERGER CORP.), a corporation organized under
the laws of the State of New York ("WM"), AIR INDUSTRIES GROUP, INC. (f/k/a
Gales Industries Incorporated), a corporation organized under the laws of the
State of Delaware ("Air Group" and collectively with the Borrower and WM, the
"Obligor"), the financial institutions which are now or which hereafter become a
party hereto (collectively, the "Lenders" and individually a "Lender") and PNC
BANK, NATIONAL ASSOCIATION ("PNC"), as agent for Lenders (PNC, in such capacity,
the "Agent").
RECITALS
Whereas, Borrower and PNC entered into a certain Revolving Credit, Term
Loan, Equipment Line of Credit and Security Agreement dated November 30, 2005
(which has been, is being and may be further amended, replaced, restated,
modified and/or extended, the "Loan Agreement"); and
Whereas, Obligor and PNC have agreed to modify the terms of the Loan
Agreement as set forth in this Agreement by, among other things, adding WM and
Air Industries Group, Inc. (f/k/a Gales Industries Incorporated) each as a
guaranteeing entity under the Loan Agreement and the Other Documents.
Now, therefore, in consideration of PNC's continued extension of credit
and the agreements contained herein, the parties agree as follows:
AGREEMENT
1) ACKNOWLEDGMENT OF BALANCE. Borrower acknowledges that the most recent
statement of account sent to Borrower with respect to the Obligations is
correct.
2) MODIFICATIONS. The Loan Agreement be and hereby is modified as follows:
(a) Welding Metallurgy, Inc., a corporation organized under the laws of
the State of New York, and Air Industries Group, Inc. (f/k/a Gales
Industries Incorporated), a corporation organized under the laws of
the State of Delaware, are hereby added as guaranteeing entities
under the Loan Agreement and the Other Documents.
(b) The following definitions in Section 1.2 of the Loan Agreement are
hereby deleted, and are replaced to read as follows:
"Acquisition Agreement" shall mean, collectively, (i) that certain Stock
Purchase Agreement including all exhibits and schedules thereto dated as
of July 25, 2005 by and among Gales Industries Incorporated, as buyer (the
"Original Buyer" and "Gales"), and Air Industries Machining, Corp., Luis
Peragallo, Jorge Peragallo, Peter Rettalliata and Dario Peragallo, as
sellers (collectively, the "Air Industries Seller"), as amended, restated,
modified and/or replaced from time to time, and as assigned by the
Original Buyer in favor of Gales Industries Acquisition Corp., Inc. (the
"Air Industries Buyer"), (ii) that certain Stock Purchase Agreement
including all exhibits and schedules thereto dated as of January 2, 2007
by and among Gales, as buyer, and Sigma Metals, Inc., George Elkins,
Carole Tate and Joseph Coonan, as sellers (collectively, the "Sigma
Seller"), as amended, restated, modified and/or replaced from time to
time, and as assigned by Gales in favor of GMS Sub, Corp. (the "Sigma
Buyer") and (iii) that certain Stock Purchase Agreement including all
exhibits and schedules thereto dated as of March 9, 2007 by and among Air
Industries Group, Inc. ("Air Group") (f/k/a Gales), as buyer, and John
Gantt and Lugenia Gantt, as sellers (collectively, the "WM Seller" and
collectively with the Air Industries Seller and the Sigma Seller, the
"Seller"), as amended, restated, modified and/or replaced
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EXECUTION ORIGINALS
from time to time, and as assigned by Gales in favor of the Borrower (the
"WM Buyer" and collectively with the Air Industries Buyer and the Sigma
Buyer, the "Buyer").
"Capitalized Lease Obligation" shall mean any Indebtedness of Obligor
represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.
"Change of Control" shall mean (a) the occurrence of any event (whether in
one or more transactions) which results in a transfer of control of
Obligor to a Person who is not an Original Owner or (b) any merger or
consolidation of or with Obligor or sale of all or substantially all of
the property or assets of Obligor. For purposes of this definition,
"control of Obligor" shall mean the power, direct or indirect (x) to vote
50% or more of the Equity Interests having ordinary voting power for the
election of directors (or the individuals performing similar functions) of
Obligor or (y) to direct or cause the direction of the management and
policies of Obligor by contract or otherwise.
"Change of Ownership" shall mean (a) 50% or more of the Equity Interests
of Obligor is no longer owned or controlled by (including for the purposes
of the calculation of percentage ownership, any Equity Interests into
which any Equity Interests of Obligor held by any of the Original Owners
are convertible or for which any such Equity Interests of Obligor or of
any other Person may be exchanged and any Equity Interests issuable to
such Original Owners upon exercise of any warrants, options or similar
rights which may at the time of calculation be held by such Original
Owners) a Person who is an Original Owner or (b) any merger, consolidation
or sale of substantially all of the property or assets of Obligor.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all Investment Property;
(f) all Real Property;
(g) all Subsidiary Stock;
(h) the Leasehold Interests;
(i) all of Obligor's right, title and interest in and to, whether
now owned or hereafter acquired and wherever located, (i) its
respective goods and other property including, but not limited
to, all merchandise returned or rejected by Customers,
relating to or securing any of the Receivables; (ii) all of
Obligor's rights as a consignor, a consignee, an unpaid
vendor, mechanic, artisan, or other lienor, including stoppage
in transit, setoff, detinue, replevin, reclamation and
repurchase; (iii) all additional amounts due to Obligor from
any Customer relating to the Receivables; (iv) other property,
including warranty claims, relating to any goods securing the
Obligations; (v) all of Obligor's contract rights, rights of
payment which have been earned under a contract right,
instruments (including promissory notes), documents, chattel
paper (including electronic chattel paper), warehouse
receipts, deposit accounts, letters of credit and money; (vi)
all commercial tort claims (whether now existing or hereafter
arising); (vii) if and when obtained by Obligor, all real and
personal property of third
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EXECUTION ORIGINALS
parties in which Obligor has been granted a lien or security
interest as security for the payment or enforcement of
Receivables; (viii) all letter of credit rights (whether or
not the respective letter of credit is evidenced by a
writing); (ix) all supporting obligations; and (x) any other
goods, personal property or real property now owned or
hereafter acquired in which Obligor has expressly granted a
security interest or may in the future grant a security
interest to Agent hereunder, or in any amendment or supplement
hereto or thereto, or under any other agreement between Agent
and Obligor;
(j) all of Obligor's ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers,
computers, computer software (owned by Obligor or in which it
has an interest), computer programs, tapes, disks and
documents relating to (a), (b), (c), (d), (e), (f), (g), (h)
or (i) of this Paragraph; and
all proceeds and products of (a), (b), (c), (d), (e), (f), (g), (h), (i)
and (j) in whatever form, including, but not limited to: cash, deposit
accounts (whether or not comprised solely of proceeds), certificates of
deposit, insurance proceeds (including hazard, flood and credit
insurance), negotiable instruments and other instruments for the payment
of money, chattel paper, security agreements, documents, eminent domain
proceeds, condemnation proceeds and tort claim proceeds.
"Eligible Inventory" shall mean and include Inventory of the Borrower,
specifically including work in process, valued at the lower of cost or
market value, determined on a first-in-first-out basis, which is not, in
Agent's opinion, obsolete, slow moving or unmerchantable and which Agent,
in its sole discretion, shall not deem ineligible Inventory, based on such
considerations as Agent may from time to time deem appropriate including
whether the Inventory is subject to a perfected, first priority security
interest in favor of Agent and no other Lien (other than a Permitted
Encumbrance). In addition, Inventory shall not be Eligible Inventory if it
(i) does not conform to all standards imposed by any Governmental Body
which has regulatory authority over such goods or the use or sale thereof,
(ii) is in transit, (iii) is located outside the continental United States
or at a location that is not otherwise in compliance with this Agreement,
(iv) constitutes Consigned Inventory, (v) is the subject of an
Intellectual Property Claim; (vi) is subject to a License Agreement or
other agreement that limits, conditions or restricts Borrower's or Agent's
right to sell or otherwise dispose of such Inventory, unless Agent is a
party to a Licensor/Agent Agreement with the Licensor under such License
Agreement; or (vii) or is situated at a location not owned by Borrower
unless the owner or occupier of such location has executed in favor of
Agent a Lien Waiver Agreement. Eligible Inventory shall include all
Inventory in-transit for which title has passed to Borrower, which is
insured to the full value thereof and for which Agent shall have in its
possession (a) all negotiable bills of lading properly endorsed and (b)
all non-negotiable bills of lading issued in Agent's name.
"Equipment" shall mean and include all of Obligor's goods (other than
Inventory) whether now owned or hereafter acquired and wherever located
including all equipment, machinery, apparatus, motor vehicles, fittings,
furniture, furnishings, fixtures, parts, accessories and all replacements
and substitutions therefor or accessions thereto.
"General Intangibles" shall mean and include all of Obligor's general
intangibles, whether now owned or hereafter acquired, including all
payment intangibles, all choses in action, causes of action, corporate or
other business records, inventions, designs, patents, patent applications,
equipment formulations, manufacturing procedures, quality control
procedures, trademarks, trademark applications, service marks, trade
secrets, goodwill, copyrights, design rights, software, computer
information, source codes, codes, records and updates, registrations,
licenses, franchises, customer lists, tax refunds, tax refund claims,
computer programs, all claims under guaranties, security interests or
other security held by or granted to Obligor to secure payment of any of
the Receivables by a Customer (other than to the extent covered by
Receivables) all rights of indemnification and all other intangible
property of every kind and nature (other than Receivables).
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EXECUTION ORIGINALS
"Intellectual Property Claim" shall mean the assertion by any Person of a
claim (whether asserted in writing, by action, suit or proceeding or
otherwise) that Obligor's ownership, use, marketing, sale or distribution
of any Inventory, Equipment, Intellectual Property or other property or
asset is violative of any ownership of or right to use any Intellectual
Property of such Person.
"Inventory" shall mean and include all of Obligor's now owned or hereafter
acquired goods, merchandise and other personal property, wherever located,
to be furnished under any consignment arrangement, contract of service or
held for sale or lease, all raw materials, work in process, finished goods
and materials and supplies of any kind, nature or description which are or
might be used or consumed in Obligor's business or used in selling or
furnishing such goods, merchandise and other personal property, and all
documents of title or other documents representing them.
"Inventory Sublimit" shall mean $8,250,000.
"Investment Property" shall mean and include all of Obligor's now owned or
hereafter acquired securities (whether certificated or uncertificated),
securities entitlements, securities accounts, commodities contracts and
commodities accounts.
"Leasehold Interests" shall mean all of Obligor's right, title and
interest in and to the premises set forth on Schedule 1.2(a) attached
hereto.
"License Agreement" shall mean any agreement between Obligor and a
Licensor pursuant to which Obligor is authorized to use any Intellectual
Property in connection with the manufacturing, marketing, sale or other
distribution of any Inventory of Obligor or otherwise in connection with
Obligor's business operations.
"Licensor" shall mean any Person from whom Obligor obtains the right to
use (whether on an exclusive or non-exclusive basis) any Intellectual
Property in connection with Obligor's manufacture, marketing, sale or
other distribution of any Inventory or otherwise in connection with
Obligor's business operations.
"Licensor/Agent Agreement" shall mean an agreement between Agent and a
Licensor, in form and content satisfactory to Agent, by which Agent is
given the unqualified right, vis-a-vis such Licensor, to enforce Agent's
Liens with respect to and to dispose of Obligor's Inventory with the
benefit of any Intellectual Property applicable thereto, irrespective of
Obligor's default under any License Agreement with such Licensor.
"Maximum Loan Amount" shall mean $15,830,090 less repayments of the Term
Loan, the Converted Equipment Loans and Equipment Loans.
"Maximum Revolving Advance Amount" shall mean $14,000,000.
"Multiple Employer Plan" shall mean a Plan which has two or more
contributing sponsors (including the Obligor or any member of the
Controlled Group) at least two of whom are not under common control, as
such a plan is described in Section 4064 of ERISA.
"Obligations" shall mean and include any and all loans, advances, debts,
liabilities, obligations, covenants and duties owing by the Obligor to
Lenders or Agent or to any other direct or indirect subsidiary or
affiliate of Agent or any Lender of any kind or nature, present or future
(including any interest accruing thereon after maturity, or after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding relating to the Obligor,
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), whether or not evidenced by any note,
guaranty or other instrument, whether arising under any agreement,
instrument or document, (including this Agreement and the Other Documents)
whether or not for the payment of money, whether arising by reason of an
extension of credit, opening of a letter of credit, loan,
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EXECUTION ORIGINALS
equipment lease or guarantee, under any interest or currency swap, future,
option or other similar agreement, or in any other manner, whether arising
out of overdrafts or deposit or other accounts or electronic funds
transfers (whether through automated clearing houses or otherwise) or out
of the Agent's or any Lenders non-receipt of or inability to collect funds
or otherwise not being made whole in connection with depository transfer
check or other similar arrangements, whether direct or indirect (including
those acquired by assignment or participation), absolute or contingent,
joint or several, due or to become due, now existing or hereafter arising,
contractual or tortious, liquidated or unliquidated, regardless of how
such indebtedness or liabilities arise or by what agreement or instrument
they may be evidenced or whether evidenced by any agreement or instrument,
including, but not limited to, any and all of Obligor's Indebtedness
and/or liabilities under this Agreement, the Other Documents or under any
other agreement between Agent or Lenders and Obligor and any amendments,
extensions, renewals or increases and all costs and expenses of Agent and
any Lender incurred in the documentation, negotiation, modification,
enforcement, collection or otherwise in connection with any of the
foregoing, including but not limited to reasonable attorneys' fees and
expenses and all obligations of Obligor to Agent or Lenders to perform
acts or refrain from taking any action.
"Other Documents" shall mean the Note, the Guaranty, the Mortgage, the
Assignment of Rents, Leases and Profits, the Environmental Indemnity
Agreement, any Lender-Provided Interest Rate Hedge and any and all other
agreements, instruments and documents, including guaranties, pledges,
powers of attorney, consents, interest or currency swap agreements or
other similar agreements and all other writings heretofore, now or
hereafter executed by Borrower or any Guarantor and/or delivered to Agent
or any Lender in respect of the transactions contemplated by this
Agreement.
"Ordinary Course of Business" shall mean the ordinary course of Obligor's
business as conducted on the Closing Date.
"Original Owners" shall mean (i) with regard to the Borrower, Air Group,
and (ii) with regard to WM, the Borrower.
"Permitted Encumbrances" shall mean (a) Liens in favor of Agent for the
benefit of Agent and Lenders; (b) Liens for taxes, assessments or other
governmental charges not delinquent or being contested in good faith and
by appropriate proceedings and with respect to which proper reserves have
been taken by Obligor; provided, that, the Lien shall have no effect on
the priority of the Liens in favor of Agent or the value of the assets in
which Agent has such a Lien and a stay of enforcement of any such Lien
shall be in effect; (c) Liens disclosed in the financial statements
referred to in Section 5.5, the existence of which Agent has consented to
in writing; (d) deposits or pledges to secure obligations under worker's
compensation, social security or similar laws, or under unemployment
insurance; (e) deposits or pledges to secure bids, tenders, contracts
(other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the Ordinary Course of Business; (f) Liens arising by virtue of
the rendition, entry or issuance against Obligor or any Subsidiary, or any
property of Obligor or any Subsidiary, of any judgment, writ, order, or
decree for so long as each such Lien (a) is in existence for less than 20
consecutive days after it first arises or is being Properly Contested and
(b) is at all times junior in priority to any Liens in favor of Agent; (g)
mechanics', workers', materialmen's or other like Liens arising in the
Ordinary Course of Business with respect to obligations which are not due
or which are being contested in good faith by Obligor; (h) Liens placed
upon fixed assets hereafter acquired to secure a portion of the purchase
price thereof, provided that (x) any such lien shall not encumber any
other property of Obligor and (y) the aggregate amount of Indebtedness
secured by such Liens incurred as a result of such purchases during any
fiscal year shall not exceed the amount provided for in Section 7.6; (i)
other Liens incidental to the conduct of Obligor's business or the
ownership of its property and assets which were not incurred in connection
with the borrowing of money or the obtaining of advances or credit, and
which do not in the aggregate materially detract from Agent's or Lenders'
rights in and to the Collateral or the value of Obligor's property or
assets or which do not materially impair the use thereof in the operation
of Obligor's business; and (j) Liens disclosed on Schedule 1.2.
5
EXECUTION ORIGINALS
"Plan" shall mean any employee benefit plan within the meaning of Section
3(3) of ERISA (including a Pension Benefit Plan), maintained for employees
of Obligor or any member of the Controlled Group or any such Plan to which
Obligor or any member of the Controlled Group is required to contribute on
behalf of any of its employees.
"Real Property" shall mean all of Obligor's right, title and interest in
and to the owned and leased premises identified on Schedule 4.19 hereto.
"Receivables" shall mean and include, as to Obligor, all of Obligor's
accounts, contract rights, instruments (including those evidencing
indebtedness owed to Obligor by its Affiliates), documents, chattel paper
(including electronic chattel paper), general intangibles relating to
accounts, drafts and acceptances, credit card receivables and all other
forms of obligations owing to Obligor arising out of or in connection with
the sale or lease of Inventory or the rendition of services, all
supporting obligations, guarantees and other security therefor, whether
secured or unsecured, now existing or hereafter created, and whether or
not specifically sold or assigned to Agent hereunder.
"Subsidiary Stock" shall mean all of the issued and outstanding Equity
Interests of any Subsidiary owned by the Obligor (not to exceed 65% of the
Equity Interests of any Foreign Subsidiary).
"Termination Event" shall mean (i) a Reportable Event with respect to any
Plan or Multiemployer Plan; (ii) the withdrawal of Obligor or any member
of the Controlled Group from a Plan or Multiemployer Plan during a plan
year in which such entity was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA; (iii) the providing of notice of intent to
terminate a Plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the institution by the PBGC of proceedings to terminate a Plan
or Multiemployer Plan; (v) any event or condition (a) which might
constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Plan or Multiemployer
Plan, or (b) that may result in termination of a Multiemployer Plan
pursuant to Section 4041A of ERISA; or (vi) the partial or complete
withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of
Obligor or any member of the Controlled Group from a Multiemployer Plan.
(c) The following definitions are hereby added to Section 1.2 of the
Loan Agreement to read as follows:
"Air Group" shall mean Air Industries Group, Inc., a corporation organized
under the laws of the State of Delaware, f/k/a Gales Industries
Incorporated.
"Fourth Amendment Closing Date" shall mean August 24, 2007.
"Guarantor" shall mean Air Group, WM and any other Person who may
hereafter guarantee payment or performance of the whole or any part of the
Obligations and "Guarantors" means collectively all such Persons.
"Guaranty" shall mean any guaranty of the obligations of Borrower executed
by a Guarantor in favor of Agent for its benefit and for the ratable
benefit of Lenders.
"Obligor" shall mean, collectivley, the Borrower, Air Group and WM.
"Steel City Subordinated Credit Facility" means that certain credit
facility extended by Steel City Capital Funding ("Steel City") and any
future lending institutions which may be added from time to time
thereunder, in the maximum principal amount of $4,500,000 as evidenced by
a certain Term Loan and Security Agreement by and among the Borrower, WM
and Steel City dated August __, 2007 which is subordinate to the credit
facilities extended by the Lenders pursuant to this Agreement and the Loan
Documents, together with any replacement Subordinated Debt secured by the
Obligors on terms reasonably satisfactory to the Lenders and subordinated
pursuant to a Subordination Agreement.
6
EXECUTION ORIGINALS
"Subordinated Debt" shall mean the Indebtedness evidenced by the
Subordinated Loan Documentation.
"Subordinated Loan Documentation" shall mean the Subordination Agreement,
the Subordinated Note and other documents with regard thereto.
"Subordinated Note" means, collectively, the promissory notes issued from
time to time to evidence the Borrower's and WM's indebtedness under the
Steel City Subordinated Credit Facility.
"Subordination Agreement" means that certain Subordination and
Intercreditor Agreement by and among the Obligor, the Agent for the
Lenders and Steel City dated August 24, 2007.
"WM" shall mean Welding Metallurgy, Inc., a corporation organized under
the laws of the State of New York.
(d) Section 5.17 of the Loan Agreement is deleted, and is replaced by a
new Section 5.17 to read as follows:
5.17 Disclosure. No representation or warranty made by Obligor in
this Agreement, the Subordinated Loan Documentation or in the Acquisition
Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith or therewith contains any untrue
statement of fact or omits to state any fact necessary to make the
statements herein or therein not misleading. There is no fact known to
Obligor or which reasonably should be known to Obligor which Obligor has
not disclosed to Agent in writing with respect to the transactions
contemplated by the Subordinated Loan Documentation, the Acquisition
Agreement or this Agreement which could reasonably be expected to have a
Material Adverse Effect.
(e) Section 5.18 of the Loan Agreement is deleted, and is replaced by a
new Section 5.18 to read as follows:
5.18 Delivery of Subordinated Loan Documentation and Acquisition
Agreement. Agent has received complete copies of the Subordinated Loan
Documentation and the Acquisition Agreement (including all exhibits,
schedules and disclosure letters referred to therein or delivered pursuant
thereto, if any) and all amendments thereto, waivers relating thereto and
other side letters or agreements affecting the terms thereof. None of such
documents and agreements has been amended or supplemented, nor have any of
the provisions thereof been waived, except pursuant to a written agreement
or instrument which has heretofore been delivered to Agent.
(f) Section 6.5 of the Loan Agreement is deleted, and is replaced by a new
Section 6.5 to read as follows:
6.5 Financial Covenants.
(a) Tangible Net Worth. Maintain at all times a Tangible Net
Worth in an amount not less than (i) $9,500,000 as of the Fourth Amendment
Closing Date and from the Fourth Amendment Closing Date through and
including December 30, 2007 and (ii) as of December 31, 2008, an amount
equal to the Borrower's Tangible Net Worth for the fiscal year ended
December 31, 2007 plus an amount equal to fifty (50%) percent of the
Borrower's Net Income for fiscal year ending December 31, 2008, which
amount shall increase annually on December 31st of each year thereafter by
not less than an amount equal to fifty (50%) percent of the Borrower's Net
Income for the immediately ended fiscal year, tested annually on a
consolidated basis.
(b) Fixed Charge Coverage Ratio. Maintain at all times a Fixed
Charge Coverage Ratio of not less than 1.25 to 1.00, tested quarterly on a
consolidated, rolling four quarter basis.
7
EXECUTION ORIGINALS
(g) Section 7.7 of the Loan Agreement is deleted, and is replaced by a new
Section 7.7 to read as follows:
7.7 Dividends. Declare, pay or make any dividend or distribution on
any shares of the common stock or preferred stock of Obligor (other than
dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock) or apply any of its funds, property or
assets to the purchase, redemption or other retirement of any common or
preferred stock, or of any options to purchase or acquire any such shares
of common or preferred stock of Obligor provided, however, that from and
after January 1, 2009, dividends may be paid in cash to the shareholders
of the Obligor as long as (a) after taking said dividend into effect,
Undrawn Availability is equal to or greater than $3,000,000 during the
period commencing thirty (30) days prior to the date that such dividend is
made and ending thirty (30) days after the date that such dividend is
made, (b) no Default and/or Event of Default exists at the time of payment
of any such dividend, and (c) no Default and/or Event of Default shall
exist after giving effect to the payment of any such dividend.
(h) Section 7.8 of the Loan Agreement is deleted, and is replaced by a new
Section 7.8 to read as follows:
7.8 Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt) except in respect of (i)
Indebtedness to Lenders; (ii) Indebtedness incurred for Capital
Expenditures permitted under Section 7.6 hereof; and (iii) Indebtedness
due under the Subordinated Loan Documentation.
(i) Section 7.21 of the Loan Agreement is deleted, and is replaced by a
new Section 7.21 to read as follows:
7.21 Other Agreements. Enter into any material amendment, waiver or
modification of the Acquisition Agreement, the Subordinated Loan
Documentation or any related agreements.
(j) Section 7.23 is hereby added to the Loan Agreement to read as follows:
7.23 Subordinated Note. At any time, directly or indirectly, pay,
prepay, repurchase, redeem, retire or otherwise acquire, or make any
payment on account of any principal of, interest on or premium payable in
connection with the repayment or redemption of the Subordinated Note,
except as expressly permitted in the Subordination Agreement.
(k) Section 9.5 of the Loan Agreement is deleted, and is replaced by a new
Section 9.5 to read as follows:
9.5 Material Occurrences. Promptly notify Agent in writing upon the
occurrence of (a) any Event of Default or Default; ; (b) any event of
default under the Subordinated Loan Documentation; (c) any event which
with the giving of notice or lapse of time, or both, would constitute an
event of default under the Subordinated Loan Documentation; (d) any event,
development or circumstance whereby any financial statements or other
reports furnished to Agent fail in any material respect to present fairly,
in accordance with GAAP consistently applied, the financial condition or
operating results of Borrower as of the date of such statements; (e) any
accumulated retirement plan funding deficiency which, if such deficiency
continued for two plan years and was not corrected as provided in Section
4971 of the Code, could subject Obligor to a tax imposed by Section 4971
of the Code; (f) each and every default by Obligor which might result in
the acceleration of the maturity of any Indebtedness, including the names
and addresses of the holders of such Indebtedness with respect to which
there is a default existing or with respect to which the maturity has been
or could be accelerated, and the amount of such Indebtedness; and (g) any
other development in the business or affairs of Obligor which could
reasonably be expected to have a Material Adverse Effect; in each case
describing the nature thereof and the action Obligor propose to take with
respect thereto.
8
EXECUTION ORIGINALS
(l) Section 9.10 of the Loan Agreement is deleted, and is replaced by a
new Section 9.10 to read as follows:
9.10 Other Reports. Furnish Agent as soon as available, but in any
event within ten (10) days after the issuance thereof, with (i) copies of
such financial statements, reports and returns as Borrower shall send to
its stockholders and (ii) copies of all notices, reports, financial
statements and other materials sent pursuant to the Subordinated Loan
Documentation.
(m) Section 10.19 is hereby added to the Loan Agreement to read as
follows:
10.19 Subordinated Loan Default. An event of default has occurred
under the Subordinated Loan Documentation, which default shall not have
been cured or waived within any applicable grace period.
(n) Section 15.9 of the Loan Agreement is deleted, and is replaced by a
new Section 15.9 to read as follows:
15.9 Expenses. All costs and expenses including reasonable
attorneys' fees (including the allocated costs of in house counsel) and
disbursements incurred by Agent on its behalf or on behalf of Lenders and
Lenders (a) in all efforts made to enforce payment of any Obligation or
effect collection of any Collateral, or (b) in connection with the
entering into, modification, amendment, administration and enforcement of
this Agreement, the Subordination Agreement or any consents or waivers
hereunder or thereunder and all related agreements, documents and
instruments, or (c) in instituting, maintaining, preserving, enforcing and
foreclosing on Agent's security interest in or Lien on any of the
Collateral, or maintaining, preserving or enforcing any of Agent's or any
Lender's rights hereunder, under the Subordination Agreement and under all
related agreements, documents and instruments, whether through judicial
proceedings or otherwise, or (d) in defending or prosecuting any actions
or proceedings arising out of or relating to Agent's or any Lender's
transactions with any Borrower, any Guarantor or any Subordinated Lender
or (e) in connection with any advice given to Agent or any Lender with
respect to its rights and obligations under this Agreement, the
Subordination Agreement and all related agreements, documents and
instruments, may be charged to Borrowers' Account and shall be part of the
Obligations.
(o) In Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11,
4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 5.1, 5.2, 5.3, 5.6,
5.7, 5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17, 5.19, 5.20,
5.21, 5.22, 5.23, 5.24, 5.25, 5.26, 6.2, 6.3, 6.4, 6.6, 6.8, 6.9, 6.11,
7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.12, 7.13, 7.14, 7.15,
7.16, 7.17, 7.18, 7.19, 7.20, 8.2, 9.1, 9.2, 9.3, 9.4, 9.5, 9.6, 9.7, 9.8,
9.9, 9.10, 9.11, 9.12, 9.13, 9.14, 9.15, 9.16, 10.2, 10.3, 10.4, 10.5,
10.6, 10.7, 10.8, 10.9, 10.10, 10.11, 10.12, 10.13, 10.14, 10.15, 10.16,
10.17, 10.18, 11.1, 11.3, 12.1, 12.3, 13.1, 13.2, 14.2, 14.3, 14.6, 14.7,
14.8, 14.11, 14.12, 15.1, 15.2, 15.3, 15.4, 15.5, 15.6, 15.7, 15.10,
15.11, 15.15 and 15.16, the term "Borrower" is hereby replaced with the
term "Obligor" throughout. Furthermore, in the opening phrase of Sections
5, 6, 7 and 9, the term "Borrower" is hereby replaced with the term
"Obligor" throughout.
3) SCHEDULES. All revised schedules to the Loan Agreement attached hereto on
Exhibit A replace the applicable existing schedules and are incorporated
into the Loan Agreement and the other Loan Documents by reference.
4) CONSENT TO ACQUISITION. Notwithstanding anything to the contrary in the
Loan Agreement and/or any Other Document, the Lenders hereby consent to
the acquisition by the Borrower of all of the stock of WM from the WM
Seller (the "WM Acquisition") provided, however, that the Borrower
provides to the Agent for review copies of all acquisition documentation
(including, but not limited to, the applicable Stock Purchase Agreement
and all UCC and other searches against the WM Seller) and other materials
evidencing the WM Acquisition, all in form and substance acceptable to the
Agent (collectively, the "WM Acquisition Documents").
5) CONSENT TO SUBORDINATED INDEBTEDNESS. Notwithstanding anything to the
contrary in the Loan Agreement and/or any Loan Document, the Lenders
hereby consent to the Obligors entering
9
EXECUTION ORIGINALS
into the Steel City Subordinated Credit Facility and the documents
evidencing or securing the same and incurring the Subordinated Debt for
the uses and purposes provided for therein provided, however, that (i) the
Obligor provides to the Agent for review copies of all documentation
evidencing the Steel City Subordinated Credit Facility, all in form and
substance acceptable to the Agent (collectively, the "Steel City
Subordinated Debt Documents"), (ii) the Agent for the Lenders and Steel
City, as agent for certain other financial institutions, enter into a
certain Subordination and Intercreditor Agreement in form and substance
acceptable to the Agent, (iii) the maximum principal amount of the
Obligor's obligations under the Steel City Subordinated Credit Facility
does not exceed $4,500,000 at any time and (iv) the Obligor shall not
repay in part from time to time and/or in full the principal obligations
under the Steel City Subordinated Credit Facility.
6) CONSENT TO PLEDGE. Notwithstanding anything to the contrary in the Loan
Agreement and/or any Loan Document, the Lenders hereby consent to (i) the
pledge by the Borrower of all of the stock of WM to Steel City (the "WM
Pledge") provided, however, that the Borrower provides to the Agent for
review copies of all documentation applicable to the WM Pledge (including,
but not limited to, the applicable Pledge Agreement, stock powers and
stock transfers, and any other materials evidencing the WM Pledge, all in
form and substance acceptable to the Agent (collectively, the "WM Pledge
Documents") and (ii) the pledge by Air Group of all of the stock of each
Borrower to Steel City (collectively, the "Borrower Pledge") provided,
however, that Air Group provides to the Agent for review copies of all
documentation applicable to the Borrower Pledge (including, but not
limited to, the applicable Pledge Agreement, stock powers and stock
transfers, and any other materials evidencing the Borrower Pledge, all in
form and substance acceptable to the Agent (collectively, the "Borrower
Pledge Documents").
7) ACKNOWLEDGMENTS. Borrower acknowledges and represents that:
(A) the Loan Agreement and Other Documents, as amended hereby, are in full
force and effect without any defense, claim, counterclaim, right or claim
of set-off;
(B) to the best of its knowledge, no default by the Agent or Lenders in
the performance of their duties under the Loan Agreement or the Other
Documents has occurred;
(C) all representations and warranties of the Borrower contained herein,
in the Loan Agreement and in the Other Documents are true and correct in
all material respects as of this date, except for any representation or
warranty that specifically refers to an earlier date;
(D) Borrower has taken all necessary action to authorize the execution and
delivery of this Agreement; and
(E) this Agreement is a modification of an existing obligation and is not
a novation.
8) PRECONDITIONS. As a precondition to the effectiveness of any of the
modifications, consents, or waivers contained herein, the Borrower agrees
to:
(A) provide the Agent with this Agreement, properly executed;
(B) provide the Agent with revised schedules to the Loan Agreement;
(C) provide the Agent with the Second Amended and Restated Revolving
Credit Note, each Guaranty and Suretyship Agreement executed by Air Group
and WM, the Power of Attorney of Air Group and WM and the Financial
Condition Certificate, all properly executed;
(D) provide the Agent with a certificate of insurance with regard to Air
Group and WM in form and substance satisfactory to the Agent;
(E) provide the Agent with a Certificate of Incorporation of Air Group, WM
and WMS Merger Corp. ("Merger Corp."), certified by the Secretary of State
of incorporation;
(F) provide the Agent with Certificates of Good Standing of Air Group, WM
and A/S Sub Corp. from their State of incorporation and all States in
which each is qualified to do business;
10
EXECUTION ORIGINALS
(G) provide the Agent with a copy of all Warehouse Agreements, Leases and
Subleases of Air Group and WM with respect to each location as well as
Warehouseman's Agreements and/or Landlord's Agreements with regard thereto
in form and substance acceptable to the Agent;
(H) provide the Agent a list of intellectual property of Air Group and WM
including trademarks and trademark applications, patents and patent
applications, copyrights and copyright applications, together with a
search/abstract relating to the same;
(I) provide the Agent a certified copies of Certificates of
Fictitious/Assumed Names of Air Group, WM and Merger Corp.;
(J) provide the Agent a certificate from Air Group's and WM's accountant,
attorney or actuary delineating existing pension/profit sharing plans, as
well as compliance with ERISA;
(K) provide the Agent a copy of union contracts regarding WM and Air
Group;
(L) provide the Agent a summary of all existing litigation of WM and Air
Group;
(M) review by the Agent of all books and records of WM and Air Group as
well as all trade references for WM and Air Group;
(N) provide the Agent with a privity letter from Air Group's and WM's
accountant;
(O) provide the Agent with all documentation with regard to stock issuance
with regard to Merger Corp. in favor of Air and Sigma;
(P) provide the Agent with the WM Acquisition Documents (including, but
not limited to, evidence of merger of Merger Corp. with and into WM), the
Steel City Subordinated Debt Documents and the Subordination Agreement;
(Q) provide the Agent all material contracts (including, but not limited
to, all employment agreements) and management/option/warrant/shareholder
agreements of WM and Air Group;
(R) provide the Agent with UCC, Federal and State Litigation, Federal and
Local Judgment, Bankruptcy, Franchise Tax, Federal and State Tax Lien
Searches conducted at the State level in the State where Air Group, WM and
Merger Corp. each is incorporated, run against the name of Air Group, WM
and Merger Corp. and against the names of all entities which were acquired
by or merged into Air Group, WM and Merger Corp.;
(S) provide the Agent with evidence that Air Group and WM has each
established and is maintaining its operating accounts with the Agent;
(T) receipt and satisfactory review by Agent of most recent interim and
annual financial statements and federal and state tax returns of WM and
Air Group;
(U) receipt and satisfactory legal review by Agent of the Federal
Acquisition Regulations requirements and customer military contracts to
confirm that no offset shall occur with regard to accounts receivable
availability based on advanced/progress billings;
(V) receipt and Satisfactory review by Agent of an Orderly Liquidation
Valuation Appraisal of WM's and Air Group's machinery and equipment;
(W) receipt and satisfactory review by Agent of 1st West investigation;
(X) receipt by Agent of quarterly and annual projections of WM and Air
Group for the immediately succeeding year;
(Y) receipt by Agent pay-off letter with regard to JPMorgan Chase along
with all applicable UCC-3 termination statements;
(Z) provide the Agent with an opinion of counsel to Borrower and Guarantor
in form and substance acceptable to the Agent;
11
EXECUTION ORIGINALS
(AA) provide the Agent with secretary's certificates and resolutions from
the Borrower, Guarantor and Merger Corp., in form and substance acceptable
to the Agent;
(BB) pay to the Agent an amendment fee in the amount of $10,000;
(CC) pay all legal fees incurred by the Agent in entering into this
Agreement to Wilentz, Goldman & Spitzer;
(DD) pay all other fees and costs incurred by the Lenders in entering into
this Agreement; and
(EE) receipt by Agent of foreign credit insurance policy of the WM
properly assigned to the Agent.
9) MISCELLANEOUS. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, without reference to that
state's conflicts of law principles. This Agreement, the Loan Agreement
and the Other Documents constitute the sole agreement of the parties with
respect to the subject matter thereof and supersede all oral negotiations
and prior writings with respect to the subject matter thereof. No
amendment of this Agreement, and no waiver of any one or more of the
provisions hereof shall be effective unless set forth in writing and
signed by the parties hereto. The illegality, unenforceability or
inconsistency of any provision of this Agreement shall not in any way
affect or impair the legality, enforceability or consistency of the
remaining provisions of this Agreement, the Loan Agreement or the Other
Documents. This Agreement, the Loan Agreement and the Other Documents are
intended to be consistent. However, in the event of any inconsistencies
among this Agreement, the Loan Agreement and/or any of the Other
Documents, the terms of this Agreement, then the Loan Agreement, shall
control. This Agreement may be executed in any number of counterparts and
by the different parties on separate counterparts. Each such counterpart
shall be deemed an original, but all such counterparts shall together
constitute one and the same agreement.
10) DEFINITIONS. The terms used herein and not otherwise defined or modified
herein shall have the meanings ascribed to them in the Loan Agreement. The
terms used herein and not otherwise defined or modified herein or defined
in the Loan Agreement shall have the meanings ascribed to them by the
Uniform Commercial Code as enacted in State of New York.
12
EXECUTION ORIGINALS
IN WITNESS WHEREOF, the undersigned have signed and sealed this Agreement
the day and year first above written.
ATTEST: AIR INDUSTRIES MACHINING, CORP.
By: /s/ DARIO PERAGALLO By: /s/ LOUIS A. GIUSTO
------------------- --------------------------------------
Name: DARIO PERAGALLO Name: LOUIS A. GIUSTO
Title: Secretary Title: Vice President
ATTEST: SIGMA METALS, INC.
By: /s/ DARIO PERAGALLO By: /s/ LOUIS A. GIUSTO
------------------- --------------------------------------
Name: DARIO PERAGALLO Name: LOUIS A. GIUSTO
Title: Secretary Title: Vice President
ATTEST: WELDING METALLURGY, INC. (as successor by
merger with WMS Merger Corp.)
By: /s/ DARIO PERAGALLO
-------------------
Name: DARIO PERAGALLO By: /s/ LOUIS A. GIUSTO
Title: Secretary --------------------------------------
Name: LOUIS A. GIUSTO
Title: Vice President
ATTEST: AIR INDUSTRIES GROUP, INC.
(f/k/a Gales Industries Incorporated)
By: /s/ DARIO PERAGALLO
-------------------
Name: DARIO PERAGALLO By: /s/ LOUIS A. GIUSTO
Title: Secretary --------------------------------------
Name: LOUIS A. GIUSTO
Title: Executive Vice President
PNC BANK, NATIONAL ASSOCIATION
Lender and as Agent
By: /s/ A. ROGER CRAIG, JR.
--------------------------------------
Name: A. ROGER CRAIG, JR.
Title: Vice President
13
Exhibit 10.6
TERM LOAN
AND
SECURITY AGREEMENT
STEEL CITY CAPITAL FUNDING LLC
(AS TERM B LENDER)
WITH
AIR INDUSTRIES MACHINING, CORP.,
SIGMA METALS, INC., and
WELDING METALLURGY, INC.
(COLLECTIVELY, THE BORROWER)
August 24, 2007
TABLE OF CONTENTS
PAGE
I. DEFINITIONS............................................................1
1.1. Accounting Terms.............................................1
1.2. General Terms................................................1
1.3. Uniform Commercial Code Terms...............................17
1.4. Certain Matters of Construction.............................18
II. TERM LOAN, PAYMENTS...................................................18
2.1. Term Loan...................................................19
2.2. Procedure for Eurodollar Rate Loan Election.................19
2.3. Disbursement of Term Loan Proceeds..........................21
2.4. Repayment of Term Loan......................................21
2.5. Statement of Account........................................21
2.6. Additional Payments.........................................21
2.7. Mandatory Prepayments.......................................21
2.8. Use of Proceeds.............................................22
III. INTEREST AND FEES.....................................................22
3.1. Interest....................................................22
3.2. Closing Fee.................................................22
3.3. Computation of Interest and Fees............................22
3.4. Maximum Charges.............................................22
3.5. Increased Costs.............................................23
3.6. Basis For Determining Interest Rate Inadequate or Unfair....23
3.7. Capital Adequacy............................................24
3.8. Gross Up for Taxes..........................................25
3.9. Withholding Tax Exemption...................................25
IV. COLLATERAL: GENERAL TERMS............................................26
4.1. Security Interest in the Collateral.........................26
4.2. Perfection of Security Interest.............................26
4.3. Disposition of Collateral...................................27
4.4. Preservation of Collateral..................................27
4.5. Ownership of Collateral.....................................27
4.6. Defense of Term B Lender's Interests........................28
4.7. Books and Records...........................................28
4.8. Financial Disclosure........................................28
4.9. Compliance with Laws........................................29
4.10. Inspection of Premises......................................29
4.11. Insurance...................................................29
4.12. Failure to Pay Insurance....................................30
4.13. Payment of Taxes............................................30
4.14. Payment of Leasehold Obligations............................31
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4.15. Receivables.................................................31
4.16. Inventory...................................................33
4.17. Maintenance of Equipment....................................33
4.18. Exculpation of Liability....................................33
4.19. Environmental Matters.......................................34
4.20. Financing Statements........................................36
V. REPRESENTATIONS AND WARRANTIES........................................36
5.1. Authority...................................................36
5.2. Formation and Qualification.................................36
5.3. Survival of Representations and Warranties..................37
5.4. Tax Returns.................................................37
5.5. Financial Statements........................................37
5.6. Entity Name.................................................37
5.7. O.S.H.A. and Environmental Compliance.......................37
5.8. Solvency; No Litigation, Violation, Indebtedness or
Default.....................................................38
5.9. Patents, Trademarks, Copyrights and Licenses................39
5.10. Licenses and Permits........................................40
5.11. Default of Indebtedness.....................................40
5.12. No Default..................................................40
5.13. No Burdensome Restrictions..................................40
5.14. No Labor Disputes...........................................40
5.15. Margin Regulations..........................................40
5.16. Investment Company Act......................................41
5.17. Disclosure..................................................41
5.18. Delivery of Acquisition Agreement and Subordinated Loan
Documentation...............................................41
5.19. Swaps.......................................................41
5.20. Conflicting Agreements......................................41
5.21. Application of Certain Laws and Regulations.................41
5.22. Business and Property of Borrower...........................41
5.23. Anti-Terrorism Laws.........................................42
5.24. Trading with the Enemy......................................42
5.25. Federal Securities Laws.....................................42
VI. AFFIRMATIVE COVENANTS.................................................43
6.1. Payment of Fees.............................................43
6.2. Conduct of Business and Maintenance of Existence and
Assets......................................................43
6.3. Violations..................................................43
6.4. Government Receivables......................................43
6.5. Financial Covenants.........................................43
6.6. Execution of Supplemental Instruments.......................44
6.7. Payment of Indebtedness.....................................44
6.8. Standards of Financial Statements...........................44
6.9. Federal Securities Laws.....................................44
6.10. Exercise of Rights..........................................45
6.11. Inventory Audits............................................45
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VII. NEGATIVE COVENANTS....................................................45
7.1. Merger, Consolidation, Acquisition and Sale of Assets.......45
7.2. Creation of Liens...........................................45
7.3. Guarantees..................................................45
7.4. Investments.................................................45
7.5. Loans.......................................................45
7.6. Capital Expenditures........................................46
7.7. Dividends...................................................46
7.8. Indebtedness................................................46
7.9. Nature of Business..........................................46
7.10. Transactions with Affiliates................................46
7.11. Leases......................................................46
7.12. Subsidiaries................................................46
7.13. Fiscal Year and Accounting Changes..........................47
7.14. Pledge of Credit............................................47
7.15. Amendment of Articles of Incorporation, By-Laws.............47
7.16. Compliance with ERISA.......................................47
7.17. Prepayment of Indebtedness..................................47
7.18. Anti-Terrorism Laws.........................................47
7.19. Membership/Partnership Interests............................48
7.20. Trading with the Enemy Act..................................48
7.21. Subordinated Note...........................................48
7.22. Other Agreements............................................48
7.23. Progress Payments...........................................48
VIII. CONDITIONS PRECEDENT..................................................48
8.1. Conditions to Term Loan.....................................48
IX. INFORMATION AS TO BORROWERS...........................................53
9.1. Disclosure of Material Matters..............................54
9.2. Schedules...................................................54
9.3. Environmental Reports.......................................54
9.4. Litigation..................................................54
9.5. Material Occurrences........................................54
9.6. Government Receivables......................................55
9.7. Annual Financial Statements.................................55
9.8. Quarterly Financial Statements..............................55
9.9. Monthly Financial Statements................................55
9.10. Other Reports...............................................56
9.11. Additional Information......................................56
9.12. Projected Operating Budget..................................56
9.13. Variances From Operating Budget.............................56
9.14. Notice of Suits, Adverse Events.............................56
9.15. ERISA Notices and Requests..................................56
9.16. Additional Documents........................................57
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X. EVENTS OF DEFAULT.....................................................57
10.1. Nonpayment..................................................57
10.2. Breach of Representation....................................57
10.3. Financial Information.......................................58
10.4. Judicial Actions............................................58
10.5. Noncompliance...............................................58
10.6. Judgments...................................................58
10.7. Bankruptcy..................................................58
10.8. Inability to Play...........................................58
10.9. Affiliate Bankruptcy........................................58
10.10. Material Adverse Effect.....................................59
10.11. Lien Priority...............................................59
10.12. Subordinated Loan Default...................................59
10.13. Senior Loan Default.........................................59
10.14. Cross Default...............................................59
10.15. Change of Ownership.........................................59
10.16. Invalidity..................................................59
10.17. Licenses....................................................59
10.18. Seizures....................................................59
10.19. Operations..................................................60
10.20. Pension Plans...............................................60
XI. TERM B LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT.....................60
11.1. Rights and Remedies.........................................60
11.2. Term B Lender's Discretion..................................62
11.3. Setoff......................................................62
11.4. Rights and Remedies not Exclusive...........................62
11.5. Allocation of Payments After Event of Default...............62
XII. WAIVERS AND JUDICIAL PROCEEDINGS......................................62
12.1. Waiver of Notice............................................63
12.2. Delay.......................................................63
12.3. Jury Waiver.................................................63
XIII. EFFECTIVE DATE AND TERMINATION........................................63
13.1. Term........................................................63
13.2. Termination.................................................64
XIV. BORROWING AGENCY......................................................64
14.1. Borrowing Agency Provisions.................................64
14.2. Waiver of Subrogation.......................................65
XV. MISCELLANEOUS.........................................................65
15.1. Governing Law...............................................65
15.2. Entire Understanding........................................65
15.3. Successors and Assigns; Participations; New Lenders.........66
15.4. Application of Payments.....................................68
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15.5. Indemnity...................................................68
15.6. Notice......................................................69
15.7. Survival....................................................70
15.8. Severability................................................70
15.9. Expenses....................................................70
15.10. Injunctive Relief...........................................71
15.11. Damages.....................................................71
15.12. Captions....................................................71
15.13. Counterparts; Facsimile Signatures..........................71
15.14. Construction................................................71
15.15. Confidentiality; Sharing Information........................71
15.16. Publicity...................................................72
15.17. Certifications From Banks and Participants;
US PATRIOT Act..............................................72
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List of Exhibits and Schedules
Exhibits
Exhibit 2.1 Term Note
Exhibit 8.1(k) Financial Condition Certificate
Exhibit 15.3 Commitment Transfer Supplement
Schedules
Schedule 1.2 Permitted Encumbrances
Schedule 1.2(a) Leasehold Interests
Schedule 4.5 Equipment and Inventory Locations
Schedule 4.15(h) Deposit and Investment Accounts
Schedule 4.19 Real Property
Schedule 5.1 Consents
Schedule 5.2(a) States of Qualification and Good Standing
Schedule 5.2(b) Subsidiaries
Schedule 5.4 Federal Tax Identification Number
Schedule 5.6 Prior Names
Schedule 5.7(b) Environmental Licenses, Certificates and Permits
Schedule 5.8(b) Litigation
Schedule 5.8(d) Plans
Schedule 5.9 Intellectual Property, Source Code Escrow Agreements
Schedule 5.10 Licenses and Permits
Schedule 5.14 Labor Disputes
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TERM LOAN
AND
SECURITY AGREEMENT
Term Loan and Security Agreement dated as of August 24, 2007 among AIR
INDUSTRIES MACHINING, CORP., a corporation organized under the laws of the State
of New York ("Air"); SIGMA METALS, INC., a corporation organized under the laws
of the State of New York ("Sigma"); WELDING METALLURGY, INC. (as successor by
merger with WMS Merger Corp.), a corporation organized under the laws of the
State of New York ("WMI"; and together with Air and Sigma, individually and
collectively, and jointly and severally, the "Borrower"), and STEEL CITY CAPITAL
FUNDING LLC, a limited liability company organized under the laws of the State
of Delaware ("Term B Lender").
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, Borrower and Term B Lender hereby agree as follows:
I. DEFINITIONS.
1.1. Accounting Terms. As used in this Agreement, the Other Documents or
any certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided,
however, whenever such accounting terms are used for the purposes of determining
compliance with financial covenants in this Agreement, such accounting terms
shall be defined in accordance with GAAP as applied in preparation of the
audited financial statements of Borrower for the fiscal year ended December 31,
2006.
1.2. General Terms. For purposes of this Agreement the following terms
shall have the following meanings:
"2005 Phase 1" shall mean that certain Phase 1 Environmental Site
Assessment dated October 12, 2005 prepared by CA Rich Consultants, Inc.
"Accountants" shall have the meaning set forth in Section 9.7
hereof.
"Acquisition Agreement" shall mean the Stock Purchase Agreement
including all exhibits and schedules thereto dated as of March 9, 2007 by and
among Air Group, as buyer (WMI, as assignee of all of Air Group's rights under
such Stock Purchase Agreement, herein referred to as the "Buyer"), and John
Gantt, and Lugenia Gantt, as sellers (collectively, the "Seller"), as amended,
restated, modified and/or replaced from time to time.
"Affiliate" of any Person shall mean (a) any Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with such Person, or (b) any Person who is a director, managing member, general
partner or officer (i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in clause (a) above. For purposes of this
definition, control of a Person shall mean the power, direct or indirect, (x) to
vote 33% or more of the Equity Interests having ordinary voting power for the
election of directors of such Person or other Persons performing similar
functions for any such Person, or (y) to direct or cause the direction of the
management and policies of such Person whether by ownership of Equity Interests,
contract or otherwise.
"Agreement" shall mean this Term Loan and Security Agreement, as the
same may be amended, restated, supplemented or otherwise modified from time to
time.
"Air Group" shall mean Air Industries Group, Inc. (f/k/a Gales
Industries Incorporated), a Delaware corporation and its successors and assigns.
"Alternate Base Rate" shall mean, for any day, a rate per annum
equal to the higher of (i) the Base Rate in effect on such day and (ii) the
Federal Funds Open Rate in effect on such day plus 1/2 of 1%.
"Anti-Terrorism Laws" shall mean any Applicable Laws relating to
terrorism or money laundering, including Executive Order No. 13224, the USA
PATRIOT Act, the Applicable Laws comprising or implementing the Bank Secrecy
Act, and the Applicable Laws administered by the United States Treasury
Department's Office of Foreign Asset Control (as any of the foregoing Applicable
Laws may from time to time be amended, renewed, extended, or replaced).
"Applicable Law" shall mean all laws, rules and regulations
applicable to the Person, conduct, transaction, covenant, Other Document or
contract in question, including all applicable common law and equitable
principles; all provisions of all applicable state, federal and foreign
constitutions, statutes, rules, regulations and orders of any Governmental Body,
and all orders, judgments and decrees of all courts and arbitrators.
"Authority" shall have the meaning set forth in Section 4.19(d).
"Base Rate" shall mean the base commercial lending rate of PNC as
publicly announced to be in effect from time to time, such rate to be adjusted
automatically, without notice, on the effective date of any change in such rate.
This rate of interest is determined from time to time by PNC as a means of
pricing some loans to its customers and is neither tied to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by PNC to any particular class or category of customers of PNC.
"Blocked Accounts" shall have the meaning set forth in Section
4.15(h).
"Blocked Account Bank" shall have the meaning set forth in Section
4.15(h).
"Blocked Person" shall have the meaning set forth in Section 5.23(b)
hereof.
"Borrower" shall have the meaning set forth in the preamble to this
Agreement and shall extend to all permitted successors and assigns of such
Person.
"Borrowing Agent" shall mean Air.
"Business Day" shall mean any day other than Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required by law to be
closed for business in East Brunswick, New Jersey and, if the applicable
Business Day relates to any Eurodollar Rate Loans, such day must also be a day
on which dealings are carried on in the London interbank market.
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"Capital Expenditures" shall mean expenditures made or liabilities
incurred for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the total principal portion of Capitalized Lease Obligations,
which, in accordance with GAAP, would be classified as capital expenditures.
"Capitalized Lease Obligation" shall mean any Indebtedness of
Borrower represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss.9601 et seq.
"Change of Control" shall mean (a) the occurrence of any event
(whether in one or more transactions) which results in a transfer of control of
Borrower to a Person who is not an Original Owner or (b) any merger or
consolidation of or with Borrower or sale of all or substantially all of the
property or assets of Borrower. For purposes of this definition, "control of
Borrower" shall mean the power, direct or indirect (x) to vote 50% or more of
the Equity Interests having ordinary voting power for the election of directors
(or the individuals performing similar functions) of Borrower or (y) to direct
or cause the direction of the management and policies of Borrower by contract or
otherwise.
"Change of Ownership" shall mean (a) 50% or more of the Equity
Interests of Borrower is no longer owned or controlled by (including for the
purposes of the calculation of percentage ownership, any Equity Interests into
which any Equity Interests of Borrower held by any of the Original Owners are
convertible or for which any such Equity Interests of Borrower or of any other
Person may be exchanged and any Equity Interests issuable to such Original
Owners upon exercise of any warrants, options or similar rights which may at the
time of calculation be held by such Original Owners) a Person who is an Original
Owner or (b) any merger, consolidation or sale of substantially all of the
property or assets of Borrower.
"Charges" shall mean all taxes, charges, fees, imposts, levies or
other assessments, including all net income, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, profits, inventory,
capital stock, license, withholding, payroll, employment, social security,
unemployment, excise, severance, stamp, occupation and property taxes, custom
duties, fees, assessments, liens, claims and charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts, imposed by any taxing or other authority, domestic or foreign
(including the Pension Benefit Guaranty Corporation or any environmental agency
or superfund), upon the Collateral, Borrower or any of its Affiliates.
"Closing Date" shall mean August 24, 2007 or such other date as may
be agreed to by the parties hereto.
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"Code" shall mean the Internal Revenue Code of 1986, as the same may
be amended or supplemented from time to time, and any successor statute of
similar import, and the rules and regulations thereunder, as from time to time
in effect.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all Investment Property;
(f) all Real Property;
(g) all Subsidiary Stock;
(h) the Leasehold Interests;
(i) all of Borrower's right, title and interest in and to,
whether now owned or hereafter acquired and wherever located, (i) its respective
goods and other property including, but not limited to, all merchandise returned
or rejected by Customers, relating to or securing any of the Receivables; (ii)
all of Borrower's rights as a consignor, a consignee, an unpaid vendor,
mechanic, artisan, or other lienor, including stoppage in transit, setoff,
detinue, replevin, reclamation and repurchase; (iii) all additional amounts due
to Borrower from any Customer relating to the Receivables; (iv) other property,
including warranty claims, relating to any goods securing the Obligations; (v)
all of Borrower's contract rights, rights of payment which have been earned
under a contract right, instruments (including promissory notes), documents,
chattel paper (including electronic chattel paper), warehouse receipts, deposit
accounts, letters of credit and money; (vi) all commercial tort claims (whether
now existing or hereafter arising); (vii) if and when obtained by Borrower, all
real and personal property of third parties in which Borrower has been granted a
lien or security interest as security for the payment or enforcement of
Receivables; (viii) all letter of credit rights (whether or not the respective
letter of credit is evidenced by a writing); (ix) all supporting obligations;
and (x) any other goods, personal property or real property now owned or
hereafter acquired in which Borrower has expressly granted a security interest
or may in the future grant a security interest to Term B Lender hereunder, or in
any amendment or supplement hereto or thereto, or under any other agreement
between Term B Lender and Borrower;
(j) all of Borrower's ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers, computer
software (owned by Borrower or in which it has an interest), computer programs,
tapes, disks and documents relating to (a), (b), (c), (d), (e), (f), (g), (h) or
(i) of this Paragraph; and
4
(k) all proceeds and products of (a), (b), (c), (d), (e), (f),
(g), (h), (i) and (j) in whatever form, including, but not limited to: cash,
deposit accounts (whether or not comprised solely of proceeds), certificates of
deposit, insurance proceeds (including hazard, flood and credit insurance),
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements, documents, eminent domain proceeds, condemnation
proceeds and tort claim proceeds.
"Commitment Percentage" of Term B Lender shall mean one hundred
percent (100%) of the Term Loan as same may be adjusted upon any assignment by a
Lender pursuant to Section 15.3(c) or (d) hereof.
"Commitment Transfer Supplement" shall mean a document in the form
of Exhibit 15.3 hereto, properly completed and otherwise in form and substance
satisfactory to Term B Lender by which the Purchasing Lender purchases and
assumes a portion of the Term Loan under this Agreement.
"Compliance Certificate" shall mean a compliance certificate to be
signed by the Chief Financial Officer or Controller of Borrower, which shall
state that, based on an examination sufficient to permit such officer to make an
informed statement, no Default or Event of Default exists, or if such is not the
case, specifying such Default or Event of Default, its nature, when it occurred,
whether it is continuing and the steps being taken by Borrower with respect to
such default and, such certificate shall have appended thereto calculations
which set forth Borrower's compliance with the requirements or restrictions
imposed by Sections 6.5, 7.4, 7.5, 7.6, 7.7, 7.8 and 7.11.
"Consents" shall mean all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Governmental
Bodies and other third parties, domestic or foreign, necessary to carry on
Borrower's business or necessary (including to avoid a conflict or breach under
any agreement, instrument, other document, license, permit or other
authorization) for the execution, delivery or performance of this Agreement, the
Other Documents, the Subordinated Loan Documentation, or the Acquisition
Agreement, including any Consents required under all applicable federal, state
or other Applicable Law.
"Consigned Inventory" shall mean Inventory of Borrower that is in
the possession of another Person on a consignment, sale or return, or other
basis that does not constitute a final sale and acceptance of such Inventory.
"Controlled Group" shall mean, at any time, the Borrower and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control and all other entities which,
together with Borrower, are treated as a single employer under Section 414 of
the Code.
"Customer" shall mean and include the account debtor with respect to
any Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with Borrower, pursuant
to which Borrower is to deliver any personal property or perform any services.
5
"Default" shall mean an event, circumstance or condition which, with
the giving of notice or passage of time or both, would constitute an Event of
Default.
"Default Rate" shall have the meaning set forth in Section 3.1
hereof.
"Depository Accounts" shall have the meaning set forth in Section
4.15(h) hereof.
"Documents" shall have the meaning set forth in Section 8.1(c)
hereof.
"Dollar" and the sign "$" shall mean lawful money of the United
States of America.
"Domestic Rate Loan" shall mean any portion of the Term Loan that
bears interest based upon the Alternate Base Rate.
"Early Termination Date" shall have the meaning set forth in Section
13.1 hereof.
"Earnings Before Interest and Taxes" shall mean for any period the
sum of (i) net income (or loss) of Borrower for such period (excluding
extraordinary gains and losses), plus (ii) all interest expense of Borrower for
such period, plus (iii) all charges against income of Borrower for such period
for federal, state and local taxes actually paid; provided, however, that there
shall be excluded from the computation of net income (or loss) of:
(a) Air:
(i) non-recurring charges for non-cash compensation in
accordance with FASB 123 (R) in the aggregate amount of
$150,000 for the six months ended June 30, 2007; and
(ii) customer credits issued between January 1, 2007
through June 30, 2007, which amount shall not exceed
$650,000..
(b) WMI:
(i) compensation (salaries, bonus and other remunerative
payments) prior to the Closing Date to John, Lugenia and
Kenneth Gantt; and
(ii) transaction costs relating to the acquisition of
WMI.
"EBITDA" shall mean for any period the sum of (i) Earnings Before
Interest and Taxes for such period plus (ii) depreciation expenses for such
period, plus (iii) amortization expenses for such period.
"Environmental Complaint" shall have the meaning set forth in
Section 4.19(d) hereof.
"Environmental Laws" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
6
"Equipment" shall mean and include all of Borrower's goods (other
than Inventory) whether now owned or hereafter acquired and wherever located
including all equipment, machinery, apparatus, motor vehicles, fittings,
furniture, furnishings, fixtures, parts, accessories and all replacements and
substitutions therefor or accessions thereto.
"Equity Interests" of any Person shall mean any and all shares,
rights to purchase, options, warrants, general, limited or limited liability
partnership interests, member interests, participation or other equivalents of
or interest in (regardless of how designated) equity of such Person, whether
voting or nonvoting, including common stock, preferred stock, convertible
securities or any other "equity security" (as such term is defined in Rule
3a11-1 of the General Rules and Regulations promulgated by the SEC under the
Exchange Act).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time and the rules and regulations promulgated
thereunder.
"Eurodollar Rate" shall mean for any Eurodollar Rate Loan for the
then current Interest Period relating thereto the interest rate per annum
determined by Term B Lender by dividing (i) the rate which appears on the
Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that displays
rates at which US dollar deposits are offered by leading banks in the London
interbank deposit market), or the rate which is quoted by another source
selected by Term B Lender which has been approved by the British Bankers'
Association as an authorized information vendor for the purpose of displaying
rates at which US dollar deposits are offered by leading banks in the London
interbank deposit market (an "Alternative Source"), at approximately 11:00 a.m.,
London time two (2) Business Days prior to the first day of such Interest Period
(or if there shall at any time, for any reason, no longer exist a Bloomberg Page
BBAM1 (or any substitute page) or any Alternate Source, a comparable replacement
rate determined by Term B Lender at such time (which determination shall be
conclusive absent manifest error)) for an amount comparable to such Eurodollar
Rate Loan and having a borrowing date and a maturity comparable to such Interest
Period by (ii) a number equal to 1.00 minus the Reserve Percentage.
The Eurodollar Rate shall be adjusted with respect to any Eurodollar
Rate Loan that is outstanding on the effective date of any change in the Reserve
Percentage as of such effective date. Term B Lender shall give prompt notice to
the Borrower of the Eurodollar Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error.
"Eurodollar Rate Deadline" shall have the meaning set forth in
Section 2.2(b) hereof.
"Eurodollar Rate Loan" shall mean any portion of the Term Loan at
any time that bears interest based on the Eurodollar Rate.
7
"Eurodollar Rate Option" shall have the meaning set forth in Section
2.2(a) hereof.
"Event of Default" shall have the meaning set forth in Article X
hereof.
"Exchange Act" shall have the mean the Securities Exchange Act of
1934, as amended.
"Executive Order No. 13224" shall mean the Executive Order No. 13224
on Terrorist Financing, effective September 24, 2001, as the same has been, or
shall hereafter be, renewed, extended, amended or replaced.
"Existing Environmental Due Diligence" shall mean, collectively, (i)
the 2005 Phase 1 and (ii) that certain letter from the County of Suffolk, New
York with regard to Project No. 226-97-86 dated January 8, 1998.
"Federal Funds Effective Rate" for any day shall mean the rate per
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight federal funds transactions arranged by federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
"Federal Funds Open Rate" shall mean the rate per annum determined
by Term B Lender in accordance with its usual procedures (which determination
shall be conclusive absent manifest error) to be the "open" rate for federal
funds transactions as of the opening of business for federal funds transactions
among members of the Federal Reserve System arranged by federal funds brokers on
such day, as quoted by Garvin Guybutler Corporation, any successor entity
thereto, or any other broker selected by Term B Lender, as set forth on the
applicable Bloomberg display page; provided, however; that if such day is not a
Business Day, the Federal Funds Open Rate for such day shall be the "open" rate
on the immediately preceding Business Day, or if no such rate shall be quoted by
a Federal funds broker at such time, such other rate as determined by Term B
Lender in accordance with its usual procedures.
"Fixed Charge Coverage Ratio" shall mean and include, with respect
to any fiscal period, the ratio of (a) EBITDA, minus the aggregate amount of
unfunded capitalized expenditures made during such period, minus the aggregate
amount of distributions made during such period, minus the aggregate amount of
cash taxes paid during such period to (b) the aggregate amount of principal
and/or interest payments made on Funded Debt during such period.
"Foreign Subsidiary" of any Person, shall mean any Subsidiary of
such Person that is not organized or incorporated in the United States or any
State or territory thereof.
8
"Funded Debt" shall mean, with respect to any Person, without
duplication, all Indebtedness for borrowed money evidenced by notes, bonds,
debentures, or similar evidences of Indebtedness that by its terms matures more
than one year from, or is directly or indirectly renewable or extendible at such
Person's option under a revolving credit or similar agreement obligating the
lender or lenders to extend credit over a period of more than one year from the
date of creation thereof, and specifically including Capitalized Lease
Obligations, current maturities of long-term debt, revolving credit and
short-term debt extendible beyond one year at the option of the debtor, and also
including, in the case of Borrower, the Obligations and, without duplication,
Indebtedness consisting of guaranties of Funded Debt of other Persons.
"Funded Senior Debt" shall mean and include Borrower's Funded Debt,
but shall specifically exclude all of Borrower's Indebtedness for borrowed money
that has been subordinated to any Indebtedness owing by Borrower to Term B
Lender.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"General Intangibles" shall mean and include all of Borrower's
general intangibles, whether now owned or hereafter acquired, including all
payment intangibles, all choses in action, causes of action, corporate or other
business records, inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control procedures, trademarks,
trademark applications, service marks, trade secrets, goodwill, copyrights,
design rights, software, computer information, source codes, codes, records and
updates, registrations, licenses, franchises, customer lists, tax refunds, tax
refund claims, computer programs, all claims under guaranties, security
interests or other security held by or granted to Borrower to secure payment of
any of the Receivables by a Customer (other than to the extent covered by
Receivables) all rights of indemnification and all other intangible property of
every kind and nature (other than Receivables).
"Governmental Body" shall mean any nation or government, any state
or other political subdivision thereof or any entity, authority, agency,
division or department exercising the legislative, judicial, regulatory or
administrative functions of or pertaining to a government.
"Hazardous Discharge" shall have the meaning set forth in Section
4.19(d) hereof.
"Hazardous Substance" shall mean, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or Toxic Substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, Articles 15 and 27 of
the New York State Environmental Conservation Law or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.
"Hazardous Wastes" shall mean all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other applicable
Federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.
9
"Indebtedness" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
a Lien on assets owned by such Person, whether or not such indebtedness actually
shall have been created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any assets subject
to any Lien shall be deemed, for the purposes hereof, to be the equivalent of
the creation, assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.
"Ineligible Security" shall mean any security which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as
amended.
"Intellectual Property" shall mean property constituting under any
Applicable Law a patent, patent application, copyright, trademark, service mark,
trade name, mask work, trade secret or license or other right to use any of the
foregoing.
"Intellectual Property Claim" shall mean the assertion by any Person
of a claim (whether asserted in writing, by action, suit or proceeding or
otherwise) that Borrower's ownership, use, marketing, sale or distribution of
any Inventory, Equipment, Intellectual Property or other property or asset is
violative of any ownership of or right to use any Intellectual Property of such
Person.
"Intercreditor Agreement" shall mean that certain Intercreditor
Agreement dated as of the date hereof among Term B Lender and PNC Bank, National
Association, as agent, and the other financial institutions signatory thereto.
"Interest Period" shall mean the period provided for any Eurodollar
Rate Loan pursuant to Section 2.2(b).
"Inventory" shall mean and include all of Borrower's now owned or
hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any consignment arrangement, contract of service
or held for sale or lease, all raw materials, work in process, finished goods
and materials and supplies of any kind, nature or description which are or might
be used or consumed in Borrower's business or used in selling or furnishing such
goods, merchandise and other personal property, and all documents of title or
other documents representing them.
"Investment Property" shall mean and include all of Borrower's now
owned or hereafter acquired securities (whether certificated or uncertificated),
securities entitlements, securities accounts, commodities contracts and
commodities accounts.
"Leasehold Interests" shall mean all of Borrower's right, title and
interest in and to the premises set forth on Schedule 1.2(a) attached hereto.
10
"License Agreement" shall mean any agreement between Borrower and a
Licensor pursuant to which Borrower is authorized to use any Intellectual
Property in connection with the manufacturing, marketing, sale or other
distribution of any Inventory of Borrower or otherwise in connection with
Borrower's business operations.
"Licensor" shall mean any Person from whom Borrower obtains the
right to use (whether on an exclusive or non-exclusive basis) any Intellectual
Property in connection with Borrower's manufacture, marketing, sale or other
distribution of any Inventory or otherwise in connection with Borrower's
business operations.
"Licensor/ Term B Lender Agreement" shall mean an agreement between
Term B Lender and a Licensor, in form and content satisfactory to Term B Lender,
by which Term B Lender is given the unqualified right, vis-a-vis such Licensor,
to enforce Term B Lender's Liens with respect to and to dispose of Borrower's
Inventory with the benefit of any Intellectual Property applicable thereto,
irrespective of Borrower's default under any License Agreement with such
Licensor.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), Charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the Uniform Commercial Code or comparable
law of any jurisdiction.
"Lien Waiver Agreement" shall mean an agreement which is executed in
favor of Term B Lender by a Person who owns or occupies premises at which any
Collateral may be located from time to time and by which such Person shall waive
any Lien that such Person may ever have with respect to any of the Collateral
and shall authorize Term B Lender from time to time to enter upon the premises
to inspect or remove the Collateral from such premises or to use such premises
to store or dispose of such Inventory.
"Material Adverse Effect" shall mean a material adverse effect on
(a) the condition (financial or otherwise), results of operations, assets,
business, properties or prospects of Borrower or any guarantor, (b) Borrower's
ability to duly and punctually pay or perform the Obligations in accordance with
the terms thereof, (c) the value of the Collateral, or Term B Lender's Liens on
the Collateral or the priority of any such Lien or (d) the practical realization
of the benefits of Term B Lender's rights and remedies under this Agreement and
the Other Documents.
"Maximum Loan Amount" shall mean $4,500,000.
"Modified Commitment Transfer Supplement" shall have the meaning set
forth in Section 15.3(d).
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Sections 3(37) and 4001(a)(3) of ERISA.
11
"Multiple Employer Plan" shall mean a Plan which has two or more
contributing sponsors (including the Borrower or any member of the Controlled
Group) at least two of whom are not under common control, as such a plan is
described in Section 4064 of ERISA.
"Note" shall mean the Term Note.
"Obligations" shall mean and include any and all loans, advances,
debts, liabilities, obligations, covenants and duties owing by the Borrower to
Term B Lender or to any other direct or indirect subsidiary or affiliate of Term
B Lender of any kind or nature, present or future (including any interest
accruing thereon after maturity, or after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), whether or not evidenced
by any note, guaranty or other instrument, whether arising under any agreement,
instrument or document, (including this Agreement and the Other Documents)
whether or not for the payment of money, whether arising by reason of an
extension of credit, opening of a letter of credit, loan, equipment lease or
guarantee, under any interest or currency swap, future, option or other similar
agreement, or in any other manner, whether arising out of overdrafts or deposit
or other accounts or electronic funds transfers (whether through automated
clearing houses or otherwise) or out of Term B Lender's non-receipt of or
inability to collect funds or otherwise not being made whole in connection with
depository transfer check or other similar arrangements, whether direct or
indirect (including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, contractual or tortious, liquidated or unliquidated, regardless of how
such indebtedness or liabilities arise or by what agreement or instrument they
may be evidenced or whether evidenced by any agreement or instrument, including,
but not limited to, any and all of Borrower's Indebtedness and/or liabilities
under this Agreement, the Other Documents or under any other agreement between
Term B Lender and Borrower and any amendments, extensions, renewals or increases
and all costs and expenses of Term B Lender incurred in the documentation,
negotiation, modification, enforcement, collection or otherwise in connection
with any of the foregoing, including but not limited to reasonable attorneys'
fees and expenses and all obligations of Borrower to Term B Lender to perform
acts or refrain from taking any action.
"Ordinary Course of Business" shall mean the ordinary course of
Borrower's business as conducted on the Closing Date.
"Original Owners" shall mean, (a) with respect to Air and Sigma, Air
Group, and (b) with respect to WMI, Air and Sigma.
"Other Documents" shall mean the Note, the Pledge Agreements, the
Subordination Agreement, the Intercreditor Agreement and any and all other
agreements, instruments and documents, including guaranties, pledges, powers of
attorney, consents, warrants and all other writings heretofore, now or hereafter
executed by Borrower or any guarantor and/or delivered to Term B Lender in
respect of the transactions contemplated by this Agreement.
12
"Parent" of any Person shall mean a corporation or other entity
owning, directly or indirectly at least 50% of the shares of stock or other
ownership interests having ordinary voting power to elect a majority of the
directors of the Person, or other Persons performing similar functions for any
such Person.
"Participant" shall mean each Person who shall be granted the right
by Term B Lender to participate in any portion of the Term Loan and who shall
have entered into a participation agreement in form and substance satisfactory
to Term B Lender.
"Payment Office" shall mean initially Two Tower Center Boulevard,
East Brunswick, New Jersey 08816; thereafter, such other office of Term B
Lender, if any, which it may designate by notice to Borrower to be the Payment
Office.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or any successor.
"Pension Benefit Plan" shall mean at any time any employee pension
benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan)
which is covered by Title IV of ERISA or is subject to the minimum funding
standards under Section 412 of the Code and either (i) is maintained by any
member of the Controlled Group for employees of any member of the Controlled
Group; or (ii) has at any time within the preceding five years been maintained
by any entity which was at such time a member of the Controlled Group for
employees of any entity which was at such time a member of the Controlled Group.
"Permitted Encumbrances" shall mean (a) Liens in favor of Term B
Lender; (b) Liens in favor of PNC, as agent; (c) Liens for taxes, assessments or
other governmental charges not delinquent or being contested in good faith and
by appropriate proceedings and with respect to which proper reserves have been
taken by Borrower; provided, that, the Lien shall have no effect on the priority
of the Liens in favor of Term B Lender or the value of the assets in which Term
B Lender has such a Lien and a stay of enforcement of any such Lien shall be in
effect; (d) Liens disclosed in the financial statements referred to in Section
5.5, the existence of which Term B Lender has consented to in writing; (e)
deposits or pledges to secure obligations under worker's compensation, social
security or similar laws, or under unemployment insurance; (f) deposits or
pledges to secure bids, tenders, contracts (other than contracts for the payment
of money), leases, statutory obligations, surety and appeal bonds and other
obligations of like nature arising in the Ordinary Course of Business; (g) Liens
arising by virtue of the rendition, entry or issuance against Borrower or any
Subsidiary, or any property of Borrower or any Subsidiary, of any judgment,
writ, order, or decree for so long as each such Lien (i) is in existence for
less than 20 consecutive days after it first arises or is being Properly
Contested and (ii) is at all times junior in priority to any Liens in favor of
Term B Lender; (h) mechanics', workers', materialmen's or other like Liens
arising in the Ordinary Course of Business with respect to obligations which are
not due or which are being contested in good faith by Borrower; (i) Liens placed
upon fixed assets hereafter acquired to secure a portion of the purchase price
thereof, provided that (x) any such lien shall not encumber any other property
of Borrower and (y) the aggregate amount of Indebtedness secured by such Liens
incurred as a result of such purchases during any fiscal year shall not exceed
the amount provided for in Section 7.6; (j) other Liens incidental to the
conduct of Borrower's business or the ownership of its property and assets which
were not incurred in connection with the borrowing of money or the obtaining of
advances or credit, and which do not in the aggregate materially detract from
Term B Lender's rights in and to the Collateral or the value of Borrower's
property or assets or which do not materially impair the use thereof in the
operation of Borrower's business; and (k) Liens disclosed on Schedule 1.2.
13
"Person" shall mean any individual, sole proprietorship,
partnership, corporation, business trust, joint stock company, trust,
unincorporated organization, association, limited liability company, limited
liability partnership, institution, public benefit corporation, joint venture,
entity or Governmental Body (whether federal, state, county, city, municipal or
otherwise, including any instrumentality, division, agency, body or department
thereof).
"Plan" shall mean any employee benefit plan within the meaning of
Section 3(3) of ERISA (including a Pension Benefit Plan), maintained for
employees of Borrower or any member of the Controlled Group or any such Plan to
which Borrower or any member of the Controlled Group is required to contribute
on behalf of any of its employees.
"Pledge Agreements" shall mean, collectively, (i) that certain
Pledge Agreement dated as of the date hereof between Term B Lender and Air
Group, with respect to the capital stock of Air and Sigma, and (ii) that certain
Pledge Agreement dated as of the date hereof among Term B Lender, Air and Sigma,
with respect to the capital stock of WMI.
"PNC" shall mean PNC Bank, National Association, and its successors
and assigns.
"Properly Contested" shall mean, in the case of any Indebtedness of
any Person (including any taxes) that is not paid as and when due or payable by
reason of such Person's bona fide dispute concerning its liability to pay same
or concerning the amount thereof, (i) such Indebtedness is being properly
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted; (ii) such Person has established appropriate reserves as
shall be required in conformity with GAAP; (iii) the non-payment of such
Indebtedness will not have a Material Adverse Effect and will not result in the
forfeiture of any assets of such Person; (iv) no Lien is imposed upon any of
such Person's assets with respect to such Indebtedness unless such Lien is at
all times junior and subordinate in priority to the Liens in favor of Term B
Lender (except only with respect to property taxes that have priority as a
matter of applicable state law) and enforcement of such Lien is stayed during
the period prior to the final resolution or disposition of such dispute; (v) if
such Indebtedness results from, or is determined by the entry, rendition or
issuance against a Person or any of its assets of a judgment, writ, order or
decree, enforcement of such judgment, writ, order or decree is stayed pending a
timely appeal or other judicial review; and (vi) if such contest is abandoned,
settled or determined adversely (in whole or in part) to such Person, such
Person forthwith pays such Indebtedness and all penalties, interest and other
amounts due in connection therewith.
"Purchasing CLO" shall have the meaning set forth in Section 15.3(d)
hereof.
"RCRA" shall mean the Resource Conservation and Recovery Act, 42
U.S.C. ss.ss. 6901 et seq., as same may be amended from time to time.
14
"Real Property" shall mean all of Borrower's right, title and
interest in and to the owned and leased premises identified on Schedule 4.19
hereto.
"Receivables" shall mean and include, as to Borrower, all of
Borrower's accounts, contract rights, instruments (including those evidencing
indebtedness owed to Borrower by its Affiliates), documents, chattel paper
(including electronic chattel paper), general intangibles relating to accounts,
drafts and acceptances, credit card receivables and all other forms of
obligations owing to Borrower arising out of or in connection with the sale or
lease of Inventory or the rendition of services, all supporting obligations,
guarantees and other security therefor, whether secured or unsecured, now
existing or hereafter created, and whether or not specifically sold or assigned
to Term B Lender hereunder.
"Register" shall have the meaning set forth in Section 15.3(e)
hereof.
"Release" shall have the meaning set forth in Section 5.7(c)(i)
hereof.
"Reportable Event" shall mean a reportable event described in
Section 4043(c) of ERISA or the regulations promulgated thereunder.
"Reserve Percentage" shall mean as of any day the maximum percentage
in effect on such day as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the reserve requirements
(including supplemental, marginal and emergency reserve requirements) with
respect to eurocurrency funding (currently referred to as "Eurocurrency
Liabilities".
"Sale and Lease-Back Premises" shall mean, collectively, the real
property located at (i) 1479 North Clinton Avenue, Bay Shore, New York, (ii)
1480 North Clinton Avenue, Bay Shore, New York and (iii) 1460 North Fifth
Avenue, Bay Shore, New York.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Lender" shall mean PNC, as agent, and its successors and
assigns.
"Senior Loan Agreement" shall mean that certain Revolving Credit,
Term Loan, Equipment Line of Credit and Security Agreement dated November 30,
2005 among Air, Sigma, Senior Lender and the financial institutions which are
now or which hereafter become a party thereto.
"Senior Loan Documents" shall mean the Senior Loan Agreement and any
and all other notes, agreements, instruments and documents, including
guaranties, pledges, powers of attorney, consents, interest or currency swap
agreements or other similar agreements executed in connection therewith.
"Subordinated Debt Payments" shall mean and include all cash
actually expended to make payments of principal and interest on the Subordinated
Note.
15
"Subordinated Lender" shall mean, collectively, John Gantt and
Lugenia Gantt.
"Subordinated Loan" shall mean the loan evidenced by the
Subordinated Note.
"Subordinated Loan Documentation" shall mean, collectively, the
Subordinated Note, the Pledge Agreement as of the date hereof among Air, Sigma
and Subordinated Lender and any and all other agreements, instruments and
documents, and all other writings heretofore, now or hereafter executed by
Borrower in favor of Subordinated Lender.
"Subordinated Note" shall mean the subordinated promissory note
issued by Air Group in favor of Subordinated Lender dated March 9, 2007 in the
principal sum of $2,000,000.
"Subordination Agreement" shall mean that certain Reliance and
Intercreditor Agreement dated as of the date hereof among Term B Lender,
Borrower, Air Group and Subordinated Lender.
"Subsidiary" of any Person shall mean a corporation or other entity
of whose Equity Interests having ordinary voting power (other than Equity
Interests having such power only by reason of the happening of a contingency) to
elect a majority of the directors of such corporation, or other Persons
performing similar functions for such entity, are owned, directly or indirectly,
by such Person.
"Subsidiary Stock" shall mean all of the issued and outstanding
Equity Interests of any Subsidiary owned by the Borrower (not to exceed 65% of
the Equity Interests of any Foreign Subsidiary).
"Tangible Net Worth" shall mean, at a particular date, (a) the
aggregate amount of all assets of Borrower as may be properly classified as such
in accordance with GAAP consistently applied excluding such other assets as are
properly classified as intangible assets under GAAP, less (b) the aggregate
amount of all liabilities of Borrower.
"Term" shall have the meaning set forth in Section 13.1 hereof.
"Term Loan" shall mean the advances made pursuant to Section 2.1
hereof.
"Term Loan Rate" shall mean an interest rate per annum equal to (a)
the sum of the Alternate Base Rate plus six percent (6.00%) with respect to
Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus eight and
one-half of one percent (8.50%) with respect to Eurodollar Rate Loans.
"Term Note" shall mean the promissory note described in Section 2.1
hereof.
"Termination Date" shall mean the earlier to occur of: (a) August
24, 2010 or such other date as Term B Lender may agree in writing to extend the
Termination Date until, without there being any obligation on the part of Term B
Lender to extend the Termination Date, or (b) the date upon which the Senior
Loan Agreement is terminated.
16
"Termination Event" shall mean (i) a Reportable Event with respect
to any Plan or Multiemployer Plan; (ii) the withdrawal of Borrower or any member
of the Controlled Group from a Plan or Multiemployer Plan during a plan year in
which such entity was a "substantial employer" as defined in Section 4001(a)(2)
of ERISA; (iii) the providing of notice of intent to terminate a Plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the institution
by the PBGC of proceedings to terminate a Plan or Multiemployer Plan; (v) any
event or condition (a) which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan or Multiemployer Plan, or (b) that may result in termination of a
Multiemployer Plan pursuant to Section 4041A of ERISA; or (vi) the partial or
complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of
Borrower or any member of the Controlled Group from a Multiemployer Plan.
"Toxic Substance" shall mean and include any material present on the
Real Property or the Leasehold Interests which has been shown to have
significant adverse effect on human health or which is subject to regulation
under the Toxic Substances Control Act (TSCA), 15 U.S.C. ss.ss. 2601 et seq.,
applicable state law, or any other applicable Federal or state laws now in force
or hereafter enacted relating to toxic substances. "Toxic Substance" includes
but is not limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based
paints.
"Trading with the Enemy Act" shall mean the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) and any enabling legislation or executive order relating
thereto.
"Transaction" shall mean the transaction evidenced by this Agreement
and the Other Documents.
"Transferee" shall have the meaning set forth in Section 15.3(d)
hereof.
"Uniform Commercial Code" shall have the meaning set forth in
Section 1.3 hereof.
"USA PATRIOT Act" shall mean the Uniting and Strengthening America
by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
of 2001, Public Law 107-56, as the same has been, or shall hereafter be,
renewed, extended, amended or replaced.
"Week" shall mean the time period commencing with the opening of
business on a Wednesday and ending on the end of business the following Tuesday.
1.3. Uniform Commercial Code Terms. All terms used herein and defined in
the Uniform Commercial Code as adopted in the State of New York from time to
time (the "Uniform Commercial Code") shall have the meaning given therein unless
otherwise defined herein. Without limiting the foregoing, the terms "accounts",
"chattel paper", "instruments", "general intangibles", "payment intangibles",
"supporting obligations", "securities", "investment property", "documents",
"deposit accounts", "software", "letter of credit rights", "inventory",
"equipment" and "fixtures", as and when used in the description of Collateral
shall have the meanings given to such terms in Articles 8 or 9 of the Uniform
Commercial Code. To the extent the definition of any category or type of
collateral is expanded by any amendment, modification or revision to the Uniform
Commercial Code, such expanded definition will apply automatically as of the
date of such amendment, modification or revision.
17
1.4. Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. All references
herein to Articles, Sections, Exhibits and Schedules shall be construed to refer
to Articles and Sections of, and Exhibits and Schedules to, this Agreement. Any
pronoun used shall be deemed to cover all genders. Wherever appropriate in the
context, terms used herein in the singular also include the plural and vice
versa. All references to statutes and related regulations shall include any
amendments of same and any successor statutes and regulations. Unless otherwise
provided, all references to any instruments or agreements to which Term B Lender
is a party, including references to any of the Other Documents, shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof. All references herein to the time of day shall mean the time
in New York, New York. Unless otherwise provided, all financial calculations
shall be performed with Inventory valued on a first-in, first-out basis.
Whenever the words "including" or "include" shall be used, such words shall be
understood to mean "including, without limitation" or "include, without
limitation". A Default or Event of Default shall be deemed to exist at all times
during the period commencing on the date that such Default or Event of Default
occurs to the date on which such Default or Event of Default is waived in
writing pursuant to this Agreement or, in the case of a Default, is cured within
any period of cure expressly provided for in this Agreement; and an Event of
Default shall "continue" or be "continuing" until such Event of Default has been
waived in writing by Term B Lender. Any Lien referred to in this Agreement or
any of the Other Documents as having been created in favor of Term B Lender, any
agreement entered into by Term B Lender pursuant to this Agreement or any of the
Other Documents, any payment made by or to or funds received by Term B Lender
pursuant to or as contemplated by this Agreement or any of the Other Documents,
or any act taken or omitted to be taken by Term B Lender, shall, unless
otherwise expressly provided, be created, entered into, made or received, or
taken or omitted, for the benefit or account of Term B Lender. Wherever the
phrase "to the best of Borrower's knowledge" or words of similar import relating
to the knowledge or the awareness of Borrower are used in this Agreement or
Other Documents, such phrase shall mean and refer to (i) the actual knowledge of
a senior officer of Borrower or (ii) the knowledge that a senior officer would
have obtained if he had engaged in good faith and diligent performance of his
duties, including the making of such reasonably specific inquiries as may be
necessary of the employees or agents of Borrower and a good faith attempt to
ascertain the existence or accuracy of the matter to which such phrase relates.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or otherwise within the
limitations of, another covenant shall not avoid the occurrence of a default if
such action is taken or condition exists. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of a breach of a
representation or warranty hereunder.
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II. TERM LOAN, PAYMENTS.
2.1. Term Loan. Subject to the terms and conditions of this Agreement,
Term B Lender will make a Term Loan to Borrower in the sum equal to $4,500,000.
The Term Loan shall be advanced on the Closing Date and shall be payable on the
Termination Date, subject to (i) acceleration upon the occurrence of an Event of
Default under this Agreement, (ii) termination of this Agreement pursuant to the
terms hereof, or (iii) mandatory prepayment. The Term Loan shall be evidenced by
one or more secured promissory notes (collectively, the "Term Note") in
substantially the form attached hereto as Exhibit 2.1.
2.2. Procedure for Eurodollar Rate Loan Election.
(a) In lieu of having interest charged at the rate based upon the
Alternate Base Rate, the Borrower shall have the option (the "Eurodollar Rate
Option") to have interest on all or a portion of the Term Loan be charged at a
rate of interest based upon the Eurodollar Rate. On the last day of each
applicable Interest Period, unless the Borrower properly has exercised the
Eurodollar Rate Option with respect thereto, the interest rate applicable to
such Eurodollar Rate Loan automatically shall convert to the rate of interest
then applicable to Domestic Rate Loans hereunder. At any time that an Event of
Default has occurred and is continuing, the Borrower no longer shall have the
option to request that any portion of the Term Loan bear interest at the
Eurodollar Rate and Term B Lender shall have the right to convert the interest
rate on all outstanding Eurodollar Rate Loans to the rate then applicable to
Domestic Rate Loans hereunder.
(b) In the event Borrower elects to have a portion of the Term Loan
be charged at a rate of interest based upon the Eurodollar Rate, Borrower shall
give Term B Lender written notice by no later than 10:00 a.m. on the day which
is three (3) Business Days prior to the commencement of the proposed Interest
Period ("Eurodollar Rate Deadline"), specifying (i) the portion of the Term Loan
to be charged at a rate of interest based upon the Eurodollar Rate, which amount
shall be in integral multiples of $250,000, and (ii) the duration of the
Interest Period therefor. Notice of the Borrower's election of the Eurodollar
Rate Option for a permitted portion of the Term Loan and an Interest Period
pursuant to this Section shall be made by delivery to Term B Lender of a
Eurodollar Rate notice received by Term B Lender on or before the Eurodollar
Rate Deadline. Interest Periods for Eurodollar Rate Loans shall be for one, two
or three months; provided, if an Interest Period would end on a day that is not
a Business Day, it shall end on the next succeeding Business Day unless such day
falls in the next succeeding calendar month in which case the Interest Period
shall end on the next preceding Business Day. No Eurodollar Rate Loan shall be
made available to Borrower during the continuance of a Default or an Event of
Default. After giving effect to each requested Eurodollar Rate Loan, including
those which are converted from a Domestic Rate Loan under Section 2.2(d), there
shall not be outstanding more than four (4) Eurodollar Rate Loans, in the
aggregate.
(c) Each Interest Period of a Eurodollar Rate Loan shall end on such
date as Borrower may elect as set forth in subsection (b) above provided that
the exact length of each Interest Period shall be determined in accordance with
the practice of the interbank market for offshore Dollar deposits and no
Interest Period shall end after the last day of the Term.
(d) Borrower shall elect the initial Interest Period applicable to a
Eurodollar Rate Loan by its Eurodollar Rate notice given to Term B Lender
pursuant to Section 2.2(b) or by its notice of conversion given to Term B Lender
pursuant to Section 2.2(d), as the case may be. Borrower shall elect the
duration of each succeeding Interest Period by giving irrevocable written notice
to Term B Lender of such duration not later than 10:00 a.m. on the day which is
three (3) Business Days prior to the last day of the then current Interest
Period applicable to such Eurodollar Rate Loan. If Term B Lender does not
receive timely notice of the Interest Period elected by Borrower, Borrower shall
be deemed to have elected to convert to a Domestic Rate Loan.
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(e) At its option and upon written notice given prior to 10:00 a.m.
(New York time) at least three (3) Business Days' prior to the date of such
prepayment, Borrower may prepay the Eurodollar Rate Loans in whole at any time
or in part from time to time with accrued interest on the principal being
prepaid to the date of such repayment. Borrower shall specify the date of
prepayment of that portion of the Term Loan which are Eurodollar Rate Loans and
the amount of such prepayment. In the event that any prepayment of a Eurodollar
Rate Loan is required or permitted on a date other than the last Business Day of
the then current Interest Period with respect thereto, Borrower shall indemnify
Term B Lender therefor in accordance with Section 2.2(f) hereof.
(f) Borrower shall indemnify Term B Lender and hold Term B Lender
harmless from and against any and all losses or expenses that Term B Lender may
sustain or incur as a consequence of any prepayment, conversion of or any
default by Borrower in the payment of the principal of or interest on any
Eurodollar Rate Loan or failure by Borrower to complete a borrowing of, a
prepayment of or conversion of or to a Eurodollar Rate Loan after notice thereof
has been given, including, but not limited to, any interest payable by Term B
Lender to lenders of funds obtained by it in order to make or maintain its
Eurodollar Rate Loans hereunder. A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Term B Lender to
Borrower shall be conclusive absent manifest error.
(g) Notwithstanding any other provision hereof, if any Applicable
Law, treaty, regulation or directive, or any change therein or in the
interpretation or application thereof, shall make it unlawful for Term B Lender
(for purposes of this subsection (g), the term "Term B Lender" shall include
Term B Lender and the office or branch where Term B Lender or any corporation or
bank controlling Term B Lender makes or maintains any Eurodollar Rate Loans) to
make or maintain its Eurodollar Rate Loans, the obligation of Term B Lender to
make Eurodollar Rate Loans hereunder shall forthwith be cancelled and Borrower
shall, if any affected Eurodollar Rate Loans are then outstanding, promptly upon
request from Term B Lender, either pay all such affected Eurodollar Rate Loans
or convert such affected Eurodollar Rate Loans into loans of another type. If
any such payment or conversion of any Eurodollar Rate Loan is made on a day that
is not the last day of the Interest Period applicable to such Eurodollar Rate
Loan, Borrower shall pay Term B Lender, upon Term B Lender's request, such
amount or amounts as may be necessary to compensate Term B Lender for any loss
or expense sustained or incurred by Term B Lender in respect of such Eurodollar
Rate Loan as a result of such payment or conversion, including (but not limited
to) any interest or other amounts payable by Term B Lender to lenders of funds
obtained by Term B Lender in order to make or maintain such Eurodollar Rate
Loan. A certificate as to any additional amounts payable pursuant to the
foregoing sentence submitted by Term B Lender to Borrower shall be conclusive
absent manifest error.
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2.3. Disbursement of Term Loan Proceeds. The Term Loan shall be disbursed
from whichever office or other place Term B Lender may designate.
2.4. Repayment of Term Loan.
(a) The Term Loan shall be due and payable as provided in Section
2.1 hereof and in the Term Note, subject to mandatory prepayments as herein set
forth provided, however, notwithstanding anything to the contrary herein or in
any Other Document, all outstanding principal and interest with regard to the
Term Note shall be due and payable on the Termination Date.
(b) All payments of principal, interest and other amounts payable
hereunder, or under any of the Other Documents shall be made to Term B Lender at
the Payment Office not later than 1:00 P.M. (New York time) on the due date
therefor in lawful money of the United States of America in federal funds or
other funds immediately available to Term B Lender.
(c) Borrower shall pay principal, interest, and all other amounts
payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
2.5. Statement of Account.(a) Term B Lender shall maintain, in accordance
with its customary procedures, a loan account ("Borrower's Account") in the name
of Borrower in which shall be recorded the date and amount of the Term Loan made
by Term B Lender and the date and amount of each payment in respect thereof.
Each month, Term B Lender shall send to Borrower a statement showing the
accounting for the Term Loan, payments made or credited in respect thereof, and
other transactions between Term B Lender and Borrower during such month. The
monthly statements shall be deemed correct and binding upon Borrower in the
absence of manifest error and shall constitute an account stated between Term B
Lender and Borrower unless Term B Lender receives a written statement of
Borrower's specific exceptions thereto within thirty (30) days after such
statement is received by Borrower. The records of Term B Lender with respect to
the loan account shall be conclusive evidence absent manifest error of the
amounts of the Term Loan and other charges thereto and of payments applicable
thereto.
2.6. Additional Payments. Any sums expended by Term B Lender due to
Borrower's failure to perform or comply with its obligations under this
Agreement or any Other Document including Borrower's obligations under Sections
4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be added to the Obligations, or,
at Term B Lender's option, shall be paid to Term B Lender immediately upon
demand.
2.7. Mandatory Prepayments. Subject to the terms and provisions of the
Intercreditor Agreement and to Section 4.3 hereof, when Borrower sells or
otherwise disposes of any Collateral other than Inventory in the Ordinary Course
of Business, Borrower shall repay the Term Loan in an amount equal to (i) the
net proceeds of such sale (i.e., gross proceeds less the reasonable costs of
such sales or other dispositions), plus (ii) all accrued and unpaid interest on
the amount of such repayment and, in the case of repayment of a Eurodollar Rate
Loan, all amounts due pursuant to Section 2.2(f) hereof, such repayments to be
made promptly but in no event more than one (1) Business Day following receipt
of such net proceeds, and until the date of payment, such proceeds shall be held
in trust for Term B Lender. The foregoing shall not be deemed to be implied
consent to any such sale otherwise prohibited by the terms and conditions
hereof. Such repayments shall be applied to the Term Loan in the inverse order
of the maturities thereof.
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2.8. Use of Proceeds. Borrower shall apply the proceeds of the Term Loan
to (i) capitalize WMS Merger Corp. prior to the consummation of the acquisition
by WMS Merger Corp. of all of the outstanding capital stock of Welding
Metallurgy, Inc., and (ii) pay fees and expenses relating to this transaction.
Without limiting the generality of Section 2.8 above, neither the
Borrower nor any other Person which may in the future become party to this
Agreement or the Other Documents as Borrower, intends to use nor shall they use
any portion of the proceeds of the Term Loan, directly or indirectly, for any
purpose in violation of the Trading with the Enemy Act.
III. INTEREST AND FEES.
3.1. Interest. Interest on the Term Loan shall be payable in arrears on
the first Business Day of each calendar month with respect to Domestic Rate
Loans and, with respect to Eurodollar Rate Loans, at the end of each Interest
Period, subject to (i) acceleration upon the occurrence of an Event of Default
under this Agreement, (ii) termination of this Agreement pursuant to the terms
hereof, or (iii) mandatory prepayment. Interest charges shall be computed on the
actual principal amount of the Term Loan outstanding during the applicable
period at a rate per annum equal to the applicable Term Loan Rate. Whenever,
subsequent to the date of this Agreement, the Alternate Base Rate is increased
or decreased, the applicable Term Loan Rate for Domestic Rate Loans shall be
similarly changed without notice or demand of any kind by an amount equal to the
amount of such change in the Alternate Base Rate during the time such change or
changes remain in effect. The Eurodollar Rate shall be adjusted with respect to
Eurodollar Rate Loans without notice or demand of any kind on the effective date
of any change in the Reserve Percentage as of such effective date. Upon and
after the occurrence of an Event of Default, and during the continuation
thereof, at the option of Term B Lender, the Obligations shall bear interest at
the applicable Term Loan Rate plus four percent (4.0%) per annum (the "Default
Rate").
3.2. Closing Fee. Upon the execution of this Agreement, Borrower shall pay
to Term B Lender a closing fee of $145,000 less that portion of the good faith
deposit and commitment fee of $95,000, in the aggregate, heretofore paid by
Borrower to Term B Lender remaining after application of such fee to out of
pocket expenses.
3.3. Computation of Interest and Fees. Interest and fees hereunder shall
be computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the Term Loan
Rate for Domestic Rate Loans during such extension.
3.4. Maximum Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law. In the
event interest and other charges as computed hereunder would otherwise exceed
the highest rate permitted under law, such excess amount shall be first applied
to any unpaid principal balance owed by Borrower, and if the then remaining
excess amount is greater than the previously unpaid principal balance, Term B
Lender shall promptly refund such excess amount to Borrower and the provisions
hereof shall be deemed amended to provide for such permissible rate.
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3.5. Increased Costs. In the event that any Applicable Law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by Term B Lender (for purposes of this
Section 3.5, the term "Term B Lender" shall include Term B Lender and any
corporation or bank controlling Term B Lender) and the office or branch where
Term B Lender (as so defined) makes or maintains any Eurodollar Rate Loans with
any request or directive (whether or not having the force of law) from any
central bank or other financial, monetary or other authority, shall:
(a) subject Term B Lender to any tax of any kind whatsoever with
respect to this Agreement or any Other Document or change the basis of taxation
of payments to Term B Lender of principal, fees, interest or any other amount
payable hereunder or under any Other Documents (except for changes in the rate
of tax on the overall net income of Term B Lender by the jurisdiction in which
it maintains its principal office);
(b) impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by, any office of
Term B Lender, including pursuant to Regulation D of the Board of Governors of
the Federal Reserve System; or
(c) impose on Term B Lender or the London interbank Eurodollar
market any other condition with respect to this Agreement or any Other Document;
and the result of any of the foregoing is to increase the cost to Term B Lender
of making, renewing or maintaining its Term Loan hereunder by an amount that
Term B Lender deems to be material or to reduce the amount of any payment
(whether of principal, interest or otherwise) in respect of any of the Term Loan
by an amount that Term B Lender deems to be material, then, in any case Borrower
shall promptly pay Term B Lender, upon its demand, such additional amount as
will compensate Term B Lender for such additional cost or such reduction, as the
case may be, provided that the foregoing shall not apply to increased costs
which are reflected in the Eurodollar Rate, as the case may be. Term B Lender
shall certify the amount of such additional cost or reduced amount to Borrower,
and such certification shall be conclusive absent manifest error.
3.6. Basis For Determining Interest Rate Inadequate or Unfair. In the
event that Term B Lender shall have determined that:
(a) reasonable means do not exist for ascertaining the Eurodollar
Rate applicable pursuant to Section 2.2 hereof for any Interest Period; or
(b) Dollar deposits in the relevant amount and for the relevant
maturity are not available in the London interbank Eurodollar market, with
respect to an outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate Loan,
or a proposed conversion of a Domestic Rate Loan into a Eurodollar Rate Loan,
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then Term B Lender shall give Borrower prompt written, telephonic or telegraphic
notice of such determination. If such notice is given, (i) any such requested
Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless Borrower
shall notify Term B Lender no later than 10:00 a.m. (New York City time) two (2)
Business Days prior to the date of such proposed borrowing, that its request for
such borrowing shall be cancelled or made as an unaffected type of Eurodollar
Rate Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which was to have
been converted to an affected type of Eurodollar Rate Loan shall be continued as
or converted into a Domestic Rate Loan, or, if Borrower shall notify Term B
Lender, no later than 10:00 a.m. (New York City time) two (2) Business Days
prior to the proposed conversion, shall be maintained as an unaffected type of
Eurodollar Rate Loan, and (iii) any outstanding affected Eurodollar Rate Loans
shall be converted into a Domestic Rate Loan, or, if Borrower shall notify Term
B Lender, no later than 10:00 a.m. (New York City time) two (2) Business Days
prior to the last Business Day of the then current Interest Period applicable to
such affected Eurodollar Rate Loan, shall be converted into an unaffected type
of Eurodollar Rate Loan, on the last Business Day of the then current Interest
Period for such affected Eurodollar Rate Loans. Until such notice has been
withdrawn, Term B Lender shall have no obligation to make an affected type of
Eurodollar Rate Loan or maintain outstanding affected Eurodollar Rate Loans and
Borrower shall not have the right to convert a Domestic Rate Loan or an
unaffected type of Eurodollar Rate Loan into an affected type of Eurodollar Rate
Loan.
3.7. Capital Adequacy.
(a) In the event that Term B Lender shall have determined that any
Applicable Law, rule, regulation or guideline regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any Governmental Body, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Term B Lender (for
purposes of this Section 3.7, the term "Term B Lender" shall include Term B
Lender and any corporation or bank controlling Term B Lender) and the office or
branch where Term B Lender (as so defined) makes or maintains any Eurodollar
Rate Loans with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on Term B
Lender's capital as a consequence of its obligations hereunder to a level below
that which Term B Lender could have achieved but for such adoption, change or
compliance (taking into consideration Term B Lender's policies with respect to
capital adequacy) by an amount deemed by Term B Lender to be material, then,
from time to time, Borrower shall pay upon demand to Term B Lender such
additional amount or amounts as will compensate Term B Lender for such
reduction. In determining such amount or amounts, Term B Lender may use any
reasonable averaging or attribution methods. The protection of this Section 3.7
shall be available to Term B Lender regardless of any possible contention of
invalidity or inapplicability with respect to the Applicable Law, regulation or
condition.
(b) A certificate of Term B Lender setting forth such amount or
amounts as shall be necessary to compensate Term B Lender with respect to
Section 3.7(a) hereof when delivered to Borrower shall be conclusive absent
manifest error.
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3.8. Gross Up for Taxes. Subject to Section 3.5(a) herein, if Borrower
shall be required by Applicable Law to withhold or deduct any taxes from or in
respect of any sum payable under this Agreement or any of the Other Documents to
Term B Lender, assignee of any Term B Lender, or Participant (each,
individually, a "Payee" and collectively, the "Payees"), (a) the sum payable to
such Payee or Payees, as the case may be, shall be increased as may be necessary
so that, after making all required withholding or deductions, the applicable
Payee or Payees receives an amount equal to the sum it would have received had
no such withholding or deductions been made (the "Gross-Up Payment"), (b)
Borrower shall make such withholding or deductions, and (c) Borrower shall pay
the full amount withheld or deducted to the relevant taxation authority or other
authority in accordance with Applicable Law. Notwithstanding the foregoing,
Borrower shall not be obligated to make any portion of the Gross-Up Payment that
is attributable to any withholding or deductions that would not have been paid
or claimed had the applicable Payee or Payees properly claimed a complete
exemption with respect thereto pursuant to Section 3.9 hereof.
3.9. Withholding Tax Exemption.
(a) Each Payee that is not incorporated under the Laws of the United
States of America or a state thereof (and, upon the written request of Term B
Lender, each other Payee) agrees that it will deliver to Borrower and Term B
Lender two (2) duly completed appropriate valid Withholding Certificates (as
defined under ss.1.1441-1(c)(16) of the Income Tax Regulations ("Regulations"))
certifying its status (i.e., U.S. or foreign person) and, if appropriate, making
a claim of reduced, or exemption from, U.S. withholding tax on the basis of an
income tax treaty or an exemption provided by the Code. The term "Withholding
Certificate" means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and
the related statements and certifications as required under ss.1.1441-1(e)(2)
and/or (3) of the Regulations; a statement described in ss.1.871-14(c)(2)(v) of
the Regulations; or any other certificates under the Code or Regulations that
certify or establish the status of a payee or beneficial owner as a U.S. or
foreign person.
(b) Each Payee required to deliver to Borrower and Term B Lender a
valid Withholding Certificate pursuant to Section 3.9(a) hereof shall deliver
such valid Withholding Certificate as follows: (A) each Payee which is a party
hereto on the Closing Date shall deliver such valid Withholding Certificate at
least five (5) Business Days prior to the first date on which any interest or
fees are payable by Borrower hereunder for the account of such Payee; (B) each
Payee shall deliver such valid Withholding Certificate at least five (5)
Business Days before the effective date of such assignment or participation
(unless Term B Lender in its sole discretion shall permit such Payee to deliver
such Withholding Certificate less than five (5) Business Days before such date
in which case it shall be due on the date specified by Term B Lender). Each
Payee which so delivers a valid Withholding Certificate further undertakes to
deliver to Borrower and Term B Lender two (2) additional copies of such
Withholding Certificate (or a successor form) on or before the date that such
Withholding Certificate expires or becomes obsolete or after the occurrence of
any event requiring a change in the most recent Withholding Certificate so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by Borrower or Term B Lender.
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(c) Notwithstanding the submission of a Withholding Certificate
claiming a reduced rate of or exemption from U.S. withholding tax required under
Section 3.9(b) hereof, Term B Lender shall be entitled to withhold United States
federal income taxes at the full 30% withholding rate if in its reasonable
judgment it is required to do so under the due diligence requirements imposed
upon a withholding agent under ss.1.1441-7(b) of the Regulations. Further, Term
B Lender is indemnified under ss.1.1461-1(e) of the Regulations against any
claims and demands of any Payee for the amount of any tax it deducts and
withholds in accordance with regulations under ss.1441 of the Code.
IV. COLLATERAL: GENERAL TERMS
4.1. Security Interest in the Collateral. Subject to the terms and
provisions of the Intercreditor Agreement, to secure the prompt payment and
performance to Term B Lender of the Obligations, Borrower hereby assigns,
pledges and grants to Term B Lender a continuing security interest in and to and
Lien on all of its Collateral, whether now owned or existing or hereafter
acquired or arising and wheresoever located. Borrower shall mark its books and
records as may be necessary or appropriate to evidence, protect and perfect Term
B Lender's security interest and shall cause its financial statements to reflect
such security interest. Borrower shall promptly provide Term B Lender with
written notice of all commercial tort claims, such notice to contain the case
title together with the applicable court and a brief description of the
claim(s). Upon delivery of each such notice, Borrower shall be deemed to hereby
grant to Term B Lender a security interest and lien in and to such commercial
tort claims and all proceeds thereof.
4.2. Perfection of Security Interest. Borrower shall take all action that
may be necessary or desirable, or that Term B Lender may request, so as at all
times to maintain the validity, perfection, enforceability and priority of Term
B Lender's security interest in and Lien on the Collateral or to enable Term B
Lender to protect, exercise or enforce its rights hereunder and in the
Collateral, including, but not limited to, (i) immediately discharging all Liens
other than Permitted Encumbrances, (ii) obtaining Lien Waiver Agreements, (iii)
delivering to Term B Lender, endorsed or accompanied by such instruments of
assignment as Term B Lender may specify, and stamping or marking, in such manner
as Term B Lender may specify, any and all chattel paper, instruments, letters of
credits and advices thereof and documents evidencing or forming a part of the
Collateral, (iv) entering into warehousing, lockbox and other custodial
arrangements satisfactory to Term B Lender, and (v) executing and delivering
financing statements, control agreements, instruments of pledge, mortgages,
notices and assignments, in each case in form and substance satisfactory to Term
B Lender, relating to the creation, validity, perfection, maintenance or
continuation of Term B Lender's security interest and Lien under the Uniform
Commercial Code or other Applicable Law. By its signature hereto, Borrower
hereby authorizes Term B Lender to file against Borrower, one or more financing,
continuation or amendment statements pursuant to the Uniform Commercial Code in
form and substance satisfactory to Term B Lender (which statements may have a
description of collateral which is broader than that set forth herein). All
charges, expenses and fees Term B Lender may incur in doing any of the
foregoing, and any local taxes relating thereto, shall be added to the
Obligations, or, at Term B Lender's option, shall be paid to Term B Lender
immediately upon demand.
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4.3. Disposition of Collateral. Borrower will safeguard and protect all
Collateral for Term B Lender's general account and make no disposition thereof
whether by sale, lease or otherwise except (a) the sale of Inventory in the
Ordinary Course of Business and (b) the disposition or transfer of obsolete and
worn-out Equipment in the Ordinary Course of Business during any fiscal year
having an aggregate fair market value of not more than $100,000 and only to the
extent that (i) the proceeds of any such disposition are used to acquire
replacement Equipment which is subject to Term B Lender's second priority
security interest or (ii) subject to the terms and provisions of the
Intercreditor Agreement, the proceeds of which are remitted to Term B Lender to
be applied pursuant to Section 2.7.
4.4. Preservation of Collateral. In addition to the rights and remedies
set forth in Section 11.1 hereof, Term B Lender: (a) may at any time take such
steps as Term B Lender deems necessary to protect Term B Lender's interest in
and to preserve the Collateral, including the hiring of such security guards or
the placing of other security protection measures as Term B Lender may deem
appropriate; (b) may employ and maintain at any of Borrower's premises a
custodian who shall have full authority to do all acts necessary to protect Term
B Lender's interests in the Collateral; (c) may lease warehouse facilities to
which Term B Lender may move all or part of the Collateral; (d) may use
Borrower's owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral; and (e) shall have, and is
hereby granted, a right of ingress and egress to the places where the Collateral
is located, and may proceed over and through any of Borrower's owned or leased
property. Borrower shall cooperate fully with all of Term B Lender's efforts to
preserve the Collateral and will take such actions to preserve the Collateral as
Term B Lender may direct. All of Term B Lender's expenses of preserving the
Collateral, including any expenses relating to the bonding of a custodian, shall
be added to the Obligations, or, at Term B Lender's option, shall be paid to
Term B Lender immediately upon demand.
4.5. Ownership of Collateral.
(a) With respect to the Collateral, at the time the Collateral
becomes subject to Term B Lender's security interest: (i) Borrower shall be the
sole owner of and fully authorized and able to sell, transfer, pledge and/or
grant a security interest in each and every item of the its respective
Collateral to Term B Lender; and, except for Permitted Encumbrances, the
Collateral shall be free and clear of all Liens and encumbrances whatsoever;
(ii) each document and agreement executed by Borrower or delivered to Term B
Lender in connection with this Agreement shall be true and correct in all
respects; (iii) all signatures and endorsements of Borrower that appear on such
documents and agreements shall be genuine and Borrower shall have full capacity
to execute same; and (iv) Borrower's Equipment and Inventory shall be located as
set forth on Schedule 4.5 and shall not be removed from such location(s) without
the prior written consent of Term B Lender except with respect to the sale of
Inventory in the Ordinary Course of Business and Equipment to the extent
permitted in Section 4.3 hereof.
(b) (i) There is no location at which Borrower has any Inventory
(except for Inventory in transit) other than those locations listed on Schedule
4.5; (ii) Schedule 4.5 hereto contains a correct and complete list, as of the
Closing Date, of the legal names and addresses of each warehouse at which
Inventory of Borrower is stored; (iii) Schedule 4.5 hereto sets forth a correct
and complete list as of the Closing Date of (A) each place of business of
Borrower and (B) the chief executive office of Borrower; and (iv) Schedule 4.5
hereto sets forth a correct and complete list as of the Closing Date of the
location, by state and street address, of all Real Property owned or leased by
Borrower, together with the names and addresses of any landlords.
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4.6. Defense of Term B Lender's Interests. Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Term B Lender's interests in the Collateral shall continue in full
force and effect. During such period Borrower shall not, without Term B Lender's
prior written consent, pledge, sell (except Inventory in the Ordinary Course of
Business and Equipment to the extent permitted in Section 4.3 hereof), assign,
transfer, create or suffer to exist a Lien upon or encumber or allow or suffer
to be encumbered in any way except for Permitted Encumbrances, any part of the
Collateral. Borrower shall defend Term B Lender's interests in the Collateral
against any and all Persons whatsoever. At any time following demand by Term B
Lender for payment of all Obligations, Term B Lender shall have the right to
take possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including: labels, stationery, documents, instruments
and advertising materials. If Term B Lender exercises this right to take
possession of the Collateral, Borrower shall, upon demand, assemble it in the
best manner possible and make it available to Term B Lender at a place
reasonably convenient to Term B Lender. In addition, with respect to all
Collateral, but subject to the Intercreditor Agreement, Term B Lender shall be
entitled to all of the rights and remedies set forth herein and further provided
by the Uniform Commercial Code or other Applicable Law. Subject to the
Intercreditor Agreement, Borrower shall, and Term B Lender may, at its option,
instruct all suppliers, carriers, forwarders, warehousers or others receiving or
holding cash, checks, Inventory, documents or instruments in which Term B Lender
holds a security interest to deliver same to Term B Lender and/or subject to
Term B Lender's order and if they shall come into Borrower's possession, they,
and each of them, shall be held by Borrower in trust as Term B Lender's trustee,
and Borrower will immediately deliver them to Term B Lender in their original
form together with any necessary endorsement.
4.7. Books and Records. Borrower shall (a) keep proper books of record and
account in which full, true and correct entries will be made of all dealings or
transactions of or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including by reason of enumeration, accruals for
premiums, if any, due on required payments and accruals for depreciation,
obsolescence, or amortization of properties), which should be set aside from
such earnings in connection with its business. All determinations pursuant to
this subsection shall be made in accordance with, or as required by, GAAP
consistently applied in the opinion of such independent public accountant as
shall then be regularly engaged by Borrower.
4.8. Financial Disclosure. Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by Borrower at any time during the
Term to exhibit and deliver to Term B Lender copies of any of Borrower's
financial statements, trial balances or other accounting records of any sort in
the accountant's or auditor's possession, and to disclose to Term B Lender any
information such accountants may have concerning Borrower's financial status and
business operations provided, however, so long as no Default and/or Event of
Default has occurred, Term B Lender will attempt to obtain such information or
materials directly from Borrower prior to obtaining such information or
materials from such accountants and is hereby authorized to obtain such
information or materials from such accountants if the Borrower does not provide
such information and materials to the Term B Lender within ten (10) Business
Days of any request for such information and materials. Borrower hereby
authorizes all Governmental Bodies to furnish to Term B Lender copies of reports
or examinations relating to Borrower, whether made by Borrower or otherwise
provided, however, so long as no Default and/or Event of Default has occurred,
Term B Lender will attempt to obtain such information or materials directly from
Borrower prior to obtaining such information or materials from such Governmental
Bodies and is hereby authorized to obtain such information or materials from
such Governmental Bodies if the Borrower does not provide such information and
materials to Term B Lender within ten (10) Business Days of any request for such
information and materials.
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4.9. Compliance with Laws. Borrower shall comply with all Applicable Laws
with respect to the Collateral or any part thereof or to the operation of
Borrower's business the non-compliance with which could reasonably be expected
to have a Material Adverse Effect. Borrower may, however, contest or dispute any
Applicable Laws in any reasonable manner, provided that any related Lien is
inchoate or stayed and sufficient reserves are established to the reasonable
satisfaction of Term B Lender to protect Term B Lender's Lien on or security
interest in the Collateral. The assets of Borrower at all times shall be
maintained in accordance with the requirements of all insurance carriers which
provide insurance with respect to the assets of Borrower so that such insurance
shall remain in full force and effect.
4.10. Inspection of Premises. At all reasonable times Term B Lender shall
have full access to and the right to audit, check, inspect and make abstracts
and copies from Borrower's books, records, audits, correspondence and all other
papers relating to the Collateral and the operation of Borrower's business. Term
B Lender and its agents may enter upon any of Borrower's premises at any time
during business hours and at any other reasonable time, and from time to time,
for the purpose of inspecting the Collateral and any and all records pertaining
thereto and the operation of Borrower's business.
4.11. Insurance. The assets and properties of Borrower at all times shall
be maintained in accordance with the requirements of all insurance carriers
which provide insurance with respect to the assets and properties of Borrower so
that such insurance shall remain in full force and effect. Borrower shall bear
the full risk of any loss of any nature whatsoever with respect to the
Collateral. At Borrower's own cost and expense in amounts and with carriers
reasonably acceptable to Term B Lender, Borrower shall (a) keep all its
insurable properties and properties in which Borrower has an interest insured
against the hazards of fire, flood, sprinkler leakage, those hazards covered by
extended coverage insurance and such other hazards, and for such amounts, as is
customary in the case of companies engaged in businesses similar to Borrower's
including business interruption insurance; (b) maintain a bond in such amounts
as is customary in the case of companies engaged in businesses similar to
Borrower insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of Borrower
either directly or through authority to draw upon such funds or to direct
generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which Borrower is engaged in business; (e) furnish Term B Lender with (i) copies
of all liability and property insurance policies and evidence of the maintenance
of such policies by the renewal thereof at least thirty (30) days before any
expiration date, and (ii) appropriate loss payable endorsements in form and
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substance satisfactory to Term B Lender, naming Term B Lender as an additional
insured, mortgagee and lender loss payee as its interests may appear with
respect to all insurance coverage referred to in clauses (a) and (c) above, and
providing (A) that all proceeds thereunder in excess of $100,000 shall be
payable to Term B Lender, (B) no such insurance shall be affected by any act or
neglect of the insured or owner of the property described in such policy, and
(C) that such policy and loss payable clauses may not be cancelled, amended or
terminated unless at least thirty (30) days' prior written notice is given to
Term B Lender. In the event of any loss thereunder in excess of $100,000, the
carriers named therein hereby are directed by Term B Lender and Borrower to make
payment for such loss to Term B Lender and not to Borrower and Term B Lender
jointly. If any insurance losses are paid by check, draft or other instrument
payable to Borrower and Term B Lender jointly, Term B Lender may endorse
Borrower's name thereon and do such other things as Term B Lender may deem
advisable to reduce the same to cash. Term B Lender is hereby authorized to
adjust and compromise claims under insurance coverage referred to in clauses (a)
and (b) above. So long as no Default and/or Event of Default has occurred, Term
B Lender shall consult the Borrower with regard to such adjustments and
compromises. All loss recoveries received by Term B Lender upon any such
insurance may be applied to the Obligations, in such order as Term B Lender in
its sole discretion shall determine. Any surplus shall be paid by Term B Lender
to Borrower or applied as may be otherwise required by law. Any deficiency
thereon shall be paid by Borrower to Term B Lender, on demand. The rights of
Term B Lender under this Section 4.11 are subject to the terms and provisions of
the Intercreditor Agreement.
4.12. Failure to Pay Insurance. If Borrower fails to obtain insurance as
hereinabove provided, or to keep the same in force, Term B Lender, if Term B
Lender so elects, may obtain such insurance and pay the premium therefor on
behalf of Borrower, and such expenses so paid shall be part of the Obligations,
or, at Term B Lender's option, shall be paid to Term B Lender immediately upon
demand.
4.13. Payment of Taxes. Borrower will pay, when due, all taxes,
assessments and other Charges lawfully levied or assessed upon Borrower or any
of the Collateral including real and personal property taxes, assessments and
charges and all franchise, income, employment, social security benefits,
withholding, and sales taxes. If any tax by any Governmental Body is or may be
imposed on or as a result of any transaction between Borrower and Term B Lender
which Term B Lender may be required to withhold or pay or if any taxes,
assessments, or other Charges remain unpaid after the date fixed for their
payment, or if any claim shall be made which, in Term B Lender's opinion, may
possibly create a valid Lien on the Collateral, Term B Lender may without notice
to Borrower pay the taxes, assessments or other Charges and Borrower hereby
indemnifies and holds Term B Lender harmless in respect thereof, subject to
Sections 3.5(a) and 3.9 herein. Term B Lender will not pay any taxes,
assessments or Charges to the extent that Borrower has contested or disputed
those taxes, assessments or Charges in good faith, by expeditious protest,
administrative or judicial appeal or similar proceeding provided that any
related tax lien is stayed and sufficient reserves are established to the
reasonable satisfaction of Term B Lender to protect Term B Lender's security
interest in or Lien on the Collateral. The amount of any payment by Term B
Lender under this Section 4.13 shall be added to the Obligations, or, at Term B
Lender's option, shall be paid to Term B Lender immediately upon demand, and,
until Borrower shall furnish Term B Lender with an indemnity therefor (or supply
Term B Lender with evidence satisfactory to Term B Lender that due provision for
the payment thereof has been made), Term B Lender may hold without interest any
balance standing to Borrower's credit and Term B Lender shall retain its
security interest in and Lien on any and all Collateral held by Term B Lender.
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4.14. Payment of Leasehold Obligations. Borrower shall at all times pay,
when and as due, its rental obligations under all leases under which it is a
tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Term B
Lender's request will provide evidence of having done so.
4.15. Receivables.
(a) Nature of Receivables. Each of the Receivables shall be a bona
fide and valid account representing a bona fide indebtedness incurred by the
Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of Borrower, or work, labor or services theretofore
rendered by Borrower as of the date each Receivable is created. Same shall be
due and owing in accordance with Borrower's standard terms of sale without
dispute, setoff or counterclaim except as may be stated on the accounts
receivable schedules delivered by Borrower to Term B Lender.
(b) Solvency of Customers. Each Customer, to the best of Borrower's
knowledge, as of the date each Receivable is created, is and will be solvent and
able to pay all Receivables on which the Customer is obligated in full when due
or with respect to such Customers of Borrower who are not solvent Borrower has
set up on its books and in its financial records bad debt reserves adequate to
cover such Receivables.
(c) Location of Borrower. Borrower's chief executive office is
located at 1479 Clinton Avenue, Bay Shore, New York 11706. Until written notice
is given to Term B Lender by Borrower of any other office at which Borrower
keeps its records pertaining to Receivables, all such records shall be kept at
such executive office.
(d) Collection of Receivables. Until Borrower's authority to do so
is terminated by Term B Lender (which notice Term B Lender may give at any time
following the occurrence of an Event of Default or a Default or when Term B
Lender in its sole discretion deems it to be in its best interest to do so),
Borrower will, at Borrower's sole cost and expense, but on Term B Lender's
behalf and for Term B Lender's account, collect as Term B Lender's property and
in trust for Term B Lender all amounts received on Receivables, and shall not
commingle such collections with Borrower's funds or use the same except to pay
Obligations. Borrower shall deposit in the Blocked Account or, upon request by
Term B Lender, deliver to Term B Lender, in original form and on the date of
receipt thereof, all checks, drafts, notes, money orders, acceptances, cash and
other evidences of Indebtedness.
(e) Notification of Assignment of Receivables. At any time Term B
Lender shall have the right to send notice of the assignment of, and Term B
Lender's security interest in and Lien on, the Receivables to any and all
Customers or any third party holding or otherwise concerned with any of the
Collateral. Thereafter, Term B Lender shall have the sole right to collect the
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Receivables, take possession of the Collateral, or both. Term B Lender's actual
collection expenses, including, but not limited to, stationery and postage,
telephone and telegraph, secretarial and clerical expenses and the salaries of
any collection personnel used for collection, may be added to the Obligations,
or, at Term B Lender's option, shall be paid to Term B Lender immediately upon
demand.
(f) Power of Term B Lender to Act on Borrower's Behalf. Term B
Lender shall have the right to receive, endorse, assign and/or deliver in the
name of Term B Lender or Borrower any and all checks, drafts and other
instruments for the payment of money relating to the Receivables, and Borrower
hereby waives notice of presentment, protest and non-payment of any instrument
so endorsed. Borrower hereby constitutes Term B Lender or Term B Lender's
designee as Borrower's attorney with power (i) to endorse Borrower's name upon
any notes, acceptances, checks, drafts, money orders or other evidences of
payment or Collateral; (ii) to sign Borrower's name on any invoice or bill of
lading relating to any of the Receivables, drafts against Customers, assignments
and verifications of Receivables; (iii) to send verifications of Receivables to
any Customer; (iv) to sign Borrower's name on all financing statements or any
other documents or instruments deemed necessary or appropriate by Term B Lender
to preserve, protect, or perfect Term B Lender's interest in the Collateral and
to file same; (v) to demand payment of the Receivables upon notice to the
Borrower; (vi) to enforce payment of the Receivables by legal proceedings or
otherwise upon notice to the Borrower; (vii) to exercise all of Borrower's
rights and remedies with respect to the collection of the Receivables and any
other Collateral upon notice to the Borrower; (viii) to settle, adjust,
compromise, extend or renew the Receivables upon notice to the Borrower; (ix) to
settle, adjust or compromise any legal proceedings brought to collect
Receivables upon notice to the Borrower; (x) to prepare, file and sign
Borrower's name on a proof of claim in bankruptcy or similar document against
any Customer upon notice to the Borrower; (xi) to prepare, file and sign
Borrower's name on any notice of Lien, assignment or satisfaction of Lien or
similar document in connection with the Receivables; and (xii) to do all other
acts and things necessary to carry out this Agreement. All acts of said attorney
or designee are hereby ratified and approved, and said attorney or designee
shall not be liable for any acts of omission or commission nor for any error of
judgment or mistake of fact or of law, unless done maliciously or with gross
(not mere) negligence (as determined by a court of competent jurisdiction in a
final non-appealable judgment); this power being coupled with an interest is
irrevocable while any of the Obligations remain unpaid. Upon the occurrence of a
Default and/or an Event of Default, Term B Lender shall have the right at any
time to change the address for delivery of mail addressed to Borrower to such
address as Term B Lender may designate and to receive, open and dispose of all
mail addressed to Borrower.
(g) No Liability. Term B Lender shall not, under any circumstances
or in any event whatsoever, have any liability for any error or omission or
delay of any kind occurring in the settlement, collection or payment of any of
the Receivables or any instrument received in payment thereof, or for any damage
resulting therefrom. Term B Lender may, with notice to Borrower and without
consent from Borrower, sue upon or otherwise collect, extend the time of payment
of, compromise or settle for cash, credit or upon any terms any of the
Receivables or any other securities, instruments or insurance applicable thereto
and/or release any obligor thereof. Term B Lender is authorized and empowered to
accept the return of the goods represented by any of the Receivables, with
notice to Borrower and without consent from Borrower, all without discharging or
in any way affecting Borrower's liability hereunder.
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(h) Establishment of a Lockbox Account, Dominion Account. All
proceeds of Collateral shall be deposited by Borrower into either (i) a lockbox
account, dominion account or such other "blocked account" ("Blocked Accounts")
established at a bank or banks (each such bank, a "Blocked Account Bank")
pursuant to an arrangement with such Blocked Account Bank as may be selected by
Borrower and be acceptable to Term B Lender or (ii) depository accounts
("Depository Accounts") established at the Term B Lender for the deposit of such
proceeds. Borrower, Term B Lender and each Blocked Account Bank shall enter into
a deposit account control agreement in form and substance satisfactory to Term B
Lender directing such Blocked Account Bank to transfer such funds so deposited
to Term B Lender, either to any account maintained by Term B Lender at said
Blocked Account Bank or by wire transfer to appropriate account(s) of Term B
Lender. All funds deposited in such Blocked Accounts shall immediately become
the property of Term B Lender and Borrower shall obtain the agreement by such
Blocked Account Bank to waive any offset rights against the funds so deposited.
Term B Lender does not assume any responsibility for such blocked account
arrangement, including any claim of accord and satisfaction or release with
respect to deposits accepted by any Blocked Account Bank thereunder. All deposit
accounts and investment accounts of Borrower and its Subsidiaries are set forth
on Schedule 4.15(h).
(i) Adjustments. Borrower will not, without Term B Lender's consent,
compromise or adjust any Receivables (or extend the time for payment thereof) or
accept any returns of merchandise or grant any additional discounts, allowances
or credits thereon except for those compromises, adjustments, returns,
discounts, credits and allowances as have been heretofore customary in the
business of Borrower.
(j) Intercreditor Agreement. The rights of Term B Lender with
respect to the Receivables under this Section 4.15 are subject to the
Intercreditor Agreement.
4.16. Inventory. To the extent Inventory held for sale or lease has been
produced by Borrower, it has been and will be produced by Borrower in accordance
with the Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations and orders thereunder.
4.17. Maintenance of Equipment. The Equipment shall be maintained in good
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved.
Borrower shall not use or operate the Equipment in violation of any law,
statute, ordinance, code, rule or regulation. Borrower shall have the right to
sell Equipment to the extent set forth in Section 4.3 hereof.
4.18. Exculpation of Liability. Nothing herein contained shall be
construed to constitute Term B Lender as Borrower's agent for any purpose
whatsoever, nor shall Term B Lender be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the Collateral wherever
the same may be located and regardless of the cause thereof. Term B Lender does
not, whether by anything herein or in any assignment or otherwise, assume any of
Borrower's obligations under any contract or agreement assigned to Term B
Lender, and Term B Lender shall not be responsible in any way for the
performance by Borrower of any of the terms and conditions thereof.
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4.19. Environmental Matters.
(a) Borrower shall ensure that the Real Property and all operations
and businesses conducted thereon remains in compliance with all Environmental
Laws and they shall not place or permit to be placed any Hazardous Substances on
any Real Property except as permitted by Applicable Law or appropriate
governmental authorities.
(b) Borrower shall establish and maintain a system to assure and
monitor continued compliance with all applicable Environmental Laws which system
shall include periodic reviews of such compliance.
(c) Borrower shall (i) employ in connection with the use of the Real
Property appropriate technology necessary to maintain compliance with any
applicable Environmental Laws and (ii) dispose of any and all Hazardous Waste
generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
Borrower shall use its best efforts to obtain certificates of disposal, such as
hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by Borrower in connection with the
transport or disposal of any Hazardous Waste generated at the Real Property.
(d) In the event Borrower obtains, gives or receives notice of any
Release or threat of Release of a reportable quantity of any Hazardous
Substances at the Real Property (any such event being hereinafter referred to as
a "Hazardous Discharge") or receives any notice of violation, request for
information or notification that it is potentially responsible for investigation
or cleanup of environmental conditions at the Real Property, demand letter or
complaint, order, citation, or other written notice with regard to any Hazardous
Discharge or violation of Environmental Laws affecting the Real Property or
Borrower's interest therein (any of the foregoing is referred to herein as an
"Environmental Complaint") from any Person, including any state agency
responsible in whole or in part for environmental matters in the state in which
the Real Property is located or the United States Environmental Protection
Agency (any such person or entity hereinafter the "Authority"), then Borrower
shall, within five (5) Business Days, give written notice of same to Term B
Lender detailing facts and circumstances of which Borrower is aware giving rise
to the Hazardous Discharge or Environmental Complaint. Such information is to be
provided to allow Term B Lender to protect its security interest in and Lien on
the Real Property and the Collateral and is not intended to create nor shall it
create any obligation upon Term B Lender with respect thereto.
(e) Borrower shall promptly forward to Term B Lender copies of any
request for information, notification of potential liability, demand letter
relating to potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated or used by
Borrower to dispose of Hazardous Substances and shall continue to forward copies
of correspondence between Borrower and the Authority regarding such claims to
Term B Lender until the claim is settled. Borrower shall promptly forward to
Term B Lender copies of all documents and reports concerning a Hazardous
Discharge at the Real Property that Borrower is required to file under any
Environmental Laws. Such information is to be provided solely to allow Term B
Lender to protect Term B Lender's security interest in and Lien on the Real
Property and the Collateral. Term B Lender hereby acknowledges receipt of the
Existing Environmental Due Diligence.
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(f) Borrower shall respond promptly to any Hazardous Discharge or
Environmental Complaint and take all necessary action in order to safeguard the
health of any Person and to avoid subjecting the Collateral or Real Property to
any Lien. If Borrower shall fail to respond promptly to any Hazardous Discharge
or Environmental Complaint or Borrower shall fail to comply with any of the
requirements of any Environmental Laws, Term B Lender may, but without the
obligation to do so, for the sole purpose of protecting Term B Lender's interest
in the Collateral: (A) give such notices or (B) enter onto the Real Property (or
authorize third parties to enter onto the Real Property) and take such actions
as Term B Lender (or such third parties as directed by Term B Lender) deem
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise
deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by Term B Lender (or such third parties)
in the exercise of any such rights, including any sums paid in connection with
any judicial or administrative investigation or proceedings, fines and
penalties, together with interest thereon from the date expended at the Default
Rate for Domestic Rate Loans shall be paid upon demand by Borrower, and until
paid shall be added to and become a part of the Obligations secured by the Liens
created by the terms of this Agreement or any other agreement between Term B
Lender and Borrower.
(g) Promptly upon the written request of Term B Lender from time to
time, Borrower shall provide Term B Lender, at Borrower's expense, with an
environmental site assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable opinion of Term B
Lender, to assess with a reasonable degree of certainty the existence of a
Hazardous Discharge and the potential costs in connection with abatement,
cleanup and removal of any Hazardous Substances found on, under, at or within
the Real Property. Any report or investigation of such Hazardous Discharge
proposed and acceptable to an appropriate Authority that is charged to oversee
the clean-up of such Hazardous Discharge shall be acceptable to Term B Lender.
If such estimates, individually or in the aggregate, exceed $100,000, Term B
Lender shall have the right to require Borrower to post a bond, letter of credit
or other security reasonably satisfactory to Term B Lender to secure payment of
these costs and expenses.
(h) Borrower shall defend and indemnify Term B Lender and hold Term
B Lender and its employees, agents, directors and officers harmless from and
against all loss, liability, damage and expense, claims, costs, fines and
penalties, including attorney's fees, suffered or incurred by Term B Lender
under or on account of any Environmental Laws, including the assertion of any
Lien thereunder, with respect to any Hazardous Discharge, the presence of any
Hazardous Substances affecting the Real Property, whether or not the same
originates or emerges from the Real Property or any contiguous real estate,
including any loss of value of the Real Property as a result of the foregoing
except to the extent such loss, liability, damage and expense is attributable to
any Hazardous Discharge resulting from actions on the part of Term B Lender.
Borrower's obligations under this Section 4.19 shall arise upon the discovery of
the presence of any Hazardous Substances at the Real Property, whether or not
any federal, state, or local environmental agency has taken or threatened any
action in connection with the presence of any Hazardous Substances. Borrower's
obligation and the indemnifications hereunder shall survive the termination of
this Agreement.
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(i) For purposes of Section 4.19 and 5.7, all references to Real
Property shall be deemed to include all of Borrower's right, title and interest
in and to its owned and leased premises.
4.20. Financing Statements. Except the financing statements filed by Term
B Lender and the financing statements described on Schedule 1.2, no financing
statement covering any of the Collateral or any proceeds thereof is on file in
any public office.
V. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1. Authority. Borrower has full power, authority and legal right to
enter into this Agreement and the Other Documents and to perform all its
respective Obligations hereunder and thereunder. This Agreement, the
Subordination Agreement and the Other Documents have been duly executed and
delivered by Borrower, and this Agreement, the Subordination Agreement and the
Other Documents constitute the legal, valid and binding obligation of Borrower
enforceable in accordance with their terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, moratorium or similar laws
affecting creditors' rights generally. The execution, delivery and performance
of this Agreement and of the Other Documents (a) are within Borrower's corporate
powers, have been duly authorized by all necessary corporate action, are not in
contravention of law or the terms of Borrower's by-laws, certificate of
incorporation or other applicable documents relating to Borrower's formation or
to the conduct of Borrower's business or of any material agreement or
undertaking to which Borrower is a party or by which Borrower is bound,
including the Acquisition Agreement or the Subordination Agreement, (b) will not
conflict with or violate any law or regulation, or any judgment, order or decree
of any Governmental Body, (c) will not require the Consent of any Governmental
Body or any other Person, except those Consents set forth on Schedule 5.1
hereto, all of which will have been duly obtained, made or compiled prior to the
Closing Date and which are in full force and effect and (d) will not conflict
with, nor result in any breach in any of the provisions of or constitute a
default under or result in the creation of any Lien except Permitted
Encumbrances upon any asset of Borrower under the provisions of any agreement,
charter document, instrument, by-law or other instrument to which Borrower is a
party or by which it or its property is a party or by which it may be bound,
including under the provisions of the Subordinated Loan Documentation or the
Acquisition Agreement.
5.2. Formation and Qualification.
(a) Borrower is duly incorporated and in good standing under the
laws of the state listed on Schedule 5.2(a) and is qualified to do business and
is in good standing in the states listed on Schedule 5.2(a) which constitute all
states in which qualification and good standing are necessary for Borrower to
conduct its business and own its property and where the failure to so qualify
could reasonably be expected to have a Material Adverse Effect. Borrower has
delivered to Term B Lender true and complete copies of its certificate of
incorporation and by-laws and will promptly notify Term B Lender of any
amendment or changes thereto.
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(b) The only Subsidiaries of Borrower are listed on Schedule 5.2(b).
5.3. Survival of Representations and Warranties. All representations and
warranties of Borrower contained in this Agreement and the Other Documents shall
be true at the time of Borrower's execution of this Agreement and the Other
Documents, and shall survive the execution, delivery and acceptance thereof by
the parties thereto and the closing of the transactions described therein or
related thereto.
5.4. Tax Returns. Borrower's federal tax identification number is set
forth on Schedule 5.4. Borrower has filed all federal, state and local tax
returns and other reports it is required by law to file and has paid all taxes,
assessments, fees and other governmental charges that are due and payable.
Federal, state and local income tax returns of Borrower have been examined and
reported upon by the appropriate taxing authority or closed by applicable
statute and satisfied for all fiscal years prior to and including the fiscal
year ended December 31, 2006. Federal, state and local income tax returns of
Borrower have been filed for all fiscal years prior to and including the fiscal
year ended December 31, 2006. The provision for taxes on the books of Borrower
is adequate for all years not closed by applicable statutes, and for its current
fiscal year, and Borrower has no knowledge of any deficiency or additional
assessment in connection therewith not provided for on its books.
5.5. Financial Statements. The consolidated and consolidating balance
sheets of Borrower, its Subsidiaries and such other Persons described therein
(including the accounts of all Subsidiaries for the respective periods during
which a subsidiary relationship existed) as of December 31, 2006, and the
related statements of income, changes in stockholder's equity, and changes in
cash flow for the period ended on such date, all accompanied by reports thereon
containing opinions without qualification by independent certified public
accountants, copies of which have been delivered to Term B Lender, have been
prepared in accordance with GAAP, consistently applied (except for changes in
application in which such accountants concur) and present fairly the financial
position of Borrower and its Subsidiaries at such date and the results of their
operations for such period. Since December 31, 2006, there has been no change in
the condition, financial or otherwise, of Borrower or its Subsidiaries as shown
on the consolidated balance sheet as of such date and no change in the aggregate
value of machinery, equipment and Real Property owned by Borrower and its
Subsidiaries, except changes in the Ordinary Course of Business, none of which
individually or in the aggregate has been materially adverse.
5.6. Entity Name. Borrower has not been known by any other corporate name
in the past five years and does not sell Inventory under any other name except
as set forth on Schedule 5.6, nor has Borrower been the surviving corporation of
a merger or consolidation or acquired all or substantially all of the assets of
any Person during the preceding five (5) years.
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5.7. O.S.H.A. and Environmental Compliance.
(a) Except as set forth in the Existing Environmental Due Diligence,
Borrower has duly complied with, and its facilities, business, assets, property,
leaseholds, Real Property and Equipment are in compliance in all material
respects with, the provisions of the Federal Occupational Safety and Health Act,
the Environmental Protection Act, RCRA and all other Environmental Laws; there
have been no outstanding citations, notices or orders of non-compliance issued
to Borrower or relating to its business, assets, property, leaseholds or
Equipment under any such laws, rules or regulations.
(b) Borrower has been issued all required federal, state and local
licenses, certificates or permits relating to all applicable Environmental Laws
as set forth on Schedule 5.7(b) attached hereto.
(c) Borrower shall perform all testing and remediation recommended
and set forth in the Existing Environmental Due Diligence including, but not
limited to, as recommended in Section 10 of the 2005 Phase 1, in accordance with
the requirements of the Existing Environmental Due Diligence and all applicable
laws. Borrower shall provide to the Term B Lender copies of all documentation
with regard thereto.
(d) Except as set forth in the Existing Environmental Due Diligence,
(i) there are no visible signs of releases, spills, discharges, leaks or
disposal (collectively referred to as "Releases") of Hazardous Substances at,
upon, under or within any Real Property or any premises leased by Borrower; (ii)
there are no underground storage tanks or polychlorinated biphenyls on the Real
Property or any premises leased by Borrower; (iii) neither the Real Property nor
any premises leased by Borrower has ever been used as a treatment, storage or
disposal facility of Hazardous Waste; and (iv) no Hazardous Substances are
present on the Real Property or any premises leased by Borrower, excepting such
quantities as are handled in accordance with all applicable manufacturer's
instructions and governmental regulations and in proper storage containers and
as are necessary for the operation of the commercial business of Borrower or of
its tenants.
5.8. Solvency; No Litigation, Violation, Indebtedness or Default.
(a) Borrower is solvent, able to pay its debts as they mature, has
capital sufficient to carry on its business and all businesses in which it is
about to engage, and (i) as of the Closing Date, the fair present saleable value
of its assets, calculated on a going concern basis, is in excess of the amount
of its liabilities and (ii) subsequent to the Closing Date, the fair saleable
value of its assets (calculated on a going concern basis) will be in excess of
the amount of its liabilities.
(b) Except as disclosed in Schedule 5.8(b), Borrower has no (i)
pending or threatened litigation, arbitration, actions or proceedings which
involve the possibility of having a Material Adverse Effect, and (ii)
liabilities or indebtedness for borrowed money other than the Obligations.
(c) Borrower is not in violation of any applicable statute, law,
rule, regulation or ordinance in any respect which could reasonably be expected
to have a Material Adverse Effect, nor is Borrower in violation of any order of
any court, Governmental Body or arbitration board or tribunal.
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(d) Neither Borrower nor any member of the Controlled Group
maintains or contributes to any Plan other than those listed on Schedule 5.8(d)
hereto. (i) No Plan has incurred any "accumulated funding deficiency," as
defined in Section 302(a)(2) of ERISA and Section 412(a) of the Code, whether or
not waived, and Borrower and each member of the Controlled Group has met all
applicable minimum funding requirements under Section 302 of ERISA in respect of
each Plan; (ii) each Plan which is intended to be a qualified plan under Section
401(a) of the Code as currently in effect has been determined by the Internal
Revenue Service to be qualified under Section 401(a) of the Code and the trust
related thereto is exempt from federal income tax under Section 501(a) of the
Code; (iii) neither Borrower nor any member of the Controlled Group has incurred
any liability to the PBGC other than for the payment of premiums, and there are
no premium payments which have become due which are unpaid; (iv) no Plan has
been terminated by the plan administrator thereof nor by the PBGC, and there is
no occurrence which would cause the PBGC to institute proceedings under Title IV
of ERISA to terminate any Plan; (v) at this time, the current value of the
assets of each Plan exceeds the present value of the accrued benefits and other
liabilities of such Plan and neither Borrower nor any member of the Controlled
Group knows of any facts or circumstances which would materially change the
value of such assets and accrued benefits and other liabilities; (vi) neither
Borrower nor any member of the Controlled Group has breached any of the
responsibilities, obligations or duties imposed on it by ERISA with respect to
any Plan; (vii) neither Borrower nor any member of a Controlled Group has
incurred any liability for any excise tax arising under Section 4972 or 4980B of
the Code, and no fact exists which could give rise to any such liability; (viii)
neither Borrower nor any member of the Controlled Group nor any fiduciary of,
nor any trustee to, any Plan, has engaged in a "prohibited transaction"
described in Section 406 of the ERISA or Section 4975 of the Code nor taken any
action which would constitute or result in a Termination Event with respect to
any such Plan which is subject to ERISA; (ix) Borrower and each member of the
Controlled Group has made all contributions due and payable with respect to each
Plan; (x) there exists no event described in Section 4043(b) of ERISA, for which
the thirty (30) day notice period has not been waived; (xi) neither Borrower nor
any member of the Controlled Group has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than employees or former employees of Borrower and any member of the Controlled
Group; (xii) neither Borrower nor any member of the Controlled Group maintains
or contributes to any Plan which provides health, accident or life insurance
benefits to former employees, their spouses or dependents, other than in
accordance with Section 4980B of the Code; (xiii) neither Borrower nor any
member of the Controlled Group has withdrawn, completely or partially, from any
Multiemployer Plan so as to incur liability under the Multiemployer Pension Plan
Amendments Act of 1980 and there exists no fact which would reasonably be
expected to result in any such liability; and (xiv) no Plan fiduciary (as
defined in Section 3(21) of ERISA) has any liability for breach of fiduciary
duty or for any failure in connection with the administration or investment of
the assets of a Plan.
5.9. Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, design rights, tradenames,
assumed names, trade secrets and licenses owned or utilized by Borrower are set
forth on Schedule 5.9, are valid and have been duly registered or filed with all
appropriate Governmental Bodies and constitute all of the intellectual property
39
rights which are necessary for the operation of its business; there is no
objection to or pending challenge to the validity of any such patent, trademark,
copyright, design rights, tradename, trade secret or license and Borrower is not
aware of any grounds for any challenge, except as set forth in Schedule 5.9
hereto. Each patent, patent application, patent license, trademark, trademark
application, trademark license, service mark, service mark application, service
mark license, design rights, copyright, copyright application and copyright
license owned or held by Borrower and all trade secrets used by Borrower consist
of original material or property developed by Borrower or was lawfully acquired
by Borrower from the proper and lawful owner thereof. Each of such items has
been maintained so as to preserve the value thereof from the date of creation or
acquisition thereof. With respect to all software used by Borrower, Borrower is
in possession of all source and object codes related to each piece of software
or is the beneficiary of a source code escrow agreement, each such source code
escrow agreement being listed on Schedule 5.9 hereto.
5.10. Licenses and Permits. Except as set forth in Schedule 5.10, Borrower
(a) is in compliance with and (b) has procured and is now in possession of, all
material licenses or permits required by any applicable federal, state,
provincial or local law, rule or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure such licenses or permits could have a Material
Adverse Effect.
5.11. Default of Indebtedness. Borrower is not in default in the payment
of the principal of or interest on any Indebtedness or under any instrument or
agreement under or subject to which any Indebtedness has been issued and no
event has occurred under the provisions of any such instrument or agreement
which with or without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.
5.12. No Default. Borrower is not in default in the payment or performance
of any of its contractual obligations and no Default has occurred.
5.13. No Burdensome Restrictions. Borrower is not party to any contract or
agreement the performance of which could have a Material Adverse Effect.
Borrower has heretofore delivered to Term B Lender true and complete copies of
all material contracts to which it is a party or to which it or any of its
properties is subject. Borrower has not agreed or consented to cause or permit
in the future (upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to a Lien which
is not a Permitted Encumbrance.
5.14. No Labor Disputes. Borrower is not involved in any labor dispute;
there are no strikes or walkouts or union organization of Borrower's employees
threatened or in existence and no labor contract is scheduled to expire during
the Term other than as set forth on Schedule 5.14 hereto.
5.15. Margin Regulations. Borrower is not engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. No part of the proceeds of the Term Loan will be used for
"purchasing" or "carrying" "margin stock" as defined in Regulation U of such
Board of Governors.
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5.16. Investment Company Act. Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.
5.17. Disclosure. No representation or warranty made by Borrower in this
Agreement, the Subordinated Loan Documentation or in the Acquisition Agreement,
or in any financial statement, report, certificate or any other document
furnished in connection herewith or therewith contains any untrue statement of
fact or omits to state any fact necessary to make the statements herein or
therein not misleading. There is no fact known to Borrower or which reasonably
should be known to Borrower which Borrower has not disclosed to Term B Lender in
writing with respect to the transactions contemplated by the Acquisition
Agreement, the Subordinated Loan Documentation or this Agreement which could
reasonably be expected to have a Material Adverse Effect.
5.18. Delivery of Acquisition Agreement and Subordinated Loan
Documentation. Term B Lender has received complete copies of the Acquisition
Agreement and Subordinated Loan Documentation (including all exhibits, schedules
and disclosure letters referred to therein or delivered pursuant thereto, if
any) and all amendments thereto, waivers relating thereto and other side letters
or agreements affecting the terms thereof. None of such documents and agreements
has been amended or supplemented, nor have any of the provisions thereof been
waived, except pursuant to a written agreement or instrument which has
heretofore been delivered to Term B Lender.
5.19. Swaps. Borrower is not a party to, nor will it be a party to, any
swap agreement whereby Borrower has agreed or will agree to swap interest rates
or currencies unless same provides that damages upon termination following an
event of default thereunder are payable on an unlimited "two-way basis" without
regard to fault on the part of either party.
5.20. Conflicting Agreements. No provision of any mortgage, indenture,
contract, agreement, judgment, decree or order binding on Borrower or affecting
the Collateral conflicts with, or requires any Consent which has not already
been obtained to, or would in any way prevent the execution, delivery or
performance of, the terms of this Agreement or the Other Documents.
5.21. Application of Certain Laws and Regulations. Neither Borrower nor
any Affiliate of Borrower is subject to any law, statute, rule or regulation
which regulates the incurrence of any Indebtedness, including laws, statutes,
rules or regulations relative to common or interstate carriers or to the sale of
electricity, gas, steam, water, telephone, telegraph or other public utility
services.
5.22. Business and Property of Borrower. Upon and after the Closing Date,
Borrower does not propose to engage in any business other than the manufacturing
of aircraft structural parts and assemblies and activities necessary to conduct
the foregoing. On the Closing Date, Borrower will own all the property and
possess all of the rights and Consents necessary for the conduct of the business
of Borrower.
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5.23. Anti-Terrorism Laws.
(a) General. Neither Borrower nor any Affiliate of Borrower is in
violation of any Anti-Terrorism Law or engages in or conspires to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding, or
attempts to violate, any of the prohibitions set forth in any Anti-Terrorism
Law.
(b) Executive Order No. 13224. Neither Borrower nor any Affiliate of
Borrower or their respective agents acting or benefiting in any capacity in
connection with the Term Loan or other transactions hereunder, is any of the
following (each a "Blocked Person"):
(i) a Person that is listed in the annex to, or is otherwise
subject to the provisions of, the Executive Order No. 13224;
(ii) a Person owned or controlled by, or acting for or on
behalf of, any Person that is listed in the annex to, or is
otherwise subject to the provisions of, the Executive Order No.
13224;
(iii) a Person or entity with which Term B Lender is
prohibited from dealing or otherwise engaging in any transaction by
any Anti-Terrorism Law;
(iv) a Person or entity that commits, threatens or conspires
to commit or supports "terrorism" as defined in the Executive Order
No. 13224;
(v) a Person or entity that is named as a "specially
designated national" on the most current list published by the U.S.
Treasury Department Office of Foreign Asset Control at its official
website or any replacement website or other replacement official
publication of such list, or
(vi) a Person or entity who is affiliated or associated with a
Person or entity listed above.
(c) Neither Borrower or to the knowledge of Borrower, any of its
agents acting in any capacity in connection with the Term Loan or other
transactions hereunder (i) conducts any business or engages in making or
receiving any contribution of funds, goods or services to or for the benefit of
any Blocked Person, or (ii) deals in, or otherwise engages in any transaction
relating to, any property or interests in property blocked pursuant to the
Executive Order No. 13224.
5.24. Trading with the Enemy. Borrower has not engaged, nor does it intend
to engage, in any business or activity prohibited by the Trading with the Enemy
Act.
5.25. Federal Securities Laws. Neither Borrower nor any of its
Subsidiaries (i) is required to file periodic reports under the Exchange Act,
(ii) has any securities registered under the Exchange Act or (iii) has filed a
registration statement that has not yet become effective under the Securities
Act.
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VI. AFFIRMATIVE COVENANTS.
Borrower shall, until payment in full of the Obligations and termination
of this Agreement:
6.1. Payment of Fees. Pay to Term B Lender on demand all usual and
customary fees and expenses which Term B Lender incurs in connection with this
Agreement and the Other Documents.
6.2. Conduct of Business and Maintenance of Existence and Assets. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including all licenses, patents, copyrights, design rights,
tradenames, trade secrets and trademarks and take all actions necessary to
enforce and protect the validity of any intellectual property right or other
right included in the Collateral; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations
governing the conduct of its business where the failure to do so could
reasonably be expected to have a Material Adverse Effect; and (c) make all such
reports and pay all such franchise and other taxes and license fees and do all
such other acts and things as may be lawfully required to maintain its rights,
licenses, leases, powers and franchises under the laws of the United States or
any political subdivision thereof.
6.3. Violations. Promptly notify Term B Lender in writing of any violation
of any law, statute, regulation or ordinance of any Governmental Body, or of any
agency thereof, applicable to Borrower which could reasonably be expected to
have a Material Adverse Effect.
6.4. Government Receivables. Take all steps necessary to protect Term B
Lender's interest in the Collateral under the Federal Assignment of Claims Act,
the Uniform Commercial Code and all other applicable state or local statutes or
ordinances and deliver to Term B Lender appropriately endorsed, any instrument
or chattel paper connected with any Receivable arising out of contracts between
Borrower and the United States, any state or any department, agency or
instrumentality of any of them.
6.5. Financial Covenants.
(a) Tangible Net Worth. Maintain at all times a Tangible Net Worth
in an amount not less than (i) $9,000,000 from the Closing Date through and
including December 31, 2007 and (ii) as of December 31, 2008, an amount equal to
the Borrower's Tangible Net Worth for the fiscal year ended December 31, 2007
plus an amount equal to fifty (50%) percent of the Borrower's Net Income for
fiscal year ending December 31, 2008, which amount shall increase annually on
December 31st of each year thereafter by not less than an amount equal to fifty
(50%) percent of the Borrower's Net Income for the fiscal year ended, tested
annually on a consolidated basis.
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(b) Fixed Charge Coverage Ratio. Maintain at all times a Fixed
Charge Coverage Ratio of not less than 1.25 to 1.00, tested monthly on a
consolidated, rolling twelve (12) month basis.
(c) Funded Debt Ratio. Maintain at all times a ratio of Funded Debt
to EBITDA of not greater than 2.75 to 1.0, tested monthly on a consolidated,
rolling twelve (12) month basis.
(d) EBITDA. Maintain EBITDA of not less than the amount set forth
below for the one month period ending on the last day of the corresponding month
set forth below:
Month Amount
----- ------
September 30, 2007 $450,000
October 31, 2007 $425,000
November 30, 2007 $425,000
December 30, 2007 $425,000
January 31, 2008 and as at the end of each $506,000
calendar month thereafter for the one month
period then ended
6.6. Execution of Supplemental Instruments. Execute and deliver to Term B
Lender from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Term B Lender may request, in order
that the full intent of this Agreement may be carried into effect.
6.7. Payment of Indebtedness. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its obligations
and liabilities of whatever nature, except when the failure to do so could not
reasonably be expected to have a Material Adverse Effect or when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and Borrower shall have provided for such reserves as Term B Lender
may reasonably deem proper and necessary, subject at all times to any applicable
subordination arrangement.
6.8. Standards of Financial Statements. Cause all financial statements
referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13 and 9.14 as to
which GAAP is applicable to be complete and correct in all material respects
(subject, in the case of interim financial statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
concurred in by such reporting accountants or officer, as the case may be, and
disclosed therein).
6.9. Federal Securities Laws. Promptly notify Term B Lender in writing if
Borrower or any of its Subsidiaries (i) is required to file periodic reports
under the Exchange Act, (ii) registers any securities under the Exchange Act or
(iii) files a registration statement under the Securities Act.
44
6.10. Exercise of Rights. Enforce all of its rights under the Acquisition
Agreement and the Indemnification Agreement executed in connection therewith
including, but not limited to, all indemnification rights and pursue all
remedies available to it with diligence and in good faith in connection with the
enforcement of any such rights.
6.11. Inventory Audits. Perform physical audits on its Inventory no less
than two (2) times each fiscal year until Term B Lender has approved in writing
a perpetual inventory accounting system acceptable to the Term B Lender in its
sole discretion and such perpetual inventory accounting system has been
implemented to the satisfaction of the Term B Lender.
VII. NEGATIVE COVENANTS.
Borrower shall not, until the indefeasible satisfaction in full in cash of
the Obligations and the irrevocable termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale of Assets.
(a) Enter into any merger, consolidation or other reorganization
with or into any other Person or acquire all or a substantial portion of the
assets or Equity Interests of any Person or permit any other Person to
consolidate with or merge with it.
(b) Sell, lease, transfer or otherwise dispose of any of its
properties or assets, except (i) dispositions of Inventory and Equipment to the
extent expressly permitted by Section 4.3, and (ii) any other sales or
dispositions expressly permitted by this Agreement.
7.2. Creation of Liens. Create or suffer to exist any Lien or transfer
upon or against any of its property or assets now owned or hereafter acquired,
except Permitted Encumbrances.
7.3. Guarantees. Become liable upon the obligations or liabilities of any
Person by assumption, endorsement or guaranty thereof or otherwise (other than
to Senior Lender pursuant to the Senior Loan Documents) except the endorsement
of checks in the Ordinary Course of Business.
7.4. Investments. Purchase or acquire obligations or Equity Interests of,
or any other interest in, any Person, except (a) obligations issued or
guaranteed by the United States of America or any agency thereof, (b) commercial
paper with maturities of not more than 180 days and a published rating of not
less than A-1 or P-1 (or the equivalent rating), (c) certificates of time
deposit and bankers' acceptances having maturities of not more than 180 days and
repurchase agreements backed by United States government securities of a
commercial bank if (i) such bank has a combined capital and surplus of at least
$500,000,000, or (ii) its debt obligations, or those of a holding company of
which it is a Subsidiary, are rated not less than A (or the equivalent rating)
by a nationally recognized investment rating agency, and (d) U.S. money market
funds that invest solely in obligations issued or guaranteed by the United
States of America or an agency thereof.
7.5. Loans. Make advances, loans or extensions of credit to any Person,
including any Parent, Subsidiary or Affiliate except with respect to (a) the
extension of commercial trade credit in connection with the sale of Inventory in
the Ordinary Course of Business and (b) loans to its employees in the Ordinary
Course of Business not to exceed the aggregate amount of $200,000 at any time
outstanding.
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7.6. Capital Expenditures. Contract for, purchase or make any expenditure
or commitments for Capital Expenditures in any fiscal year in an aggregate
amount in excess of $1,100,000.
7.7. Dividends. Declare, pay or make any dividend or distribution on any
shares of the common stock or preferred stock of Borrower (other than dividends
or distributions payable in its stock, or split-ups or reclassifications of its
stock) or apply any of its funds, property or assets to the purchase, redemption
or other retirement of any common or preferred stock, or of any options to
purchase or acquire any such shares of common or preferred stock of Borrower
provided, however, that from and after January 1, 2009, dividends may be paid in
cash to the shareholders of the Borrower as long as (a) after payment of said
dividend, Undrawn Availability (as defined in the Senior Loan Agreement) is
equal to or greater than $3,000,000, (b) no Default and/or Event of Default
exists at the time of payment of any such dividend, and (c) no Default and/or
Event of Default shall exist after giving effect to the payment of any such
dividend.
7.8. Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt) except in respect of (i) Indebtedness to
Term B Lender; (ii) Indebtedness to Senior Lender pursuant to the Senior Loan
Documents; (iii) Indebtedness due under the Subordinated Loan Documentation;
(iv) Indebtedness to seller under the Acquisition Agreement; and (v)
Indebtedness incurred for Capital Expenditures permitted under Section 7.6
hereof.
7.9. Nature of Business. Substantially change the nature of the business
in which it is presently engaged, nor except as specifically permitted hereby
purchase or invest, directly or indirectly, in any assets or property other than
in the Ordinary Course of Business for assets or property which are useful in,
necessary for and are to be used in its business as presently conducted.
7.10. Transactions with Affiliates. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise enter into any transaction or deal with, any Affiliate, except
transactions disclosed to Term B Lender, which are in the Ordinary Course of
Business, on an arm's-length basis on terms and conditions no less favorable
than terms and conditions which would have been obtainable from a Person other
than an Affiliate.
7.11. Leases. Enter as lessee into any lease arrangement for real or
personal property (unless capitalized and permitted under Section 7.6 hereof) if
after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $250,000 in any one fiscal year in the aggregate for
Borrower exclusive of any and all amounts paid by the Borrower as lease payments
with regard to the Sale and Lease-Back Premises.
7.12. Subsidiaries.
(a) Form any Subsidiary.
(b) Enter into any partnership, joint venture or similar
arrangement.
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7.13. Fiscal Year and Accounting Changes. Change its fiscal year from
December 31st or make any change (i) in accounting treatment and reporting
practices except as required by GAAP or (ii) in tax reporting treatment except
as required by law.
7.14. Pledge of Credit. Now or hereafter pledge Term B Lender's credit on
any purchases or for any purpose whatsoever or use any portion of the Term Loan
in or for any business other than Borrower's business as conducted on the date
of this Agreement.
7.15. Amendment of Articles of Incorporation, By-Laws. Amend, modify or
waive any term or material provision of its Articles of Incorporation or By-Laws
unless required by law.
7.16. Compliance with ERISA. (i) (x) Maintain, or permit any member of the
Controlled Group to maintain, or (y) become obligated to contribute, or permit
any member of the Controlled Group to become obligated to contribute, to any
Plan, other than those Plans disclosed on Schedule 5.8(d), (ii) engage, or
permit any member of the Controlled Group to engage, in any non-exempt
"prohibited transaction", as that term is defined in section 406 of ERISA and
Section 4975 of the Code, (iii) incur, or permit any member of the Controlled
Group to incur, any "accumulated funding deficiency", as that term is defined in
Section 302 of ERISA or Section 412 of the Code, (iv) terminate, or permit any
member of the Controlled Group to terminate, any Plan where such event could
result in any liability of Borrower or any member of the Controlled Group or the
imposition of a lien on the property of Borrower or any member of the Controlled
Group pursuant to Section 4068 of ERISA, (v) assume, or permit any member of the
Controlled Group to assume, any obligation to contribute to any Multiemployer
Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit any member of the
Controlled Group to incur, any withdrawal liability to any Multiemployer Plan;
(vii) fail promptly to notify Term B Lender of the occurrence of any Termination
Event, (viii) fail to comply, or permit a member of the Controlled Group to fail
to comply, with the requirements of ERISA or the Code or other Applicable Laws
in respect of any Plan, (ix) fail to meet, or permit any member of the
Controlled Group to fail to meet, all minimum funding requirements under ERISA
or the Code or postpone or delay or allow any member of the Controlled Group to
postpone or delay any funding requirement with respect of any Plan.
7.17. Prepayment of Indebtedness. Except as permitted pursuant to Section
7.23 hereof, at any time, directly or indirectly, prepay any Indebtedness (other
than to Senior Lenders pursuant to the Senior Loan Documents), or repurchase,
redeem, retire or otherwise acquire any Indebtedness of Borrower.
7.18. Anti-Terrorism Laws. Borrower shall not, until indefeasible
satisfaction in full in cash of the Obligations and the irrevocable termination
of this Agreement, nor shall it permit any Affiliate or agent to:
(a) Conduct any business or engage in any transaction or dealing
with any Blocked Person, including the making or receiving any contribution of
funds, goods or services to or for the benefit of any Blocked Person.
(b) Deal in, or otherwise engage in any transaction relating to, any
property or interests in property blocked pursuant to the Executive Order No.
13224.
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(c) Engage in or conspire to engage in any transaction that evades
or avoids, or has the purpose of evading or avoiding, or attempts to violate,
any of the prohibitions set forth in the Executive Order No. 13224, the USA
PATRIOT Act or any other Anti-Terrorism Law. Borrower shall deliver to Term B
Lender any certification or other evidence requested from time to time by Term B
Lender in its sole discretion, confirming Borrower's compliance with this
Section.
7.19. Membership/Partnership Interests. Elect to treat or permit any of
its Subsidiaries to (x) treat its limited liability company membership interests
or partnership interests, as the case may be, as securities as contemplated by
the definition of "security" in Section 8-102(15) and by Section 8-103 of
Article 8 of Uniform Commercial Code or (y) certificate its limited liability
company membership interests or partnership interests, as the case may be.
7.20. Trading with the Enemy Act. Engage in any business or activity in
violation of the Trading with the Enemy Act.
7.21. Subordinated Note. At any time, directly or indirectly, pay, prepay,
repurchase, redeem, retire or otherwise acquire, or make any payment on account
of any principal of, interest on or premium payable in connection with the
repayment or redemption of the Subordinated Note, except as expressly permitted
in the Subordination Agreement.
7.22. Other Agreements. Enter into any material amendment, waiver or
modification of the Acquisition Agreement, the Subordinated Loan Documentation
or any related agreements.
7.23. Progress Payments. Allow the aggregate amount of progress payments
on Indebtedness not evidenced by invoices owed by the Borrower to exceed
$1,500,000 at any time.
VIII. CONDITIONS PRECEDENT.
8.1. Conditions to Term Loan. The agreement of Term B Lender to make the
Term Loan requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Term B Lender, immediately prior to or concurrently
with the making of the Term Loan, of the following conditions precedent:
(a) Note. Term B Lender shall have received the Note duly executed
and delivered by an authorized officer of Borrower;
(b) Filings, Registrations and Recordings. Each document (including
any Uniform Commercial Code financing statement) required by this Agreement, any
related agreement or under law or reasonably requested by Term B Lender to be
filed, registered or recorded in order to create, in favor of Term B Lender, a
perfected security interest in or lien upon the Collateral shall have been
properly filed, registered or recorded in each jurisdiction in which the filing,
registration or recordation thereof is so required or requested, and Term B
Lender shall have received an acknowledgment copy, or other evidence
satisfactory to it, of each such filing, registration or recordation and
satisfactory evidence of the payment of any necessary fee, tax or expense
relating thereto;
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(c) Corporate Proceedings of Borrower. Term B Lender shall have
received a copy of the resolutions in form and substance reasonably satisfactory
to Term B Lender, of the Board of Directors of Borrower authorizing (i) the
execution, delivery and performance of this Agreement, the Subordinated Loan
Documentation, the Acquisition Agreement and the Other Documents (collectively
the "Documents") and (ii) the granting by Borrower of the security interests in
and liens upon the Collateral in each case certified by the Secretary or an
Assistant Secretary of Borrower as of the Closing Date; and, such certificate
shall state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded as of the date of such certificate;
(d) Incumbency Certificates of Borrower. Term B Lender shall have
received a certificate of the Secretary or an Assistant Secretary of Borrower,
dated the Closing Date, as to the incumbency and signature of the officers of
Borrower executing this Agreement, the Other Documents, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(e) Certificates. Term B Lender shall have received a copy of the
Articles or Certificate of Incorporation of Borrower, and all amendments
thereto, certified by the Secretary of State or other appropriate official of
its jurisdiction of incorporation together with copies of the By-Laws of
Borrower and all agreements of Borrower's shareholders certified as accurate and
complete by the Secretary of Borrower;
(f) Good Standing Certificates. Term B Lender shall have received
good standing certificates for Borrower dated not more than 30 days prior to the
Closing Date, issued by the Secretary of State or other appropriate official of
Borrower's jurisdiction of incorporation and each jurisdiction where the conduct
of Borrower's business activities or the ownership of its properties
necessitates qualification;
(g) Ownership and Capital Structure. Term B Lender shall be
satisfied with the ownership and capital structure of each of Air, Sigma and
WMI, in its sole discretion;
(h) WMI Merger. Prior to or simultaneously with the Closing Date,
Term B Lender shall have received, in form and substance satisfactory to Term B
Lender, (i) a copy of the Certificate of Merger in the form presented to the New
York Secretary of State for filing evidencing the merger of WMS Merger Corp. and
Welding Metallurgy, Inc., with WMI being the surviving entity, and (ii)
confirmation that such Certificate of Merger has been filed.
(i) Legal Opinion. Term B Lender shall have received the executed
legal opinion of Eaton & Van Winkle LLP in form and substance satisfactory to
Term B Lender which shall cover such matters incident to the transactions
contemplated by this Agreement, the Subordination Agreement and the Other
Documents and related agreements as Term B Lender may reasonably require and
Borrower hereby authorizes and directs such counsel to deliver such opinions to
Term B Lender;
(j) No Litigation. (i) No litigation, investigation or proceeding
before or by any arbitrator or Governmental Body shall be continuing or
threatened against Borrower or against the officers or directors of Borrower (A)
in connection with this Agreement, the Other Documents, the Subordinated Loan
Documents or any of the transactions contemplated thereby and which, in the
reasonable opinion of Term B Lender, is deemed material or (B) which could, in
the reasonable opinion of Term B Lender, have a Material Adverse Effect; and
(ii) no injunction, writ, restraining order or other order of any nature
materially adverse to Borrower or the conduct of its business or inconsistent
with the due consummation of the Transactions shall have been issued by any
Governmental Body. Term B Lender shall have received a summary of all existing
litigation regarding the Borrower;
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(k) Financial Condition Certificates. Term B Lender shall have
received an executed Financial Condition Certificate in the form of Exhibit
8.1(k).
(l) Fees. Term B Lender shall have received all fees payable to Term
B Lender on or prior to the Closing Date hereunder, including pursuant to
Article III hereof;
(m) Financial Statements. Term B Lender shall have received a copy
of the Borrower's most recent financial statements and federal and state income
tax returns and income tax reports (if any), which shall be satisfactory in all
respects to Term B Lender;
(n) Consolidating Interim Financial Statements. Term B Lender shall
have received a copy of the consolidating interim financial statements of Air,
Sigma and WMI for the three (3) month period ended March 31, 2006, which shall
be satisfactory in all respects to Term B Lender;
(o) Acquisition and Subordinated Loan Documents. Term B Lender shall
have received final executed copies of the Acquisition Agreement and the
Subordinated Loan Documentation, and all related agreements, documents and
instruments as in effect on the Closing Date, including, without limitation, an
opinion of counsel with respect to the Acquisition Agreement providing that the
same may be relied upon by Term B Lender, all of which shall be satisfactory in
form and substance to Term B Lender and the transactions contemplated by such
documentation shall be consummated prior to or simultaneously with the making of
the Term Loan;
(p) Senior Loan Documents. Term B Lender shall have received final
executed copies of the Senior Loan Agreement and all related agreements,
documents and instruments as in effect on the Closing Date all of which shall be
satisfactory in form and substance to Term B Lender;
(q) Intercreditor Agreement. Term B Lender shall have entered into
the Intercreditor Agreement with Senior Lender which shall be satisfactory in
form and substance to Term B Lender in its sole discretion;
(r) Subordination Agreement. Term B Lender shall have entered into a
Subordination Agreement with Borrower, Air Group and Subordinated Lender which
shall set forth the basis upon which the "Subordinated Lender" may receive, and
Air Group may make, payments under the Subordinated Note, which basis shall be
satisfactory in form and substance to Term B Lender in its sole discretion;
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(s) Fictitious, Assumed or Alternate Names. Term B Lender shall have
received certified copies of any fictitious, assumed or alternate names of the
Borrower;
(t) Insurance. Term B Lender shall have received in form and
substance satisfactory to Term B Lender, certified copies of Borrower's casualty
insurance policies, together with loss payable endorsements on Term B Lender's
standard form of loss payee endorsement, and certified copies of Borrower's
liability insurance and property insurance policies, together with endorsements
naming Term B Lender as additional insured, mortgagee and lender loss payee;
(u) Payment Instructions. Term B Lender shall have received written
instructions from Borrower directing the application of proceeds of the Term
Loan made pursuant to this Agreement;
(v) Consents. Term B Lender shall have received any and all Consents
necessary to permit the effectuation of the transactions contemplated by this
Agreement and the Other Documents; and, Term B Lender shall have received such
Consents and waivers of such third parties as might assert claims with respect
to the Collateral, as Term B Lender and its counsel shall deem necessary;
(w) No Adverse Material Change. (i) since December 31, 2006, there
shall not have occurred any event, condition or state of facts which could
reasonably be expected to have a Material Adverse Effect (including with respect
to Welding Metals, Inc.), and (ii) no representations made or information
supplied to Term B Lender shall have been proven to be inaccurate or misleading
in any material respect;
(x) Leasehold Agreements. Term B Lender shall have received
landlord, mortgagee or warehouseman agreements satisfactory to Term B Lender
with respect to all premises leased by Borrower at which Inventory and books and
records are located;
(y) ERISA Compliance. Term B Lender shall have received in form and
substance satisfactory to Term B Lender evidence that Borrower is in compliance
with ERISA as required in Section 7.16 herein along with a certificate from
Borrower's accountant, attorney or actuary delineating all existing pension
and/or profit sharing plans, if any;
(z) Pledge Agreements and Other Documents. Term B Lender shall have
received (i) the executed Pledge Agreements, and (ii) the executed Other
Documents, all in form and substance satisfactory to Term B Lender;
(aa) Subordinated Note Documentation. Term B Lender shall have
received final executed copies of the Subordinated Note and all other
Subordinated Loan Documentation which shall contain such terms and provisions
including subordination terms, satisfactory to Term B Lender;
(bb) Projections. Term B Lender shall have received monthly and
annual projections of the Borrower for the immediately succeeding year
demonstrating Borrower's ability to make payments under this Agreement, and Term
B Lender shall have received satisfactory detail behind the Borrower's opening
pro forma balance sheet, all in form and substance satisfactory to Term B
Lender;
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(cc) Business Plan. Term B Lender shall received Borrower's business
plan, in form and substance satisfactory to Term B Lender, and be satisfied that
Borrower's management will be able to executed Borrower's business plan;
(dd) Contract Review. Term B Lender shall have received copies of
all material contracts of Borrower including, without limitation, leases, union
contracts, labor contracts, vendor supply contracts, management agreements,
option agreements, warrant agreements, royalty agreements, member agreements,
purchase agreements, warranty agreements, employment agreements, license
agreements and distributorship agreements and such contracts and agreements
shall be satisfactory in all reasonable respects to Term B Lender;
(ee) Closing Certificate. Term B Lender shall have received a
closing certificate signed by the Chief Financial Officer of Borrower dated as
of the date hereof, stating that (i) all representations and warranties set
forth in this Agreement and the Other Documents are true and correct on and as
of such date, (ii) Borrower is on such date in compliance with all the terms and
provisions set forth in this Agreement and the Other Documents and (iii) on such
date no Default or Event of Default has occurred or is continuing;
(ff) Borrowing Base. Term B Lender shall have received a Borrowing
Base Certificate (as defined in the Senior Loan Agreement) from Borrower
evidencing that the Borrower will have a minimum aggregate Undrawn Availability
(as defined in the Senior Loan Agreement) under the Senior Loan Agreement of at
least $2,200,000 at closing (after all fees and expenses and subtraction of
trade payables 60 days or more past due and not otherwise on formal extended
terms);
(gg) Compliance with Laws. Term B Lender shall be reasonably
satisfied that Borrower is in compliance with all pertinent federal, state,
local or territorial regulations, including those with respect to the Federal
Occupational Safety and Health Act, the Environmental Protection Act, ERISA and
the Trading with the Enemy Act;
(hh) Searches. Term B Lender shall have received UCC searches,
Federal and State Litigation searches, Upper Court and Local Judgment searches,
franchise tax searches, bankruptcy searches, Federal and State Tax Lien searches
and any other Lien searches run against the names of the Borrower as well as any
previous, alternate and fictitious names, and against the names of all entities
which were acquired by or merged into the Borrower, or orders of applicable
bankruptcy courts reflecting lien releases (as applicable), showing no existing
security interests in or Liens on the Collateral other than Permitted
Encumbrances and other Liens permitted by Term B Lender;
(ii) Intellectual Property. Term B Lender shall have received a list
of intellectual property of the Borrower including trademarks and trademark
applications, patents and patent applications, copyrights and copyright
applications, together with a search/abstract relating to the same;
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(jj) Trade References. Receipt and satisfactory review by Term B
Lender of trade references with regard to the Borrower;
(kk) Review of Records. Term B Lender shall have reviewed to its
satisfaction all of Borrower's books and records;
(ll) Privity Letter. Term B Lender shall have received a privity
letter from Borrower's accountant authorizing the Term B Lender to rely on the
financial statements and other documentation prepared by such accountant;
(mm) Warrants. Term B Lender shall have received, in form and
substance satisfactory to Term B Lender, warrants exercisable into 100,000
shares of the capital stock of Air Group;
(nn) Evidence of Financial Compliance. Term B Lender shall have
received written evidence, in form and substance satisfactory to Term B Lender,
that (i) Borrower's EBITDA for the trailing twelve (12) month period ended on
March 31, 2007 is not less than $5,500,000, and (ii) Borrower's Funded Senior
Debt to EBITDA Ratio for the trailing twelve (12) month period ended on March
31, 2007 is less than 2.75 to 1.00;
(oo) Federal Acquisition Regulations. Satisfactory legal review by
Term B Lender of the Federal Acquisition Regulations requirements and customer
military contracts to confirm that no offset shall occur with regard to accounts
receivable availability based on advanced/progress billings;
(pp) Orderly Liquidation Valuation Appraisal. Satisfactory review by
Term B Lender of an Orderly Liquidation Valuation Appraisal of the Borrower's
machinery and equipment from Gordon Brothers;
(qq) Consulting Agreement. Term B Lender shall have received final
executed copies of the Consulting Agreement between John Gantt and WMI and all
related agreements, documents and instruments as in effect on the Closing Date,
all of which shall be satisfactory in form and substance to Term B Lender;
(rr) Background Checks. Term B Lender shall have received a copy of
the background searches conducted against key management personnel of Borrower,
each of which shall be satisfactory in form and substance to Term B Lender;
(ss) Reference Checks. Term B Lender shall have received favorable
references with respect to Borrower from each of Sikorsky and Northrop Grumman,
each of which shall be satisfactory in form and substance to Term B Lender; and
(tt) Other. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the Transactions shall be
satisfactory in form and substance to Term B Lender and its counsel.
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IX. INFORMATION AS TO BORROWERS.
Borrower shall, until satisfaction in full of the Obligations and the
termination of this Agreement:
9.1. Disclosure of Material Matters. Immediately upon learning thereof,
report to Term B Lender all matters materially affecting the value,
enforceability or collectibility of any portion of the Collateral, including
Borrower's reclamation or repossession of, or the return to Borrower of, a
material amount of goods or claims or disputes asserted by any Customer or other
obligor.
9.2. Schedules. Deliver to Term B Lender (a) on or before the fifteenth
(15th) day of each month as and for the prior month (x) accounts receivable
ageings and accounts payable ageings inclusive of reconciliations to the general
ledger, (y) Inventory reports, and (z) a Borrowing Base Certificate (as defined
in the Senior Loan Agreement) which shall be accompanied by a Compliance
Certificate and (b) on Tuesday of each week as and for the immediately preceding
week, sales, cash remittances, credits and collection reports. In addition,
Borrower will deliver to Term B Lender at such intervals as Term B Lender may
require: (i) confirmatory assignment schedules, (ii) copies of Customer's
invoices, (iii) evidence of shipment or delivery, and (iv) such further
schedules, documents and/or information regarding the Collateral as Term B
Lender may require including trial balances and test verifications. Term B
Lender shall have the right to confirm and verify all Receivables by any manner
and through any medium it considers advisable and do whatever it may deem
reasonably necessary to protect its interests hereunder. The items to be
provided under this Section are to be in form satisfactory to Term B Lender and
executed by Borrower and delivered to Term B Lender from time to time solely for
Term B Lender's convenience in maintaining records of the Collateral, and
Borrower's failure to deliver any of such items to Term B Lender shall not
affect, terminate, modify or otherwise limit Term B Lender's Lien with respect
to the Collateral.
9.3. Environmental Reports. Furnish Term B Lender, concurrently with the
delivery of the financial statements referred to in Sections 9.7 and 9.8, with a
certificate signed by the President of Borrower stating, to the best of his
knowledge, that Borrower is in compliance in all material respects with all
federal, state and local Environmental Laws. To the extent Borrower is not in
compliance with the foregoing laws, the certificate shall set forth with
specificity all areas of non-compliance and the proposed action Borrower will
implement in order to achieve full compliance.
9.4. Litigation. Promptly notify Term B Lender in writing of any claim,
litigation, suit or administrative proceeding affecting Borrower, whether or not
the claim is covered by insurance, and of any litigation, suit or administrative
proceeding, which in any such case affects the Collateral or which could
reasonably be expected to have a Material Adverse Effect.
9.5. Material Occurrences. Promptly notify Term B Lender in writing upon
the occurrence of (a) any Event of Default or Default; (b) any event of default
under the Subordinated Loan Documentation; (c) any event which with the giving
of notice or lapse of time, or both, would constitute an event of default under
the Subordinated Loan Documentation; (d) any event, development or circumstance
whereby any financial statements or other reports furnished to Term B Lender
fail in any material respect to present fairly, in accordance with GAAP
consistently applied, the financial condition or operating results of Borrower
as of the date of such statements; (e) any accumulated retirement plan funding
deficiency which, if such deficiency continued for two plan years and was not
corrected as provided in Section 4971 of the Code, could subject Borrower to a
54
tax imposed by Section 4971 of the Code; (f) each and every default by Borrower
which might result in the acceleration of the maturity of any Indebtedness,
including the names and addresses of the holders of such Indebtedness with
respect to which there is a default existing or with respect to which the
maturity has been or could be accelerated, and the amount of such Indebtedness;
and (g) any other development in the business or affairs of Borrower which could
reasonably be expected to have a Material Adverse Effect; in each case
describing the nature thereof and the action Borrower propose to take with
respect thereto.
9.6. Government Receivables. Notify Term B Lender immediately if any of
its Receivables arise out of contracts between Borrower and the United States,
any state, or any department, agency or instrumentality of any of them.
9.7. Annual Financial Statements. Furnish Term B Lender within ninety (90)
days after the end of each fiscal year of Borrower, audited financial statements
of Borrower including, but not limited to, statements of income and
stockholders' equity and cash flow from the beginning of the current fiscal year
to the end of such fiscal year and the balance sheet as at the end of such
fiscal year, all prepared in accordance with GAAP applied on a basis consistent
with prior practices, and in reasonable detail and reported upon without
qualification by an independent certified public accounting firm selected by
Borrower and satisfactory to Term B Lender (the "Accountants"). The report of
the Accountants shall be accompanied by a statement of the Accountants
certifying that (i) they have caused this Agreement to be reviewed, (ii) in
making the examination upon which such report was based either no information
came to their attention which to their knowledge constituted an Event of Default
or a Default under this Agreement or any related agreement or, if such
information came to their attention, specifying any such Default or Event of
Default, its nature, when it occurred and whether it is continuing, and such
report shall contain or have appended thereto calculations which set forth
Borrower's compliance with the requirements or restrictions imposed by Sections
6.5, 7.4, 7.5, 7.6, 7.7, 7.8 and 7.11 hereof. In addition, the reports shall be
accompanied by a Compliance Certificate.
9.8. Quarterly Financial Statements. Furnish Term B Lender within 45 days
after the end of each fiscal quarter, an unaudited balance sheet of Borrower and
unaudited statements of income and stockholders' equity and cash flow of
Borrower reflecting results of operations from the beginning of the fiscal year
to the end of such quarter and for such quarter, prepared on a basis consistent
with prior practices and complete and correct in all material respects, subject
to normal and recurring year end adjustments that individually and in the
aggregate are not material to Borrower's business. The reports shall be
accompanied by a Compliance Certificate.
9.9. Monthly Financial Statements. Commencing with the month of August,
2007, furnish Term B Lender within thirty (30) days after the end of each month,
an unaudited balance sheet of Borrower and unaudited statements of income and
stockholders' equity and cash flow of Borrower reflecting results of operations
from the beginning of the fiscal year to the end of such month and for such
month, prepared on a basis consistent with prior practices and complete and
correct in all material respects, subject to normal and recurring year end
adjustments that individually and in the aggregate are not material to
Borrower's business. The reports shall be accompanied by a Compliance
Certificate.
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9.10. Other Reports. Furnish Term B Lender as soon as available, but in
any event within ten (10) days after the issuance thereof, (i) with copies of
such financial statements, reports and returns as Borrower shall send to its
stockholders and (ii) copies of all notices, reports, financial statements and
other materials sent pursuant to the Subordinated Loan Documentation.
9.11. Additional Information. Furnish Term B Lender with such additional
information as Term B Lender shall reasonably request in order to enable Term B
Lender to determine whether the terms, covenants, provisions and conditions of
this Agreement have been complied with by Borrower including, without the
necessity of any request by Term B Lender, (a) copies of all environmental
audits and reviews, (b) at least thirty (30) days prior thereto, notice of
Borrower's opening of any new office or place of business or Borrower's closing
of any existing office or place of business, and (c) promptly upon Borrower's
learning thereof, notice of any labor dispute to which Borrower may become a
party, any strikes or walkouts relating to any of its plants or other
facilities, and the expiration of any labor contract to which Borrower is a
party or by which Borrower is bound.
9.12. Projected Operating Budget. Furnish Term B Lender, no later than
thirty (30) days prior to the beginning of Borrower's fiscal years commencing
with fiscal year 2008, a month by month projected operating budget and cash flow
of Borrower for such fiscal year (including an income statement for each month
and a balance sheet as at the end of the last month in each fiscal quarter),
such projections to be accompanied by a certificate signed by the President or
Chief Financial Officer of Borrower to the effect that such projections have
been prepared on the basis of sound financial planning practice consistent with
past budgets and financial statements and that such officer has no reason to
question the reasonableness of any material assumptions on which such
projections were prepared.
9.13. Variances From Operating Budget. Furnish Term B Lender, concurrently
with the delivery of the financial statements referred to in Section 9.7 and
each quarterly report, a written report summarizing all material variances from
budgets submitted by Borrower pursuant to Section 9.12 and a discussion and
analysis by management with respect to such variances.
9.14. Notice of Suits, Adverse Events. Furnish Term B Lender with prompt
written notice of (i) any lapse or other termination of any Consent issued to
Borrower by any Governmental Body or any other Person that is material to the
operation of Borrower's business, (ii) any refusal by any Governmental Body or
any other Person to renew or extend any such Consent; and (iii) copies of any
periodic or special reports filed by Borrower with any Governmental Body or
Person, if such reports indicate any material change in the business,
operations, affairs or condition of Borrower, or if copies thereof are requested
by Term B Lender, and (iv) copies of any material notices and other
communications from any Governmental Body or Person which specifically relate to
Borrower.
9.15. ERISA Notices and Requests. Furnish Term B Lender with immediate
written notice in the event that (i) Borrower or any member of the Controlled
Group knows or has reason to know that a Termination Event has occurred,
together with a written statement describing such Termination Event and the
action, if any, which Borrower or any member of the Controlled Group has taken,
is taking, or proposes to take with respect thereto and, when known, any action
taken or threatened by the Internal Revenue Service, Department of Labor or PBGC
with respect thereto, (ii) Borrower or any member of the Controlled Group knows
or has reason to know that a prohibited transaction (as defined in Sections 406
of ERISA and 4975 of the Code) has occurred together with a written statement
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describing such transaction and the action which Borrower or any member of the
Controlled Group has taken, is taking or proposes to take with respect thereto,
(iii) a funding waiver request has been filed with respect to any Plan together
with all communications received by Borrower or any member of the Controlled
Group with respect to such request, (iv) any increase in the benefits of any
existing Plan or the establishment of any new Plan or the commencement of
contributions to any Plan to which Borrower or any member of the Controlled
Group was not previously contributing shall occur, (v) Borrower or any member of
the Controlled Group shall receive from the PBGC a notice of intention to
terminate a Plan or to have a trustee appointed to administer a Plan, together
with copies of each such notice, (vi) Borrower or any member of the Controlled
Group shall receive any favorable or unfavorable determination letter from the
Internal Revenue Service regarding the qualification of a Plan under Section
401(a) of the Code, together with copies of each such letter; (vii) Borrower or
any member of the Controlled Group shall receive a notice regarding the
imposition of withdrawal liability, together with copies of each such notice;
(viii) Borrower or any member of the Controlled Group shall fail to make a
required installment or any other required payment under Section 412 of the Code
on or before the due date for such installment or payment; (ix) Borrower or any
member of the Controlled Group knows that (a) a Multiemployer Plan has been
terminated, (b) the administrator or plan sponsor of a Multiemployer Plan
intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or
will institute proceedings under Section 4042 of ERISA to terminate a
Multiemployer Plan.
9.16. Additional Documents. Execute and deliver to Term B Lender, upon
request, such documents and agreements as Term B Lender may, from time to time,
reasonably request to carry out the purposes, terms or conditions of this
Agreement.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
10.1. Nonpayment. Failure by Borrower to pay any principal or interest on
the Obligations when due, whether at maturity or by reason of acceleration
pursuant to the terms of this Agreement or by notice of intention to prepay, or
by required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due or in any Other Document;
10.2. Breach of Representation. Any representation or warranty made or
deemed made by Borrower in this Agreement, any Other Document or any related
agreement or in any certificate, document or financial or other statement
furnished at any time in connection herewith or therewith shall prove to have
been misleading in any material respect on the date when made or deemed to have
been made;
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10.3. Financial Information. Failure by Borrower to (i) furnish financial
information when due or when requested which is unremedied for a period of
fifteen (15) days, or (ii) permit the inspection of its books or records as set
forth in Section 4.10 herein;
10.4. Judicial Actions. Issuance of a notice of Lien, levy, assessment,
injunction or attachment against Borrower's Inventory or Receivables or against
a material portion of Borrower's other property which is not stayed or lifted
within thirty (30) days;
10.5. Noncompliance. Except as otherwise provided for in Sections 10.1,
10.3 and 10.5(ii), (i) failure or neglect of Borrower to perform, keep or
observe any term, provision, condition, covenant herein contained, or contained
in any Other Document or any other agreement or arrangement, now or hereafter
entered into between Borrower and Term B Lender, or (ii) failure or neglect of
Borrower to perform, keep or observe any term, provision, condition or covenant,
contained in Sections 4.6, 4.7, 4.9, 6.1, 6.3, 6.4, 9.4 or 9.6 hereof which is
not cured within ten (10) days from the occurrence of such failure or neglect;
10.6. Judgments. Any judgment or judgments are rendered against Borrower
for an aggregate amount in excess of $250,000 which (i) is/are not contested in
good faith by the Borrower, (ii) the Borrower does not establish reserves with
regard thereto in an amount reasonably satisfactory to Term B Lender, unless any
such judgment is fully covered by insurance and evidence thereof acceptable to
Term B Lender in it sole discretion is provided to Term B Lender, and (iii) the
enforcement of such judgment or judgments is/are not continuously stayed,
satisfied or discharged of record within forty (40) days of such rendering;
10.7. Bankruptcy. Borrower shall (i) apply for, consent to or suffer the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar fiduciary of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing;
10.8. Inability to Play. Borrower shall admit in writing its inability, or
be generally unable, to pay its debts as they become due or cease operations of
its present business;
10.9. Affiliate Bankruptcy. Any Affiliate or any Subsidiary of Borrower
shall (i) apply for, consent to or suffer the appointment of, or the taking of
possession by, a receiver, custodian, trustee, liquidator or similar fiduciary
of itself or of all or a substantial part of its property, (ii) admit in writing
its inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business, (iii) make a general assignment for
the benefit of creditors, (iv) commence a voluntary case under any state or
federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a
bankrupt or insolvent, (vi) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vii) acquiesce to, or fail to
have dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;
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10.10. Material Adverse Effect. Any change in Borrower's results of
operations or condition (financial or otherwise) which in Term B Lender's
opinion has a Material Adverse Effect;
10.11. Lien Priority. Any Lien created hereunder or provided for hereby or
under any related agreement for any reason ceases to be or is not a valid and
perfected Lien having a second priority interest subordinate only to the Liens
in favor Senior Lender;
10.12. Subordinated Loan Default. An event of default has occurred under
the Subordinated Loan Documentation or the Subordination Agreement, which
default shall not have been cured or waived within any applicable grace period;
10.13. Senior Loan Default. An event of default has occurred under the
Senior Loan Documents or the Intercreditor Agreement, which default shall not
have been cured or waived within any applicable grace period, or the aggregate
balance of Advances (as defined in the Senior Loan Agreement) outstanding at any
time is in excess of the maximum amount of Advances at any time permitted under
the Senior Loan Agreement;
10.14. Cross Default. A default of the obligations of Borrower under any
other agreement to which it is a party shall occur which adversely affects its
condition, affairs or prospects (financial or otherwise) which default is not
cured within any applicable grace period;
10.15. Change of Ownership. Any Change of Ownership or Change of Control
shall occur;
10.16. Invalidity. Any material provision of this Agreement or any Other
Document shall, for any reason, cease to be valid and binding on Borrower, or
Borrower shall so claim in writing to Term B Lender;
10.17. Licenses. (i) Any Governmental Body shall (A) revoke, terminate,
suspend or adversely modify any license, permit, patent trademark or tradename
of Borrower, or (B) commence proceedings to suspend, revoke, terminate or
adversely modify any such license, permit, trademark, tradename or patent and
such proceedings shall not be dismissed or discharged within sixty (60) days, or
(c) schedule or conduct a hearing on the renewal of any license, permit,
trademark, tradename or patent necessary for the continuation of Borrower's
business and the staff of such Governmental Body issues a report recommending
the termination, revocation, suspension or material, adverse modification of
such license, permit, trademark, tradename or patent; (ii) any agreement which
is necessary or material to the operation of Borrower's business shall be
revoked or terminated and not replaced by a substitute acceptable to Term B
Lender within thirty (30) days after the date of such revocation or termination,
and such revocation or termination and non-replacement would reasonably be
expected to have a Material Adverse Effect;
10.18. Seizures. Any portion of the Collateral shall be seized or taken by
a Governmental Body, or Borrower or the title and rights of Borrower or any
Original Owner which is the owner of any material portion of the Collateral
shall have become the subject matter of claim, litigation, suit or other
proceeding which might, in the opinion of Term B Lender, upon final
determination, result in impairment or loss of the security provided by this
Agreement or the Other Documents;
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10.19. Operations. The operations of Borrower's manufacturing facility are
interrupted at any time for more than twelve (12) hours during any period of ten
(10) consecutive days, unless Borrower shall (i) be entitled to receive for such
period of interruption, proceeds of business interruption insurance sufficient
to assure that its per diem cash needs during such period is at least equal to
its average per diem cash needs for the consecutive three month period
immediately preceding the initial date of interruption and (ii) receive such
proceeds in the amount described in clause (i) preceding not later than thirty
(30) days following the initial date of any such interruption; provided,
however, that notwithstanding the provisions of clauses (i) and (ii) of this
section, an Event of Default shall be deemed to have occurred if Borrower shall
be receiving the proceeds of business interruption insurance for a period of
thirty (30) consecutive days; or
10.20. Pension Plans. An event or condition specified in Sections 7.16 or
9.15 hereof shall occur or exist with respect to any Plan and, as a result of
such event or condition, together with all other such events or conditions,
Borrower or any member of the Controlled Group shall incur, or in the opinion of
Term B Lender be reasonably likely to incur, a liability to a Plan or the PBGC
(or both) which, in the reasonable judgment of Term B Lender, would have a
Material Adverse Effect.
XI. TERM B LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT.
11.1. Rights and Remedies. Upon the occurrence of (i) an Event of Default
pursuant to Section 10.7 all Obligations shall be immediately due and payable;
and, (ii) any of the other Events of Default and at any time thereafter (such
default not having previously been cured), at the option of Term B Lender all
Obligations shall be immediately due and payable, and (iii) a filing of a
petition against Borrower in any involuntary case under any state or federal
bankruptcy laws, all Obligations shall be immediately due and payable. Upon the
occurrence of any Event of Default, but subject to the Intercreditor Agreement,
Term B Lender shall have the right to exercise any and all rights and remedies
provided for herein, under the Other Documents, under the Uniform Commercial
Code and at law or equity generally, including the right to foreclose the
security interests granted herein and to realize upon any Collateral by any
available judicial procedure and/or to take possession of and sell any or all of
the Collateral with or without judicial process. Term B Lender may enter any of
Borrower's premises or other premises without legal process and without
incurring liability to Borrower therefor, and Term B Lender may thereupon, or at
any time thereafter, in its discretion without notice or demand, take the
Collateral and remove the same to such place as Term B Lender may deem advisable
and Term B Lender may require Borrower to make the Collateral available to Term
B Lender at a convenient place. With or without having the Collateral at the
time or place of sale, Term B Lender may sell the Collateral, or any part
thereof, at public or private sale, at any time or place, in one or more sales,
at such price or prices, and upon such terms, either for cash, credit or future
delivery, as Term B Lender may elect. Except as to that part of the Collateral
which is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Term B Lender shall give Borrower
reasonable notification of such sale or sales, it being agreed that in all
events written notice mailed to Borrower at least ten (10) days prior to such
sale or sales is reasonable notification. At any public sale Term B Lender may
bid for and become the purchaser, and Term B Lender or any other purchaser at
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any such sale thereafter shall hold the Collateral sold absolutely free from any
claim or right of whatsoever kind, including any equity of redemption and all
such claims, rights and equities are hereby expressly waived and released by
Borrower. In connection with the exercise of the foregoing remedies, including
the sale of Inventory, Term B Lender is granted a perpetual nonrevocable,
royalty free, nonexclusive license and Term B Lender is granted permission to
use all of Borrower's (a) trademarks, trade styles, trade names, patents, patent
applications, copyrights, service marks, licenses, franchises and other
proprietary rights which are used or useful in connection with Inventory for the
purpose of marketing, advertising for sale and selling or otherwise disposing of
such Inventory and (b) Equipment for the purpose of completing the manufacture
of unfinished goods. The cash proceeds realized from the sale of any Collateral
shall be applied to the Obligations in the order set forth in Section 11.5
hereof. Noncash proceeds will only be applied to the Obligations as they are
converted into cash. If any deficiency shall arise, Borrower shall remain liable
to Term B Lender therefor.
To the extent that Applicable Law imposes duties on Term B Lender to
exercise remedies in a commercially reasonable manner, Borrower acknowledges and
agrees that it is not commercially unreasonable for Term B Lender (i) to fail to
incur expenses reasonably deemed significant by Term B Lender to prepare
Collateral for disposition or otherwise to complete raw material or work in
process into finished goods or other finished products for disposition, (ii) to
fail to obtain third party consents for access to Collateral to be disposed of,
or to obtain or, if not required by other law, to fail to obtain governmental or
third party consents for the collection or disposition of Collateral to be
collected or disposed of, (iii) to fail to exercise collection remedies against
Customers or other Persons obligated on Collateral or to remove Liens on or any
adverse claims against Collateral, (iv) to exercise collection remedies against
Customers and other Persons obligated on Collateral directly or through the use
of collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (vi) to contact other
Persons, whether or not in the same business as the Borrower, for expressions of
interest in acquiring all or any portion of such Collateral, (vii) to hire one
or more professional auctioneers to assist in the disposition of Collateral,
whether or not the Collateral is of a specialized nature, (viii) to dispose of
Collateral by utilizing internet sites that provide for the auction of assets of
the types included in the Collateral or that have the reasonable capacity of
doing so, or that match buyers and sellers of assets, (ix) to dispose of assets
in wholesale rather than retail markets, (x) to disclaim disposition warranties,
such as title, possession or quiet enjoyment, (xi) to purchase insurance or
credit enhancements to insure Term B Lender against risks of loss, collection or
disposition of Collateral or to provide to Term B Lender a guaranteed return
from the collection or disposition of Collateral, or (xii) to the extent deemed
appropriate by Term B Lender, to obtain the services of other brokers,
investment bankers, consultants and other professionals to assist Term B Lender
in the collection or disposition of any of the Collateral. Borrower acknowledges
that the purpose of this Section 11.1(b) is to provide non-exhaustive
indications of what actions or omissions by Term B Lender would not be
commercially unreasonable in Term B Lender's exercise of remedies against the
Collateral and that other actions or omissions by Term B Lender shall not be
deemed commercially unreasonable solely on account of not being indicated in
this Section 11.1(b). Without limitation upon the foregoing, nothing contained
in this Section 11.1(b) shall be construed to grant any rights to Borrower or to
impose any duties on Term B Lender that would not have been granted or imposed
by this Agreement or by Applicable Law in the absence of this Section 11.1(b).
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11.2. Term B Lender's Discretion. Term B Lender shall have the right in
its sole discretion to determine which rights, Liens, security interests or
remedies Term B Lender may at any time pursue, relinquish, subordinate, or
modify or to take any other action with respect thereto and such determination
will not in any way modify or affect any of Term B Lender's rights hereunder.
11.3. Setoff. In addition to any other rights which Term B Lender may have
under Applicable Law, upon the occurrence of an Event of Default hereunder, Term
B Lender shall have a right, immediately and without notice of any kind, to
apply Borrower's property held by Term B Lender to reduce the Obligations.
11.4. Rights and Remedies not Exclusive. The enumeration of the foregoing
rights and remedies is not intended to be exhaustive and the exercise of any
rights or remedy shall not preclude the exercise of any other right or remedies
provided for herein or otherwise provided by law, all of which shall be
cumulative and not alternative.
11.5. Allocation of Payments After Event of Default. Notwithstanding any
other provisions of this Agreement to the contrary, after the occurrence and
during the continuance of an Event of Default, all amounts collected or received
by Term B Lender on account of the Obligations or any other amounts outstanding
under any of the Other Documents or in respect of the Collateral may, at Term B
Lender's discretion, be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including reasonable attorneys' fees) of Term B Lender in connection
with enforcing its rights under this Agreement and the Other Documents and any
protective advances made by Term B Lender with respect to the Collateral under
or pursuant to the terms of this Document;
SECOND, to payment of any fees owed to Term B Lender;
THIRD, to the payment of all of the Obligations consisting of
accrued fees and interest;
FOURTH, to the payment of the outstanding principal amount of the
Obligations;
FIFTH, to all other Obligations and other obligations which shall
have become due and payable under the Other Documents or otherwise and not
repaid pursuant to clauses "FIRST" through "FOURTH" above; and
SIXTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category.
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XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Borrower hereby waives notice of non-payment of
any of the Receivables, demand, presentment, protest and notice thereof with
respect to any and all instruments, notice of acceptance hereof, notice of loans
or advances made, credit extended, Collateral received or delivered, or any
other action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
12.2. Delay. No delay or omission on Term B Lender's part in exercising
any right, remedy or option shall operate as a waiver of such or any other
right, remedy or option or of any Default or Event of Default.
12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement, which shall inure to the benefit of and shall
be binding upon the respective successors and permitted assigns of Borrower and
Term B Lender, shall become effective on the date hereof and shall continue in
full force and effect until the Termination Date (the "Term") unless sooner
terminated as herein provided. Borrower may terminate this Agreement at any time
upon thirty (30) days' prior written notice upon payment in full of the
Obligations. In the event the Obligations are prepaid in full or in part prior
to the last day of the Term (the date of such prepayment hereinafter referred to
as the "Early Termination Date"), Borrower shall pay to Term B Lender an early
termination fee in an amount equal to (x) three percent (3.00%) of the prepaid
portion of the principal amount of the Obligations if the Early Termination Date
occurs on or after the Closing Date to and including the date immediately
preceding the first anniversary of the Closing Date, (y) two percent (2.00%) of
the prepaid portion of the principal amount of the Obligations if the Early
Termination Date occurs on or after the first anniversary of the Closing Date to
and including the date immediately preceding the second anniversary of the
Closing Date, and (z) one percent (1.00%) of the prepaid portion of the
principal amount of the Obligations if the Early Termination Date occurs on or
after the second anniversary of the Closing Date to and including the date
immediately preceding the third anniversary of the Closing Date.
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13.2. Termination. The termination of the Agreement shall not affect
Borrower's or Term B Lender's rights, or any of the Obligations having their
inception prior to the effective date of such termination, and the provisions
hereof shall continue to be fully operative until all transactions entered into,
rights or interests created or Obligations have been fully and indefeasibly
paid, disposed of, concluded or liquidated. The security interests, Liens and
rights granted to Term B Lender hereunder and the financing statements filed
hereunder shall continue in full force and effect, notwithstanding the
termination of this Agreement, until all of the Obligations of Borrower have
been indefeasibly paid and performed in full in cash after the irrevocable
termination of this Agreement or Borrower has furnished Term B Lender with an
indemnification satisfactory to Term B Lender with respect thereto. Accordingly,
Borrower waives any rights which it may have under the Uniform Commercial Code
to demand the filing of termination statements with respect to the Collateral,
and Term B Lender shall not be required to send such termination statements to
Borrower, or to file them with any filing office, unless and until this
Agreement shall have been irrevocably terminated in accordance with its terms
and all Obligations have been indefeasibly paid in full in immediately available
funds. All representations, warranties, covenants, waivers and agreements
contained herein shall survive termination hereof until all Obligations are
indefeasibly paid and performed in full.
XIV. BORROWING AGENCY.
14.1. Borrowing Agency Provisions.
(a) Each Borrower hereby irrevocably designates Borrowing Agent to
be its attorney and agent and in such capacity to borrow, sign and endorse
notes, and execute and deliver all instruments, documents, writings and further
assurances now or hereafter required hereunder, on behalf of such Borrower or
Borrowers, and hereby authorizes Term B Lender to pay over or credit all loan
proceeds hereunder in accordance with the request of Borrowing Agent.
(b) The handling of this credit facility as a co-borrowing facility
with a borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to Borrowers and at their request. Term B Lender shall not incur
liability to Borrowers as a result thereof. To induce Term B Lender to do so and
in consideration thereof, each Borrower hereby indemnifies Term B Lender and
holds Term B Lender harmless from and against any and all liabilities, expenses,
losses, damages and claims of damage or injury asserted against Term B Lender by
any Person arising from or incurred by reason of the handling of the financing
arrangements of Borrowers as provided herein, reliance by Term B Lender on any
request or instruction from Borrowing Agent or any other action taken by Term B
Lender with respect to this Section 14.1 except due to willful misconduct or
gross (not mere) negligence by the indemnified party (as determined by a court
of competent jurisdiction in a final and non-appealable judgment).
(c) All Obligations shall be joint and several, and each Borrower
shall make payment upon the maturity of the Obligations by acceleration or
otherwise, and such obligation and liability on the part of each Borrower shall
in no way be affected by any extensions, renewals and forbearance granted to
Term B Lender to any Borrower, failure of Term B Lender to give any Borrower
notice of borrowing or any other notice, any failure of Term B Lender to pursue
or preserve its rights against any Borrower, the release by Term B Lender of any
Collateral now or thereafter acquired from any Borrower, and such agreement by
each Borrower to pay upon any notice issued pursuant thereto is unconditional
and unaffected by prior recourse by Term B Lender to the other Borrowers or any
Collateral for such Borrower's Obligations or the lack thereof. Each Borrower
waives all suretyship defenses.
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14.2. Waiver of Subrogation. Each Borrower expressly waives any and all
rights of subrogation, reimbursement, indemnity, exoneration, contribution of
any other claim which such Borrower may now or hereafter have against the other
Borrowers or other Person directly or contingently liable for the Obligations
hereunder, or against or with respect to the other Borrowers' property
(including, without limitation, any property which is Collateral for the
Obligations), arising from the existence or performance of this Agreement, until
termination of this Agreement and repayment in full of the Obligations.
XV. MISCELLANEOUS.
15.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applied to contracts to be
performed wholly within the State of New York. Any judicial proceeding brought
by or against Borrower with respect to any of the Obligations, this Agreement,
the Other Documents or any related agreement may be brought in any court of
competent jurisdiction in the State of New York, United States of America, and,
by execution and delivery of this Agreement, Borrower accepts for itself and in
connection with its properties, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement. Borrower hereby
waives personal service of any and all process upon it and consents that all
such service of process may be made by registered mail (return receipt
requested) directed to Borrower at its address set forth in Section 15.6 and
service so made shall be deemed completed five (5) days after the same shall
have been so deposited in the mails of the United States of America. Nothing
herein shall affect the right to serve process in any manner permitted by law or
shall limit the right of Term B Lender to bring proceedings against Borrower in
the courts of any other jurisdiction. Borrower waives any objection to
jurisdiction and venue of any action instituted hereunder and shall not assert
any defense based on lack of jurisdiction or venue or based upon forum non
conveniens. Borrower waives the right to remove any judicial proceeding brought
against Borrower in any state court to any federal court. Any judicial
proceeding by Borrower against Term B Lender involving, directly or indirectly,
any matter or claim in any way arising out of, related to or connected with this
Agreement or any related agreement, shall be brought only in a federal or state
court located in the County of New York, State of New York.
15.2. Entire Understanding.
(a) This Agreement and the documents executed concurrently herewith
contain the entire understanding between Borrower and Term B Lender and
supersedes all prior agreements and understandings, if any, relating to the
subject matter hereof. Any promises, representations, warranties or guarantees
not herein contained and hereinafter made shall have no force and effect unless
in writing, signed by Borrower's and Term B Lender's respective officers.
Neither this Agreement nor any portion or provisions hereof may be changed,
modified, amended, waived, supplemented, discharged, cancelled or terminated
orally or by any course of dealing, or in any manner other than by an agreement
in writing, signed by the party to be charged. Borrower acknowledges that it has
been advised by counsel in connection with the execution of this Agreement and
Other Documents and is not relying upon oral representations or statements
inconsistent with the terms and provisions of this Agreement.
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(b) Term B Lender and Borrower may from time to time enter into
written supplemental agreements to this Agreement or the Other Documents
executed by Borrower, for the purpose of adding or deleting any provisions or
otherwise changing, varying or waiving in any manner the rights of Term B Lender
or Borrower thereunder or the conditions, provisions or terms thereof of waiving
any Event of Default thereunder, but only to the extent specified in such
written agreements. Any such supplemental agreement shall apply equally to, and
shall be binding upon Borrower, Term B Lender and all future holders of the
Obligations. In the case of any waiver, Borrower and Term B Lender shall be
restored to their former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of a specific
Event of Default shall extend to any subsequent Event of Default (whether or not
the subsequent Event of Default is the same as the Event of Default which was
waived), or impair any right consequent thereon.
15.3. Successors and Assigns; Participations; New Lenders.
(a) This Agreement shall be binding upon and inure to the benefit of
Borrower Term B Lender, all future holders of the Obligations and their
respective successors and assigns, except that Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Term B Lender.
(b) Borrower acknowledges that in the regular course of commercial
banking business Term B Lender may at any time and from time to time sell
participating interests in the Term Loan to other financial institutions (each
such transferee or purchaser of a participating interest, a "Participant") and
shall provide notice to the Borrower thereof. Each Participant may exercise all
rights of payment (including rights of set-off) with respect to the portion of
the Term Loan held by it or other Obligations payable hereunder as fully as if
such Participant were the direct holder thereof provided that Borrower shall not
be required to pay to any Participant more than the amount which it would have
been required to pay to Term B Lender had Term B Lender retained such interest
in the Term Loan hereunder or other Obligations payable hereunder and in no
event shall Borrower be required to pay any such amount arising from the same
circumstances and with respect to the portion of the Term Loan or other
Obligations payable hereunder to both Term B Lender and such Participant.
Borrower hereby grants to any Participant a continuing security interest in any
deposits, moneys or other property actually or constructively held by such
Participant as security for the Participant's interest in the Term Loan.
(c) Term B Lender may sell, assign or transfer all or any part of
its rights and obligations under or relating to the Term Loan under this
Agreement and the Other Documents to one or more additional banks or financial
institutions (each a "Purchasing Lender"), in minimum amounts of not less than
$1,000,000, pursuant to a Commitment Transfer Supplement, executed by a
Purchasing Lender and Term B Lender and delivered to Term B Lender for
recording. Upon such execution, delivery, acceptance and recording, from and
after the transfer effective date determined pursuant to such Commitment
Transfer Supplement, (i) Purchasing Lender thereunder shall be a party hereto
and, to the extent provided in such Commitment Transfer Supplement, have the
rights and obligations of Term B Lender thereunder with a Commitment Percentage
as set forth therein, and (ii) Term B Lender thereunder shall, to the extent
66
provided in such Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Commitment Transfer Supplement creating a
novation for that purpose. Such Commitment Transfer Supplement shall be deemed
to amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Lender and the resulting adjustment of
the Commitment Percentages arising from the purchase by such Purchasing Lender
of all or a portion of the rights and obligations of Term B Lender under this
Agreement and the Other Documents. Borrower hereby consents to the addition of
such Purchasing Lender and the resulting adjustment of the Commitment
Percentages arising from the purchase by such Purchasing Lender of all or a
portion of the rights and obligations of Term B Lender under this Agreement and
the Other Documents. Borrower shall execute and deliver such further documents
and do such further acts and things in order to effectuate the foregoing.
(d) Term B Lender may directly or indirectly sell, assign or
transfer all or any portion of its rights and obligations under or relating to
the Term Loan under this Agreement and the Other Documents to an entity, whether
a corporation, partnership, trust, limited liability company or other entity
that (i) is engaged in making, purchasing, holding or otherwise investing in
bank loans and similar extensions of credit in the ordinary course of its
business and (ii) is administered, serviced or managed by Term B Lender or an
Affiliate of Term B Lender (a "Purchasing CLO" and together with each
Participant and Purchasing Lender, each a "Transferee" and collectively the
"Transferees"), pursuant to a Commitment Transfer Supplement modified as
appropriate to reflect the interest being assigned ("Modified Commitment
Transfer Supplement"), executed by any intermediate purchaser, the Purchasing
CLO, and Term B Lender as appropriate and delivered to Term B Lender for
recording. Upon such execution and delivery, from and after the transfer
effective date determined pursuant to such Modified Commitment Transfer
Supplement, (i) Purchasing CLO thereunder shall be a party hereto and, to the
extent provided in such Modified Commitment Transfer Supplement, have the rights
and obligations of Term B Lender thereunder and (ii) Term B Lender thereunder
shall, to the extent provided in such Modified Commitment Transfer Supplement,
be released from its obligations under this Agreement, the Modified Commitment
Transfer Supplement creating a novation for that purpose. Such Modified
Commitment Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing CLO. Borrower hereby consents to the addition of such Purchasing CLO.
Borrower shall execute and deliver such further documents and do such further
acts and things in order to effectuate the foregoing.
(e) Term B Lender shall maintain at its address a copy of each
Commitment Transfer Supplement and Modified Commitment Transfer Supplement
delivered to it and a register (the "Register") for the recordation of the names
and addresses of each Purchasing Lender and the outstanding principal, accrued
and unpaid interest and other fees due hereunder. The entries in the Register
shall be conclusive, in the absence of manifest error, and Borrower, Term B
Lender and Purchasing Lenders may treat each Person whose name is recorded in
the Register as the owner of the Term Loan recorded therein for the purposes of
this Agreement. The Register shall be available for inspection by Borrower or
any Purchasing Lender at any reasonable time and from time to time upon
reasonable prior notice. Term B Lender shall receive a fee in the amount of
$3,500 payable by the applicable Purchasing Lender and/or Purchasing CLO upon
the effective date of each transfer or assignment (other than to an intermediate
purchaser) to such Purchasing Lender and/or Purchasing CLO.
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(f) Borrower authorizes Term B Lender to disclose to any Transferee
and any prospective Transferee any and all financial information in Term B
Lender's possession concerning Borrower which has been delivered to Term B
Lender by or on behalf of Borrower pursuant to this Agreement or in connection
with Term B Lender's credit evaluation of Borrower.
15.4. Application of Payments. Term B Lender shall have the continuing and
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral to any portion of the Obligations. To the extent that
Borrower makes a payment or Term B Lender receives any payment or proceeds of
the Collateral for Borrower's benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Term B Lender.
15.5. Indemnity. Borrower shall indemnify Term B Lender and each of its
officers, directors, Affiliates, attorneys, employees and agents from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including fees and disbursements of counsel) which may be
imposed on, incurred by, or asserted against Term B Lender in any claim,
litigation, proceeding or investigation instituted or conducted by any
Governmental Body or instrumentality or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement or the Other Documents, whether or not Term B Lender
is a party thereto, except to the extent that any of the foregoing arises out of
the willful misconduct of the party being indemnified (as determined by a court
of competent jurisdiction in a final and non-appealable judgment). Without
limiting the generality of the foregoing, this indemnity shall extend to any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever (including
fees and disbursements of counsel) asserted against or incurred by any of the
indemnitees described above in this Section 15.5 by any Person under any
Environmental Laws or similar laws by reason of Borrower's or any other Person's
failure to comply with laws applicable to solid or hazardous waste materials,
including Hazardous Substances and Hazardous Waste, or other Toxic Substances.
Additionally, if any taxes (excluding taxes imposed upon or measured solely by
the net income of Term B Lender, but including any intangibles taxes, stamp tax,
recording tax or franchise tax) shall be payable by Term B Lender or Borrower on
account of the execution or delivery of this Agreement, or the execution,
delivery, issuance or recording of any of the Other Documents, or the creation
or repayment of any of the Obligations hereunder, by reason of any Applicable
Law now or hereafter in effect, Borrower will pay (or will promptly reimburse
Term B Lender for payment of) all such taxes, including interest and penalties
thereon, and will indemnify and hold the indemnitees described above in this
Section 15.5 harmless from and against all liability in connection therewith.
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15.6. Notice. Any notice or request hereunder may be given to Borrower or
to Term B Lender at their respective addresses set forth below or at such other
address as may hereafter be specified in a notice designated as a notice of
change of address under this Section. Any notice, request, demand, direction or
other communication (for purposes of this Section 15.6 only, a "Notice") to be
given to or made upon any party hereto under any provision of this Loan
Agreement shall be given or made by telephone or in writing (which includes by
means of electronic transmission (i.e., "e-mail") or facsimile transmission or
by setting forth such Notice on a site on the World Wide Web (a "Website
Posting") if Notice of such Website Posting (including the information necessary
to access such site) has previously been delivered to the applicable parties
hereto by another means set forth in this Section 15.6) in accordance with this
Section 15.6. Any such Notice must be delivered to the applicable parties hereto
at the addresses and numbers set forth under their respective names on Section
15.6 hereof or in accordance with any subsequent unrevoked Notice from any such
party that is given in accordance with this Section 15.6. Any Notice shall be
effective:
(a) In the case of hand-delivery, when delivered;
(b) If given by mail, four days after such Notice is deposited with
the United States Postal Service, with first-class postage prepaid, return
receipt requested;
(c) In the case of a telephonic Notice, when a party is contacted by
telephone, if delivery of such telephonic Notice is confirmed no later than the
next Business Day by hand delivery, a facsimile or electronic transmission, a
Website Posting or an overnight courier delivery of a confirmatory Notice
(received at or before noon on such next Business Day);
(d) In the case of a facsimile transmission, when sent to the
applicable party's facsimile machine's telephone number, if the party sending
such Notice receives confirmation of the delivery thereof from its own facsimile
machine;
(e) In the case of electronic transmission, when actually received;
(f) In the case of a Website Posting, upon delivery of a Notice of
such posting (including the information necessary to access such site) by
another means set forth in this Section 15.6; and
(g) If given by any other means (including by overnight courier),
when actually received.
(A) If to Term B Lender at: Steel City Capital Funding LLC
1600 Market Street, 31st Floor
Philadelphia, Pennsylvania 19103
Attention:Thomas J. Bugieda
Telephone:(215) 585-5369
Facsimile:(215) 585-4771
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with a copy to: Hahn & Hessen LLP
488 Madison Avenue
New York, NY 10022
Attention:Steven J. Seif, Esq.
Telephone:(212) 478-7370
Facsimile:(212) 478-7400
(B) If to Borrower: c/o Air Industries Machining, Corp.
1479 Clinton Avenue
Bay Shore, New York 11706
Attention:Louis Giusto, Vice
Chairman & CFO
Telephone:(631) 968-5000
Facsimile:(631) 968-5377
with a copy to: Eaton & Van Winkle LLP
3 Park Avenue, 16th floor
New York, New York 10016-2078
Attention:Charles Fewell, Esq.
Telephone:(212) 561-3627
Facsimile:(212) 779-9928
15.7. Survival. The obligations of Borrower under Sections 2.2(f), 3.5,
3.6, 3.7, 4.19(h), and 15.5, shall survive termination of this Agreement and the
Other Documents and payment in full of the Obligations.
15.8. Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under Applicable Laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
15.9. Expenses. All costs and expenses including reasonable attorneys'
fees (including the allocated costs of in house counsel) and disbursements
incurred by Term B Lender (a) in all efforts made to enforce payment of any
Obligation or effect collection of any Collateral, or (b) in connection with the
entering into, modification, amendment, administration and enforcement of this
Agreement, the Subordination Agreement or any consents or waivers hereunder or
thereunder and all related agreements, documents and instruments, or (c) in
instituting, maintaining, preserving, enforcing and foreclosing on Term B
Lender's security interest in or Lien on any of the Collateral, or maintaining,
preserving or enforcing any of Term B Lender's rights hereunder, under the
Subordination Agreement and under all related agreements, documents and
instruments, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any actions or proceedings arising out of or relating
to Term B Lender's transactions with Borrower or any guarantor or any
Subordinated Lender or (e) in connection with any advice given to Term B Lender
with respect to its rights and obligations under this Agreement, the
Subordination Agreement and all related agreements, documents and instruments,
shall be part of the Obligations, or, at Term B Lender's option, shall be paid
to Term B Lender immediately upon demand.
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15.10. Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, or threatens to fail to perform, observe or discharge such
obligations or liabilities, any remedy at law may prove to be inadequate relief
to Term B Lender; therefore, Term B Lender, if Term B Lender so requests, shall
be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving that actual damages are not an adequate remedy.
15.11. Damages. Neither Term B Lender nor any agent or attorney for Term B
Lender, shall be liable to Borrower (or any Affiliate of any such Person) for
indirect, punitive, exemplary or consequential damages arising from any breach
of contract, tort or other wrong relating to the establishment, administration
or collection of the Obligations or as a result of any transaction contemplated
under this Agreement or any Other Document.
15.12. Captions. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
15.13. Counterparts; Facsimile Signatures. This Agreement may be executed
in any number of and by different parties hereto on separate counterparts, all
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to be an original
signature hereto.
15.14. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
15.15. Confidentiality; Sharing Information.
(a) Term B Lender and each Transferee shall hold all non-public
information obtained by Term B Lender and such Transferee pursuant to the
requirements of this Agreement in accordance with Term B Lender's and such
Transferee's customary procedures for handling confidential information of this
nature; provided, however, Term B Lender and each Transferee may disclose such
confidential information (a) to its examiners, Affiliates, outside auditors,
counsel and other professional advisors, (b) Term B Lender or any prospective
Transferee, and (c) as required or requested by any Governmental Body or
representative thereof or pursuant to legal process; provided, further that (i)
unless specifically prohibited by Applicable Law or court order, Term B Lender
and each Transferee shall use its reasonable best efforts prior to disclosure
thereof, to notify Borrower of the applicable request for disclosure of such
non-public information (A) by a Governmental Body or representative thereof
(other than any such request in connection with an examination of the financial
condition of Term B Lender or a Transferee by such Governmental Body) or (B)
pursuant to legal process and (ii) in no event shall Term B Lender or any
Transferee be obligated to return any materials furnished by Borrower other than
those documents and instruments in possession of Term B Lender in order to
perfect its Lien on the Collateral once the Obligations have been paid in full
and this Agreement has been terminated.
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(b) Borrower acknowledges that from time to time financial advisory,
investment banking and other services may be offered or provided to Borrower or
one or more of its Affiliates (in connection with this Agreement or otherwise)
by Term B Lender or by one or more Subsidiaries or Affiliates of Term B Lender
and Borrower hereby authorizes Term B Lender to share any information delivered
to Term B Lender by Borrower and its Subsidiaries pursuant to this Agreement, or
in connection with the decision of Term B Lender to enter into this Agreement,
to any such Subsidiary or Affiliate of Term B Lender, it being understood that
any such Subsidiary or Affiliate of Term B Lender receiving such information
shall be bound by the provisions of this Section 15.15 as if it were a party
hereto. Such authorization shall survive the repayment of the other Obligations
and the termination of this Agreement.
15.16. Publicity. Borrower hereby authorizes Term B Lender to make
appropriate announcements of the financial arrangement entered into among
Borrower and Term B Lender, including announcements which are commonly known as
tombstones, in such publications and to such selected parties as Term B Lender
shall in its sole and absolute discretion deem appropriate.
15.17. Certifications From Banks and Participants; US PATRIOT Act. Any
assignee or participant of Term B Lender that is not incorporated under the Laws
of the United States of America or a state thereof (and is not excepted from the
certification requirement contained in Section 313 of the USA PATRIOT Act and
the applicable regulations because it is both (i) an affiliate of a depository
institution or foreign bank that maintains a physical presence in the United
States or foreign country, and (ii) subject to supervision by a banking
authority regulating such affiliated depository institution or foreign bank)
shall deliver to Term B Lender the certification, or, if applicable,
recertification, certifying that such assignee or participant of Term B Lender
is not a "shell" and certifying to other matters as required by Section 313 of
the USA PATRIOT Act and the applicable regulations: (1) within 10 days after the
Closing Date, and (2) as such other times as are required under the USA PATRIOT
Act.
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Each of the parties has signed this Agreement as of the day and year first
above written.
AIR INDUSTRIES MACHINING, CORP.
By: /s/ Peter D. Rettaliata
------------------------------------
Name:Peter D. Rettaliata
Title:President
SIGMA METALS, INC.
By: /s/ Peter D. Rettaliata
------------------------------------
Name: Peter D. Rettaliata
Title: President
WELDING METALLURGY, INC., as successor
by merger with WMS Merger Corp.
By: /s/ Peter D. Rettaliata
------------------------------------
Name: Peter D. Rettaliata
Title:President
STEEL CITY CAPITAL FUNDING LLC
(AS TERM B LENDER)
By: /s/ Kevin Madigan
------------------------------------
Name: Kevin Madigan
Title: Managing Director
Signature Page to Loan and Security Agreement - 1248649
Exhibit 10.7
PLEDGE AGREEMENT
This Pledge Agreement (this "Agreement") dated as of August 24, 2007
between STEEL CITY CAPITAL FUNDING LLC, having an office at 1600 Market Street,
31st Floor, Philadelphia, PA 19103 ("Pledgee"), AIR INDUSTRIES MACHINING CORP.
("Air"), a New York corporation, having an office at 1479 Clinton Avenue, Bay
Shore, New York 11706, and SIGMA METALS, INC. ("Sigma"), a New York corporation,
having an office at 45 Jefryn Boulevard, Deer Park, New York 11729, (Sigma and
Air each individually, a "Pledgor" and collectively, the "Pledgors").
BACKGROUND TO THE AGREEMENT
Pledgors, WELDING METALLURGY, INC. (as successor by merger with WMS Merger
Corp.), a New York corporation ("WMI"; and together with Pledgors, collectively,
the "Borrowers") and Pledgee have entered or are entering into a Term Loan and
Security Agreement dated as of the date hereof (as amended, modified, restated
or supplemented from time to time, the "Loan Agreement") pursuant to which
Pledgee has agreed, subject to the terms and conditions contained therein, to
provide certain financial accommodations to Borrowers.
In order to induce Pledgee to provide or continue to provide the financial
accommodations described in the Loan Agreement, Pledgors have agreed to pledge
and grant a security interest to Pledgee in the Collateral (as hereinafter
defined).
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
All capitalized terms used herein which are not defined shall have the
meanings given to them in the Loan Agreement.
2. Pledge and Grant of Security Interest.
To secure the full and punctual payment and performance of the (a)
Obligations and (b) all other indebtedness, obligations and liabilities of
Borrowers to Pledgee whether now existing or hereafter arising, direct or
indirect, liquidated or unliquidated, absolute or contingent, due or not due and
whether under, pursuant to or evidenced by a note, agreement, guaranty,
instrument or otherwise ((a) and (b) collectively, the "Indebtedness"), Pledgors
hereby pledge, assign, hypothecate, transfer and grant a security interest to
Pledgee in all of the following (the "Collateral"):
(a) the shares of stock set forth on Schedule A annexed hereto and
expressly made a part hereof (the "Pledged Stock"), the certificates
representing the Pledged Stock and all dividends, cash, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged Stock;
(b) all additional shares of stock of any issuer of the Pledged
Stock (the "Issuer") from time to time acquired by the Pledgors in any manner,
including, without limitation, stock dividends or a distribution in connection
with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off or
split-off (which shares shall be deemed to be part of the Collateral), and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares; and
(c) all options and rights, whether as an addition to, in
substitution of or in exchange for any shares of the Pledged Stock.
3. Delivery of Collateral.
All certificates representing or evidencing the Pledged Stock shall be
delivered to and held by or on behalf of Pledgee pursuant hereto and shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to Pledgee. Pledgors hereby authorize the
Issuer upon demand by Pledgee to deliver any certificates, instruments or other
distributions issued in connection with the Collateral directly to Pledgee, in
each case to be held by Pledgee, subject to the terms hereof. Pledgee shall have
the right, at any time in its discretion and without notice to the Pledgors, to
transfer to or to register in the name of Pledgee or any of its nominees any or
all of the Pledged Stock. In addition, Pledgee shall have the right at any time
to exchange certificates or instruments representing or evidencing Pledged Stock
for certificates or instruments of smaller or larger denominations.
4. Representations and Warranties of Pledgors.
Each Pledgor represents and warrants to Pledgee (which representations and
warranties shall be deemed to continue to be made until all of the Indebtedness
has been paid in full and the Loan Agreement has been irrevocably terminated)
that:
(a) Each Pledgor has the requisite power and authority to enter into
this Agreement, to pledge the Collateral for the purposes described herein and
to carry out the transactions contemplated by this Agreement.
(b) The execution, delivery and performance by each Pledgor of this
Agreement and the pledge of the Collateral hereunder have been duly and properly
authorized and do not and will not result in any violation of any agreement,
indenture, instrument, license, judgment, decree, order, law, statute, ordinance
or other governmental rule or regulation applicable to any Pledgor.
2
(c) This Agreement constitutes the legal, valid and binding
obligation of each Pledgor enforceable against such Pledgor in accordance with
its terms.
(d) Each Pledgor is the direct and beneficial owner of each share of
the Pledged Stock.
(e) All of the shares of the Pledged Stock have been duly
authorized, validly issued and are fully paid and nonassessable.
(f) Upon delivery of the Pledged Stock to Pledgee or an agent for
Pledgee, this Agreement creates and grants a valid first lien on and perfected
security interest in the Collateral and the proceeds thereof, subject to no
prior security interest, mortgage, pledge, claim, lien, charge, hypothecation,
assignment, offset or encumbrance whatsoever (collectively, "Liens") or to any
agreement purporting to grant to any third party a Lien upon the property or
assets of each Pledgor which would include the Collateral.
(g) There are no restrictions on transfer of the Pledged Stock
contained in the Certificate of Incorporation or by-laws of the Issuer or
otherwise which have not otherwise been enforceably and legally waived by the
necessary parties.
(h) None of the Pledged Stock has been issued or transferred in
violation of the securities registration, securities disclosure or similar laws
of any jurisdiction to which such issuance or transfer may be subject.
(i) There are no pending or, to the best of each Pledgor's
knowledge, threatened actions or proceedings before any court, judicial body,
administrative agency or arbitrator which may materially adversely affect the
Collateral.
(j) No consent, approval, authorization or other order of any
person, firm, corporation or other entity ("Person") and no consent,
authorization, approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required by any Pledgor either (i)
for the pledge of the Collateral pursuant to this Agreement or for the
execution, delivery or performance of this Agreement or (ii) for the exercise by
the Pledgee of the voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement, except as may
be required in connection with such disposition by laws affecting the offering
and sale of securities generally.
(k) No notification of the pledge evidenced hereby to any Person is
required.
(l) The Pledged Stock constitutes one hundred percent (100%) of the
issued and outstanding shares of capital stock of the Issuers thereof set forth
on Schedule A annexed hereto.
(m) As of the date hereof, there are no existing options, warrants,
calls or commitments of any such character whatsoever relating to any Pledged
Stock and no indebtedness or other security convertible into any Pledged Stock.
3
The representations and warranties set forth in this Section 4 (other than
those contained in subsection (m)) shall survive the execution and delivery of
this Agreement.
5. Covenants.
Until such time as all of the Indebtedness has been paid in full and
the Loan Agreement has been irrevocably terminated, each Pledgor shall:
(a) Not sell, assign, transfer, convey, or otherwise dispose of its
rights in or to the Collateral or any interest therein; nor create, incur or
permit to exist any Lien whatsoever with respect to any of the Collateral or the
proceeds thereof other than that created hereby.
(b) At each Pledgor's expense, defend Pledgee's right, title and
security interest in and to the Collateral against the claims of any Person and
keep the Collateral free from all Liens, except for the Liens granted to Pledgee
under this Agreement.
(c) At any time, and from time to time, upon the written request of
Pledgee, execute and deliver such further documents and do such further acts and
things as Pledgee may reasonably request in order to effect the purposes of this
Agreement including, but without limitation, delivering to Pledgee upon the
occurrence of an Event of Default irrevocable proxies in respect of the
Collateral in form satisfactory to Pledgee. Until receipt thereof, this
Agreement shall constitute each Pledgor's proxy to Pledgee or its nominee to
vote all shares of Collateral then registered in such Pledgor's name.
(d) Within two (2) Business Days of receipt thereof by each Pledgor,
deliver to Pledgee all notices and statements relating to the Collateral
received by such Pledgor.
(e) Not consent to or approve the issuance of (i) any additional
shares of any class of capital stock of the Issuer; (ii) any securities
convertible either voluntarily by the holder thereof or automatically upon the
occurrence or nonoccurrence of any event or condition into, or any securities
exchangeable for, any such shares; or (iii) any warrants, options, contracts or
other commitments entitling any person to purchase or otherwise acquire any such
shares.
(f) Not create, incur, assume or suffer to exist any Lien or other
encumbrance of any kind (including the charge on property purchased under
conditional sales or other title retention agreements) upon any property or
assets, whether now owned or hereafter acquired, except for liens incidental to
the conduct of any Pledgor's business or the ownership of its assets or
properties not incurred in connection with the borrowing of money or the
acquisition of any asset, and which in the aggregate do not materially detract
from such Pledgor's operations, property or financial condition.
(g) Not convey, sell, lease, transfer or otherwise dispose of in one
or a series of related transactions, all or any substantial part of its
properties, businesses or assets.
6. Voting Rights and Dividends.
4
In addition to Pledgee's rights and remedies set forth in Section 8
hereof, in case an Event of Default shall have occurred and has been declared by
Pledgee and is continuing, Pledgee shall (i) vote the Collateral, (ii) be
entitled to give consents, waivers and ratifications in respect of the
Collateral (each Pledgor hereby irrevocably constituting and appointing Pledgee,
with full power of substitution, the proxy and attorney-in-fact of such Pledgor
for such purposes) and (iii) be entitled to collect and receive for its own use
cash dividends paid on the Collateral. No Pledgor shall be permitted to exercise
or refrain from exercising any voting rights or other powers if, in the
reasonable judgment of Pledgee, such action would have a material adverse effect
on the value of the Collateral or any part thereof; and, provided, further, that
each Pledgor shall give at least five (5) days' written notice of the manner in
which such Pledgor intends to exercise, or the reasons for refraining from
exercising, any voting rights or other powers other than with respect to any
election of directors and voting with respect to any incidental matters. All
dividends and all other distributions in respect of any of the Collateral,
whenever paid or made, shall be delivered to Pledgee to hold as Collateral and
shall, if received by any Pledgor, be received in trust for the benefit of
Pledgee, be segregated from the other property or funds of such Pledgor, and be
forthwith delivered to Pledgee as Collateral in the same form as so received
(with any necessary endorsement). Subject to the limitations set forth herein,
Pledgors shall have the right to exercise voting rights with respect to any
securities included in the Collateral.
7. Events of Default.
The term "Event of Default" wherever used herein shall mean the occurrence
of any one of the following events:
(a) An Event of Default shall occur under the Loan Agreement or any
Pledgor shall default in the payment of any Obligation;
(b) Any Pledgor shall default in the performance of any of its
undertakings or obligations under any agreement between such Pledgor and
Pledgee, including, without limitation, this Agreement;
(c) Any representation, warranty, statement or covenant made or
furnished to Pledgee by or on behalf of any Pledgor proves to have been false in
any material respect when made or furnished or is breached, violated or not
complied with; or
(d) The Collateral is subjected to levy of execution, attachment,
distraint or other judicial process; or the Collateral is the subject of a claim
(other than by Pledgee) of a Lien or other right or interest in or to the
Collateral.
(e) Any Pledgor shall (i) apply for, consent to, or suffer to exist
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or other fiduciary of itself or of all or a substantial part
of its property, (ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to, or fail to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of effecting any of
the foregoing.
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8. Remedies.
Upon the occurrence of an Event of Default, Pledgee may:
(a) Demand, collect, receipt for, settle, compromise, adjust, sue
for, foreclose or realize upon the Collateral (or any part thereof), as Pledgee
may determine in its sole discretion;
(b) Transfer any or all of the Collateral into its name, or into the
name of its nominee or nominees;
(c) Exercise all rights with respect to the Collateral including,
without limitation, all rights of conversion, exchange, subscription or any
other rights, privileges or options pertaining to any shares of the Collateral
as if it were the absolute owner thereof, including, but without limitation, the
right to exchange, at its discretion, any or all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
the Issuer thereof, or upon the exercise by the Issuer of any right, privilege
or option pertaining to any of the Collateral, and, in connection therewith, to
deposit and deliver any and all of the Collateral with any committee,
depository, transfer agent, registrar or other designated agent upon such terms
and conditions as it may determine, all without liability except to account for
property actually received by it;
(d) Subject to the requirements of applicable law, sell, assign and
deliver the whole or, from time to time, any part of the Collateral at the time
held by Pledgee, at any private or public sale or auction, with or without
demand, advertisement or notice of the time or place of sale or adjournment
thereof or otherwise (all of which are hereby waived, except such notice as is
required by applicable law and cannot be waived), for cash or credit or for
other property for immediate or future delivery, and for such price or prices
and on such terms as Pledgee in its sole discretion may determine, or as may be
required by applicable law.
Each Pledgor hereby waives and releases any and all right or equity of
redemption, whether before or after sale hereunder. At any such sale, unless
prohibited by applicable law, Pledgee may bid for and purchase the whole or any
part of the Collateral so sold free from any such right or equity of redemption.
All moneys received by Pledgee hereunder whether upon sale of the Collateral or
any part thereof or otherwise shall be held by Pledgee and applied by it as
provided in Section 11 hereof. No failure or delay on the part of Pledgee in
exercising any rights hereunder shall operate as a waiver of any such rights nor
shall any single or partial exercise of any such rights preclude any other or
future exercise thereof or the exercise of any other rights hereunder. Pledgee
shall have no duty as to the collection or protection of the Collateral or any
income thereon nor any duty as to preservation of any rights pertaining thereto,
except to apply the funds in accordance with the requirements of Section 11
hereof. Pledgee may exercise its rights with respect to property held hereunder
without resort to other security for or sources of reimbursement for the
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Indebtedness. In addition to the foregoing, Pledgee shall have all of the
rights, remedies and privileges of a secured party under applicable law and the
Uniform Commercial Code of New York regardless of the jurisdiction in which
enforcement hereof is sought.
9. Registration.
If Pledgee shall exercise its right to sell all or any part of the
Collateral, and if, in the opinion of counsel for Pledgee, it is necessary to
have the Collateral being sold registered under the provisions of the Securities
Act of 1933, as amended (the "Securities Act"), each Pledgor will use its best
efforts to cause the Issuer to execute and deliver, and to cause the directors
and officers of the Issuer to execute and deliver, all at such Pledgor's
expense, all such instruments and documents and to do or cause to be done all
such other acts and things as may be necessary to register the Collateral being
sold under the provisions of the Securities Act. Each Pledgor shall cause any
such registration statement to become effective and to remain effective for a
period of one year from the date of the first public offering of the Collateral
being sold and to make all amendments thereto and to related documents which, in
the opinion of Pledgee or its counsel, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. Each
Pledgor shall also cause the Issuer to comply with the provisions of the "Blue
Sky" law of any jurisdiction which Pledgee shall designate in connection with
any sale hereunder; and to cause the Issuer to make available to its security
holders, as soon as practicable, an earnings statement (which need not be
audited) covering a period of at least twelve months but not more than eighteen
months, beginning with the first month after the effective date of any such
registration statement, which earnings statement will satisfy the provisions of
Section 11(a) of the Securities Act. Each Pledgor acknowledges that a breach of
any of the covenants contained in this Section may cause irreparable injury to
Pledgee, that Pledgee will have no adequate remedy at law with respect to such
breach and, as a consequence, such covenants of each Pledgor shall be
specifically enforceable against such Pledgor.
10. Private Sale.
Notwithstanding anything contained in Section 9, each Pledgor recognizes
that Pledgee may be unable to effect (or to do so only after delay which would
adversely affect the value that might be realized from the Collateral) a public
sale of all or part of the Collateral by reason of certain prohibitions
contained in the Securities Act, and may be compelled to resort to one or more
private sales to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. Each
Pledgor agrees that any such private sale may be at prices and on terms less
favorable to the seller than if sold at public sales and that such private sales
shall be deemed to have been made in a commercially reasonable manner. Each
Pledgor agrees that Pledgee has no obligation to delay sale of any Collateral
for the period of time necessary to permit the Issuer to register the Collateral
for public sale under the Securities Act.
11. Proceeds of Sale.
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The proceeds of any collection, recovery, receipt, appropriation,
realization, disposition or sale of the Collateral shall be applied by Pledgee
as follows:
(a) First, to the payment of all costs, expenses and charges of
Pledgee and to the reimbursement of Pledgee for the prior payment of such costs,
expenses and charges incurred in connection with the care and safekeeping of any
of the Collateral (including, without limitation, the expenses of any sale or
other proceeding, the expenses of any taking, attorneys' fees and expenses,
court costs, any other fees or expenses incurred or expenditures or advances
made by Pledgee in the protection, enforcement or exercise of its rights, powers
or remedies hereunder) with interest on any such reimbursement at the rate
prescribed in the Loan Agreement as the Default Rate from the date of payment.
(b) Second, to the payment of the Indebtedness, in whole or in part,
in such order as Pledgee may elect, whether such Indebtedness is then due or not
due.
(c) Third, to such Persons as required by applicable law including,
without limitation, Section 9-615(a)(3) of the Uniform Commercial Code.
(d) Fourth, to the extent of any surplus thereafter remaining, to
Pledgors or as a court of competent jurisdiction may direct.
In the event that the proceeds of any collection, recovery, receipt,
appropriation, realization or sale are insufficient to satisfy the Indebtedness,
each Pledgor shall be liable for the deficiency together with interest thereon
at the rate prescribed in the Loan Agreement as the Default Rate plus the costs
and fees of any attorneys employed by Pledgee to collect such deficiency.
Pledgee, in its sole and absolute discretion, with or without notice
to Pledgors, may deposit any proceeds of any collection, recovery, receipt,
appropriation, realization, disposition or sale of the Collateral in a
non-interest bearing cash collateral deposit account to be maintained as
security for the Indebtedness.
12. Waiver of Marshaling.
Each Pledgor hereby waives any right to compel any marshaling of any of
the Collateral.
13. Pledgee Appointed Attorney-In-Fact and Performance by Pledgee.
Upon the occurrence of an Event of Default, each Pledgor hereby
irrevocably constitutes and appoints Pledgee as such Pledgor's true and lawful
attorney-in-fact, with full power of substitution, to execute, acknowledge and
deliver any instruments and to do in each Pledgor's name, place and stead, all
such acts, things and deeds for and on behalf of and in the name of such
Pledgor, which such Pledgor could or might do or which Pledgee may deem
necessary, desirable or convenient to accomplish the purposes of this Agreement,
including, without limitation, to execute such instruments of assignment or
transfer or orders and to register, convey or otherwise transfer title to the
Collateral into Pledgee's name. Each Pledgor hereby ratifies and confirms all
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that said attorney-in-fact may so do and hereby declares this power of attorney
to be coupled with an interest and irrevocable. If any Pledgor fails to perform
any agreement herein contained, Pledgee may itself perform or cause performance
thereof, and any costs and expenses of Pledgee incurred in connection therewith
shall be paid by Pledgors as provided in Section 24 hereof.
14. Termination.
This Agreement shall terminate and Pledgors shall be entitled to the
return, at Pledgors' expense, of such of the Collateral as has not theretofore
been sold, disposed of or otherwise applied pursuant to this Agreement upon
payment in full of the Indebtedness and irrevocable termination of the Loan
Agreement.
15. Concerning Pledgee.
The recitals of fact herein shall be taken as statements of each Pledgor
for which Pledgee assumes no responsibility. Pledgee makes no representation to
anyone as to the value of the Collateral or any part thereof or as to the
validity or adequacy of the security afforded or intended to be afforded thereby
or as to the validity of this Agreement. Pledgee shall be protected in relying
upon any notice, consent, request or other paper or document believed by it to
be genuine and correct and to have been signed by a proper person. The
permissive rights of Pledgee hereunder shall not be construed as duties of
Pledgee. Pledgee shall be under no obligation to take any action toward the
enforcement of this Agreement or rights or remedies in respect of any of the
Collateral. Pledgee shall not be personally liable for any action taken or
omitted by it in good faith and reasonably believed by it to be within the power
or discretion conferred upon it by this Agreement.
16. Notices.
Any notice or other communication required or permitted pursuant to this
Agreement shall be deemed given (a) when personally delivered to any officer of
the party to whom it is addressed, (b) on the earlier of actual receipt thereof
or three (3) days following posting thereof by certified or registered mail,
postage prepaid, (c) upon actual receipt thereof when sent by a recognized
overnight delivery service or (d) upon actual receipt thereof when sent by
telecopier to the number set forth below with electronic confirmation of
receipt, in each case addressed to each party at its address or telecopier
number set forth below or at such other address or telecopier number as has been
furnished in writing by a party to the other by like notice:
If to Pledgee: Steel City Capital Funding LLC
1600 Market St., 31st Floor
Philadelphia, PA 19103
Attention: Thomas J. Bugieda, VP
Telephone: (215) 585-5369
Facsimile: (215) 585-4771
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with a copy to: Hahn & Hessen LLP
488 Madison Avenue
New York, NY 10022
Attention: Steven J. Seif, Esq.
Telephone: (212) 478-7370
Facsimile: (212) 478-7400
If to Pledgors: c/o Air Industries Machining, Corp.
1479 Clinton Ave.
Bay Shore, NY 11706
Attention: Louis Giusto, Vice Chairman & CFO
Telephone: (631) 968-5000
Facsimile: (631) 968-5377
with a copy to: Eaton & Van Winkle LLP
3 Park Ave., 16th Floor
New York, NY 10016
Attention: Vincent McGill, Esq.
Telephone: (212) 561-3604
Facsimile: (212) 779-9928
17. Governing Law.
This Agreement and all rights and obligations hereunder shall be governed
by and construed and enforced in all respects in accordance with the laws of the
State of New York applied to contracts to be performed wholly within the State
of New York.
18. Waivers.
(a) EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OTHER AGREEMENT EXECUTED
OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HERETO HEREBY AGREES
AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF EACH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
19. Litigation.
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EACH PLEDGOR EXPRESSLY CONSENTS TO THE JURISDICTION AND VENUE OF EACH
COURT OF COMPETENT JURISDICTION LOCATED IN THE STATE OF NEW YORK FOR ALL
PURPOSES IN CONNECTION WITH THIS AGREEMENT. ANY JUDICIAL PROCEEDING BY ANY
PLEDGOR AGAINST PLEDGEE INVOLVING, DIRECTLY OR INDIRECTLY ANY MATTER OR CLAIM IN
ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE
BROUGHT ONLY IN A STATE COURT LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW
YORK. EACH PLEDGOR FURTHER CONSENTS THAT ANY SUMMONS, SUBPOENA OR OTHER PROCESS
OR PAPERS (INCLUDING, WITHOUT LIMITATION, ANY NOTICE OR MOTION OR OTHER
APPLICATION TO EITHER OF THE AFOREMENTIONED COURTS OR A JUDGE THEREOF) OR ANY
NOTICE IN CONNECTION WITH ANY PROCEEDINGS HEREUNDER, MAY BE SERVED INSIDE OR
OUTSIDE OF THE STATE OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK BY
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY PERSONAL SERVICE
PROVIDED A REASONABLE TIME FOR APPEARANCE IS PERMITTED, OR IN SUCH OTHER MANNER
AS MAY BE PERMISSIBLE UNDER THE RULES OF SAID COURTS. EACH PLEDGOR WAIVES ANY
OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREON AND SHALL
NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON
FORUM NON CONVENIENS.
20. No Waiver; Cumulative Remedies.
Any and all of Pledgee's rights with respect to the Liens granted under
this Agreement shall continue unimpaired, and each Pledgor shall be and remain
obligated in accordance with the terms hereof, notwithstanding (a) the
bankruptcy, insolvency or reorganization of any Pledgor, (b) the release or
substitution of any item of the Collateral at any time, or of any rights or
interests therein, or (c) any delay, extension of time, renewal, compromise or
other indulgence granted by Pledgee in reference to any of the Indebtedness.
Each Pledgor hereby waives all notice of any such delay, extension, release,
substitution, renewal, compromise or other indulgence, and hereby consents to be
bound hereby as fully and effectively as if such Pledgor had expressly agreed
thereto in advance. No failure on the part of Pledgee to exercise, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any such right, power or
remedy by Pledgee preclude any other or further exercise thereof or the exercise
of any right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law.
21. Severability.
In case any security interest or other right of Pledgee shall be held to
be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability shall not affect any other security interest or other right,
privilege or power granted under this Agreement. In the event that any provision
of this Agreement or the application thereof to any Pledgor or any circumstance
in any jurisdiction governing this Agreement shall, to any extent, be invalid or
unenforceable under any applicable statute, regulation, or rule of law, such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform to such statute, regulation or
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rule of law, and the remainder of this Agreement and the application of any such
invalid or unenforceable provision to parties, jurisdictions, or circumstances
other than to whom or to which it is held invalid or unenforceable shall not be
affected thereby, nor shall same affect the validity or enforceability of any
other provision of this Agreement.
22. Counterparts; Facsimiles.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which when taken together shall
constitute one and the same instrument. Any signature delivered by a party by
facsimile transmission shall be deemed an original signature hereto.
23. Miscellaneous.
(a) This Agreement constitutes the entire and final agreement among
the parties with respect to the subject matter hereof and neither this Agreement
nor any term hereof may be changed, discharged or terminated orally, but only by
an instrument in writing, signed by Pledgee and Pledgors. No waiver of any term
or condition of this Agreement, whether by delay, omission or otherwise, shall
be effective unless in writing and signed by the party sought to be charged, and
then such waiver shall be effective only in the specific instance and for the
purpose for which given.
(b) This Agreement shall be binding upon each Pledgor, and such
Pledgor's successors and assigns, and shall inure to the benefit of Pledgee and
its successors and assigns. The term "Pledgee", as used herein, shall include
any successor or assign of Pledgee at the time entitled to the pledged interest
in the Collateral.
(c) The headings and captions in this Agreement are for purposes of
reference only and shall not constitute part of this Agreement for any other
purpose.
24. Expenses.
The Collateral shall also secure, and Pledgors shall pay to Pledgee on
demand, from time to time, all costs and expenses, (including but not limited
to, attorneys' fees and costs, taxes, and all transfer, recording, filing and
other charges) of, or incidental to, the custody, care, transfer, administration
of the Collateral or any other collateral, or in any way relating to the
enforcement, protection or preservation of the rights or remedies of Pledgee
under this Agreement or with respect to any of the Indebtedness.
25. Recapture
Anything in this Agreement to the contrary notwithstanding, if Pledgee
receives any payment or payments on account of the Indebtedness, which payment
or payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver, or any other party under the United States Bankruptcy Code, as
amended, or any other federal or state bankruptcy, reorganization, moratorium or
12
insolvency law relating to or affecting the enforcement of creditors' rights
generally, common law or equitable doctrine, then to the extent of any sum not
finally retained by Pledgee, each Pledgor's obligations to Pledgee shall be
reinstated and this Agreement shall remain in full force and effect (or be
reinstated) until payment shall have been made to Pledgee, which payment shall
be due on demand.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first written above.
AIR INDUSTRIES MACHINING, CORP.
By: /s/ Peter D. Rettaliata
---------------------------
Name: Peter D. Rettaliata
Its: President
SIGMA METALS, INC.
By: /s/ Peter D. Rettaliata
---------------------------
Name: Peter D. Rettaliata
Its: President
STEEL CITY CAPITAL FUNDING LLC
By: /s/ Kevin Madigan
---------------------------
Name: Kevin Madigan
Its: Managing Director
SCHEDULE A
PLEDGED STOCK
Stock Certificate Par Value Number of
Issuer Class of Stock Number Shares
Welding Metallurgy, Inc. Common 5 None 65
(issued to Air Industries
Machining, Corp.)
Welding Metallurgy, Inc. Common 6 None 35
(issued to Sigma Metals,
Inc.)
Exhibit 10.8
PLEDGE AGREEMENT
This Pledge Agreement (this "Agreement") dated as of August 24, 2007 by
and among John Gantt and Lugenia Gantt (collectively, the"Pledgees"), AIR
INDUSTRIES MACHINING CORP. ("Air"), a New York corporation, having an office at
1479 Clinton Avenue, Bay Shore, New York 11706, and SIGMA METALS, INC.
("Sigma"), a New York corporation, having an office at 45 Jefryn Boulevard, Deer
Park, New York 11729, (Sigma and Air each individually, a "Pledgor" and
collectively, the "Pledgors").
BACKGROUND TO THE AGREEMENT
Pledgors, WELDING METALLURGY, INC. (as successor by merger with WMS Merger
Corp.), a New York corporation ("the Issuer") and Steel City Capital Funding LLC
(the "Lender") have entered or are entering into a Term Loan and Security
Agreement dated as of the date hereof (as amended, modified, restated or
supplemented from time to time, the "Loan Agreement") pursuant to which the
Lender has agreed, subject to the terms and conditions contained therein, to
provide certain financial accommodations to Borrowers.
Pledgees, the former shareholders of the Issuer, sold all the outstanding
shares of the Issuer (the "WMI Shares") to WMS Merger Corp., of which the
Pledgors were the sole shareholders, pursuant to a Stock Purchase Agreement
dated as of March 9, 2007, as amended (the "Purchase Agreement") with Air
Industries Group, Inc,. (formerly Gales Industries Incorporated, referred to
herein as "AIG"), and AIG assigned its rights under the Purchase Agreement to
WMS Merger Corp.
Part of the consideration for the purchase of the WMI Shares consisted of
the 7% secured promissory note of AIG in the principal amount of $2,000,000 (the
"AIG Note"). Under the Purchase Agreement payment of the AIG Note is to be
secured by a pledge of the WMI Shares, which pledge is second, junior and
subordinate to Senior Indebtedness, as defined in the AIG Note. Amounts advanced
by Lender under the Loan Agreement constitute Senior Indebtedness.
Lender and Pledgees have entered into a Reliance and Intercreditor
Agreement dated as of August 24, 2007 (the "Reliance and Intercreditor
Agreement"), establishing their relative rights and the priorities in and to the
WMI Shares and the proceeds thereof.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Pledge and Grant of Security Interest.
To secure the full and punctual payment of the principal amount of, and
accrued interest on, the AIG Note (collectively, the "Indebtedness"), Pledgors
hereby pledge, assign, hypothecate, transfer and grant a security interest to
Pledgee in all of the following (the "Collateral"):
(a) the shares of stock set forth on Schedule A annexed hereto and
expressly made a part hereof (the "Pledged Stock"), the certificates
representing the Pledged Stock, and instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in exchange for
any or all of the Pledged Stock, but excluding cash dividends or other
distributions in respect of the Pledged Stock
(b) all additional shares of stock of any issuer of the Pledged
Stock (the "Issuer") from time to time acquired by the Pledgors in any manner,
including, without limitation, stock dividends or a distribution in connection
with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off or
split-off (which shares shall be deemed to be part of the Collateral), and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares; and
(c) all options and rights, whether as an addition to, in
substitution of or in exchange for any shares of the Pledged Stock.
2. Delivery of Collateral.
All certificates representing or evidencing the Pledged Stock shall be
delivered to and held by or on behalf of Pledgee pursuant hereto and shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to Pledgee. Pledgors hereby authorize the
Issuer upon demand by Pledgee to deliver any certificates, instruments or other
distributions issued in connection with the Collateral directly to Pledgee, in
each case to be held by Pledgee, subject to the terms hereof and the terms of
the Reliance and Intercreditor Agreement. Pledgee shall have the right, at any
time in its discretion and without notice to the Pledgors, to transfer to or to
register in the name of Pledgee or any of its nominees any or all of the Pledged
Stock. In addition, Pledgee shall have the right at any time to exchange
certificates or instruments representing or evidencing Pledged Stock for
certificates or instruments of smaller or larger denominations. Further, the
Pledgee is hereby authorized to file UCC-1 Financing Statements in connection
with the Pledgors pledge of the Collateral to Pledgee.
3. Representations and Warranties of Pledgors.
Each Pledgor represents and warrants to Pledgee (which representations and
warranties shall be deemed to continue to be made until all of the Indebtedness
has been paid in full) that:
(a) Each Pledgor has the requisite power and authority to enter into
this Agreement, to pledge the Collateral for the purposes described herein and
to carry out the transactions contemplated by this Agreement.
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(b) The execution, delivery and performance by each Pledgor of this
Agreement and the pledge of the Collateral hereunder have been duly and properly
authorized and do not and will not result in any violation of any agreement,
indenture, instrument, license, judgment, decree, order, law, statute, ordinance
or other governmental rule or regulation applicable to any Pledgor.
(c) This Agreement constitutes the legal, valid and binding
obligation of each Pledgor enforceable against such Pledgor in accordance with
its terms.
(d) Each Pledgor is the direct and beneficial owner of each share of
the Pledged Stock.
(e) All of the shares of the Pledged Stock have been duly
authorized, validly issued and are fully paid and nonassessable.
(f) Upon delivery of the Pledged Stock to Pledgee or an agent for
Pledgee, this Agreement creates and grants a valid first lien on and perfected
security interest in the Collateral and the proceeds thereof, subject to no
prior security interest, mortgage, pledge, claim, lien, charge, hypothecation,
assignment, offset or encumbrance whatsoever (collectively, "Liens") or to any
agreement purporting to grant to any third party a Lien upon the property or
assets of each Pledgor which would include the Collateral.
(g) There are no restrictions on transfer of the Pledged Stock
contained in the Certificate of Incorporation or by-laws of the Issuer or
otherwise which have not otherwise been enforceably and legally waived by the
necessary parties.
(h) None of the Pledged Stock has been issued or transferred in
violation of the securities registration, securities disclosure or similar laws
of any jurisdiction to which such issuance or transfer may be subject.
(i) There are no pending or, to the best of each Pledgor's
knowledge, threatened actions or proceedings before any court, judicial body,
administrative agency or arbitrator which may materially adversely affect the
Collateral.
(j) No consent, approval, authorization or other order of any
person, firm, corporation or other entity ("Person") and no consent,
authorization, approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required by any Pledgor either (i)
for the pledge of the Collateral pursuant to this Agreement or for the
execution, delivery or performance of this Agreement or (ii) for the exercise by
the Pledgee of the voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement, except as may
be required in connection with such disposition by laws affecting the offering
and sale of securities generally.
(k) No notification of the pledge evidenced hereby to any Person is
required.
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(l) The Pledged Stock constitutes one hundred percent (100%) of the
issued and outstanding shares of capital stock of the Issuers thereof set forth
on Schedule A annexed hereto.
(m) As of the date hereof, there are no existing options, warrants,
calls or commitments of any such character whatsoever relating to any Pledged
Stock and no indebtedness or other security convertible into any Pledged Stock.
The representations and warranties set forth in this Section 3 (other than
those contained in subsection (m)) shall survive the execution and delivery of
this Agreement.
4. Covenants.
Until such time as all of the Indebtedness has been paid in full,
each Pledgor shall:
(a) Not sell, assign, transfer, convey, or otherwise dispose of its
rights in or to the Collateral or any interest therein; nor create, incur or
permit to exist any Lien whatsoever with respect to any of the Collateral or the
proceeds thereof other than that created hereby.
(b) At each Pledgor's expense, defend Pledgee's right, title and
security interest in and to the Collateral against the claims of any Person and
keep the Collateral free from all Liens, except for the Liens granted to Pledgee
under this Agreement.
(c) At any time, and from time to time, upon the written request of
Pledgee, execute and deliver such further documents and do such further acts and
things as Pledgee may reasonably request in order to effect the purposes of this
Agreement including, but without limitation, delivering to Pledgee upon the
occurrence of an Event of Default irrevocable proxies in respect of the
Collateral in form satisfactory to Pledgee. Until receipt thereof, this
Agreement shall constitute each Pledgor's proxy to Pledgee or its nominee to
vote all shares of Collateral then registered in such Pledgor's name.
(d) Within two (2) Business Days of receipt thereof by each Pledgor,
deliver to Pledgee all notices and statements relating to the Collateral
received by such Pledgor.
(e) Not consent to or approve the issuance of (i) any additional
shares of any class of capital stock of the Issuer; (ii) any securities
convertible either voluntarily by the holder thereof or automatically upon the
occurrence or nonoccurrence of any event or condition into, or any securities
exchangeable for, any such shares; or (iii) any warrants, options, contracts or
other commitments entitling any person to purchase or otherwise acquire any such
shares.
(f) Not create, incur, assume or suffer to exist any Lien or other
encumbrance of any kind (including the charge on property purchased under
conditional sales or other title retention agreements) upon any property or
assets, whether now owned or hereafter acquired, except for liens incidental to
the conduct of any Pledgor's business or the ownership of its assets or
properties not incurred in connection with the borrowing of money or the
acquisition of any asset, and which in the aggregate do not materially detract
from such Pledgor's operations, property or financial condition.
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(g) Not convey, sell, lease, transfer or otherwise dispose of in one
or a series of related transactions, all or any substantial part of its
properties, businesses or assets.
5. Voting Rights and Dividends.
In addition to Pledgee's rights and remedies set forth in Section 8
hereof, in case an Event of Default shall have occurred and has been declared by
Pledgee and is continuing, Pledgee shall (i) vote the Collateral, (ii) be
entitled to give consents, waivers and ratifications in respect of the
Collateral (each Pledgor hereby irrevocably constituting and appointing Pledgee,
with full power of substitution, the proxy and attorney-in-fact of such Pledgor
for such purposes) and (iii) be entitled to collect and receive for its own use
cash dividends paid on the Collateral. No Pledgor shall be permitted to exercise
or refrain from exercising any voting rights or other powers if, in the
reasonable judgment of Pledgee, such action would have a material adverse effect
on the value of the Collateral or any part thereof; and, provided, further, that
each Pledgor shall give at least five (5) days' written notice of the manner in
which such Pledgor intends to exercise, or the reasons for refraining from
exercising, any voting rights or other powers other than with respect to any
election of directors and voting with respect to any incidental matters. All
dividends and all other distributions in respect of any of the Collateral,
whenever paid or made, shall be delivered to Pledgee to hold as Collateral and
shall, if received by any Pledgor, be received in trust for the benefit of
Pledgee, be segregated from the other property or funds of such Pledgor, and be
forthwith delivered to Pledgee as Collateral in the same form as so received
(with any necessary endorsement). Subject to the limitations set forth herein,
Pledgors shall have the right to exercise voting rights with respect to any
securities included in the Collateral.
6. Events of Default.
The term "Event of Default" wherever used herein shall mean the occurrence
of any one of the following events:
(a) An Event of Default shall occur under the Loan Agreement or any
Pledgor shall default in the payment of any Obligation (as that term is defined
in the Loan Agreement);
(b) Any Pledgor shall default in the performance of any of its
undertakings or obligations under any agreement between such Pledgor and
Pledgee, including, without limitation, this Agreement;
(c) Any representation, warranty, statement or covenant made or
furnished to Pledgee by or on behalf of any Pledgor proves to have been false in
any material respect when made or furnished or is breached, violated or not
complied with; or
(d) The Collateral is subjected to levy of execution, attachment,
distraint or other judicial process; or the Collateral is the subject of a claim
(other than by Pledgee) of a Lien or other right or interest in or to the
Collateral.
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(e) Any Pledgor shall (i) apply for, consent to, or suffer to exist
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or other fiduciary of itself or of all or a substantial part
of its property, (ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to, or fail to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of effecting any of
the foregoing
(f) An Event of Default shall occur under the AIG Note or any
Pledgor shall default in the payment of any obligation to the Pledgees. .
7. Remedies.
Upon the occurrence of an Event of Default, Pledgee may, subject to the
terms of the Reliance and Intercreditor Agreement:
(a) Demand, collect, receipt for, settle, compromise, adjust, sue
for, foreclose or realize upon the Collateral (or any part thereof), as Pledgee
may determine in its sole discretion;
(b) Transfer any or all of the Collateral into its name, or into the
name of its nominee or nominees;
(c) Exercise all rights with respect to the Collateral including,
without limitation, all rights of conversion, exchange, subscription or any
other rights, privileges or options pertaining to any shares of the Collateral
as if it were the absolute owner thereof, including, but without limitation, the
right to exchange, at its discretion, any or all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
the Issuer thereof, or upon the exercise by the Issuer of any right, privilege
or option pertaining to any of the Collateral, and, in connection therewith, to
deposit and deliver any and all of the Collateral with any committee,
depository, transfer agent, registrar or other designated agent upon such terms
and conditions as it may determine, all without liability except to account for
property actually received by it;
(d) Subject to the requirements of applicable law, sell, assign and
deliver the whole or, from time to time, any part of the Collateral at the time
held by Pledgee, at any private or public sale or auction, with or without
demand, advertisement or notice of the time or place of sale or adjournment
thereof or otherwise (all of which are hereby waived, except such notice as is
required by applicable law and cannot be waived), for cash or credit or for
other property for immediate or future delivery, and for such price or prices
and on such terms as Pledgee in its sole discretion may determine, or as may be
required by applicable law.
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Each Pledgor hereby waives and releases any and all right or equity of
redemption, whether before or after sale hereunder. At any such sale, unless
prohibited by applicable law, Pledgee may bid for and purchase the whole or any
part of the Collateral so sold free from any such right or equity of redemption.
All moneys received by Pledgee hereunder whether upon sale of the Collateral or
any part thereof or otherwise shall be held by Pledgee and applied by it as
provided in Section 10 hereof, subject to the terms of the Reliance and
Intercreditor Agreement. No failure or delay on the part of Pledgee in
exercising any rights hereunder shall operate as a waiver of any such rights nor
shall any single or partial exercise of any such rights preclude any other or
future exercise thereof or the exercise of any other rights hereunder. Pledgee
shall have no duty as to the collection or protection of the Collateral or any
income thereon nor any duty as to preservation of any rights pertaining thereto,
except to apply the funds in accordance with the requirements of Section 10
hereof, subject to the terms of the Reliance and Intercreditor Agreement.
Pledgee may exercise its rights with respect to property held hereunder without
resort to other security for or sources of reimbursement for the Indebtedness.
In addition to the foregoing, Pledgee shall have all of the rights, remedies and
privileges of a secured party under applicable law and the Uniform Commercial
Code of New York regardless of the jurisdiction in which enforcement hereof is
sought, subject to the terms of the Reliance and Intercreditor Agreement.
8. Registration.
If Pledgee shall exercise its right to sell all or any part of the
Collateral, and if, in the opinion of counsel for Pledgee, it is necessary to
have the Collateral being sold registered under the provisions of the Securities
Act of 1933, as amended (the "Securities Act"), each Pledgor will cause the
Issuer to execute and deliver, and to cause the directors and officers of the
Issuer to execute and deliver, all at such Pledgor's expense, all such
instruments and documents and to do or cause to be done all such other acts and
things as may be necessary to register the Collateral being sold under the
provisions of the Securities Act. Each Pledgor shall cause any such registration
statement to become effective and to remain effective for a period of one year
from the date of the first public offering of the Collateral being sold and to
make all amendments thereto and to related documents which, in the opinion of
Pledgee or its counsel, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. Each Pledgor shall also
cause the Issuer to comply with the provisions of the "Blue Sky" law of any
jurisdiction which Pledgee shall designate in connection with any sale
hereunder; and to cause the Issuer to make available to its security holders, as
soon as practicable, an earnings statement (which need not be audited) covering
a period of at least twelve months but not more than eighteen months, beginning
with the first month after the effective date of any such registration
statement, which earnings statement will satisfy the provisions of Section 11(a)
of the Securities Act. Each Pledgor acknowledges that a breach of any of the
covenants contained in this Section may cause irreparable injury to Pledgee,
that Pledgee will have no adequate remedy at law with respect to such breach
and, as a consequence, such covenants of each Pledgor shall be specifically
enforceable against such Pledgor.
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9. Private Sale.
Notwithstanding anything contained in Section 8, each Pledgor recognizes
that Pledgee may be unable to effect (or to do so only after delay which would
adversely affect the value that might be realized from the Collateral) a public
sale of all or part of the Collateral by reason of certain prohibitions
contained in the Securities Act, and may be compelled to resort to one or more
private sales to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. Each
Pledgor agrees that any such private sale may be at prices and on terms less
favorable to the seller than if sold at public sales and that such private sales
shall be deemed to have been made in a commercially reasonable manner. Each
Pledgor agrees that Pledgee has no obligation to delay sale of any Collateral
for the period of time necessary to permit the Issuer to register the Collateral
for public sale under the Securities Act.
10. Proceeds of Sale.
Subject to the terms of the Reliance and Intercreditor Agreement, the
proceeds of any collection, recovery, receipt, appropriation, realization,
disposition or sale of the Collateral shall be applied by Pledgee as follows:
(a) First, to the payment of all costs, expenses and charges of
Pledgee and to the reimbursement of Pledgee for the prior payment of such costs,
expenses and charges incurred in connection with the care and safekeeping of any
of the Collateral (including, without limitation, the expenses of any sale or
other proceeding, the expenses of any taking, attorneys' fees and expenses,
court costs, any other fees or expenses incurred or expenditures or advances
made by Pledgee in the protection, enforcement or exercise of its rights, powers
or remedies hereunder).
(b) Second, to the payment of the Indebtedness, in whole or in part,
in such order as Pledgee may elect, whether such Indebtedness is then due or not
due.
(c) Third, to such Persons as required by applicable law including,
without limitation, Section 9-615(a)(3) of the Uniform Commercial Code.
(d) Fourth, to the extent of any surplus thereafter remaining, to
Pledgors or as a court of competent jurisdiction may direct.
In the event that the proceeds of any collection, recovery, receipt,
appropriation, realization or sale are insufficient to satisfy the Indebtedness,
each Pledgor shall be liable for the deficiency together with interest thereon
at the rate prescribed in AIG Note, plus the costs and fees of any attorneys
employed by Pledgee to collect such deficiency.
Pledgee, in its sole and absolute discretion, with or without notice
to Pledgors, may deposit any proceeds of any collection, recovery, receipt,
appropriation, realization, disposition or sale of the Collateral in a
non-interest bearing cash collateral deposit account to be maintained as
security for the Indebtedness.
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11. Waiver of Marshaling.
Each Pledgor hereby waives any right to compel any marshaling of any of
the Collateral.
12. Pledgee Appointed Attorney-In-Fact and Performance by Pledgee.
Upon the occurrence of an Event of Default, each Pledgor hereby
irrevocably constitutes and appoints Pledgee as such Pledgor's true and lawful
attorney-in-fact, with full power of substitution, to execute, acknowledge and
deliver any instruments and to do in each Pledgor's name, place and stead, all
such acts, things and deeds for and on behalf of and in the name of such
Pledgor, which such Pledgor could or might do or which Pledgee may deem
necessary, desirable or convenient to accomplish the purposes of this Agreement,
including, without limitation, to execute such instruments of assignment or
transfer or orders and to register, convey or otherwise transfer title to the
Collateral into Pledgee's name. Each Pledgor hereby ratifies and confirms all
that said attorney-in-fact may so do and hereby declares this power of attorney
to be coupled with an interest and irrevocable. If any Pledgor fails to perform
any agreement herein contained, Pledgee may itself perform or cause performance
thereof, and any costs and expenses of Pledgee incurred in connection therewith
shall be paid by Pledgors as provided in Section 23 hereof.
13. Termination.
This Agreement shall terminate and Pledgors shall be entitled to the
return, at Pledgors' expense, of such of the Collateral as has not theretofore
been sold, disposed of or otherwise applied pursuant to this Agreement upon
payment in full of the Indebtedness.
14. Concerning Pledgee.
The recitals of fact herein shall be taken as statements of each Pledgor
for which Pledgee assumes no responsibility. Pledgee makes no representation to
anyone as to the value of the Collateral or any part thereof or as to the
validity or adequacy of the security afforded or intended to be afforded thereby
or as to the validity of this Agreement. Pledgee shall be protected in relying
upon any notice, consent, request or other paper or document believed by it to
be genuine and correct and to have been signed by a proper person. The
permissive rights of Pledgee hereunder shall not be construed as duties of
Pledgee. Pledgee shall be under no obligation to take any action toward the
enforcement of this Agreement or rights or remedies in respect of any of the
Collateral. Pledgee shall not be personally liable for any action taken or
omitted by it in good faith and reasonably believed by it to be within the power
or discretion conferred upon it by this Agreement.
15. Notices.
Any notice or other communication required or permitted pursuant to this
Agreement shall be deemed given (a) when personally delivered to any officer of
the party to whom it is addressed, (b) on the earlier of actual receipt thereof
or three (3) days following posting thereof by certified or registered mail,
postage prepaid, (c) upon actual receipt thereof when sent by a recognized
overnight delivery service or (d) upon actual receipt thereof when sent by
9
telecopier to the number set forth below with electronic confirmation of
receipt, in each case addressed to each party at its address or telecopier
number set forth below or at such other address or telecopier number as has been
furnished in writing by a party to the other by like notice:
If to Pledgees: 183 Montecito Crescent
Melville, New York 11747
Telephone: (631) 367-0150
Facsimile: (631) 367-0150
with a copy to:
Adam P. Silvers, Esq.
Ruskin Moscou Faltischek, P.C.
1425 RexCorp Plaza
Uniondale, New York 11556
Telephone: (516) 663-6519
Facsimile: (516) 663-6719
If to Pledgors: c/o Air Industries Machining, Corp.
1479 Clinton Ave.
Bay Shore, NY 11706
Attention: Louis Giusto, Vice Chairman & CFO
Telephone: (631) 968-5000
Facsimile: (631) 968-5377
with a copy to: Eaton & Van Winkle LLP
3 Park Ave., 16th Floor
New York, NY 10016
Attention: Vincent McGill, Esq.
Telephone: (212) 561-3604
Facsimile: (212) 779-9928
16. Governing Law.
This Agreement and all rights and obligations hereunder shall be governed
by and construed and enforced in all respects in accordance with the laws of the
State of New York applied to contracts to be performed wholly within the State
of New York.
17. Waivers.
(a) EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OTHER AGREEMENT EXECUTED
OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HERETO HEREBY AGREES
AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF EACH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
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18. Litigation.
EACH PLEDGOR EXPRESSLY CONSENTS TO THE JURISDICTION AND VENUE OF EACH
COURT OF COMPETENT JURISDICTION LOCATED IN THE STATE OF NEW YORK FOR ALL
PURPOSES IN CONNECTION WITH THIS AGREEMENT. ANY JUDICIAL PROCEEDING BY ANY
PLEDGOR AGAINST PLEDGEE INVOLVING, DIRECTLY OR INDIRECTLY ANY MATTER OR CLAIM IN
ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE
BROUGHT ONLY IN A STATE COURT LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW
YORK. EACH PLEDGOR FURTHER CONSENTS THAT ANY SUMMONS, SUBPOENA OR OTHER PROCESS
OR PAPERS (INCLUDING, WITHOUT LIMITATION, ANY NOTICE OR MOTION OR OTHER
APPLICATION TO EITHER OF THE AFOREMENTIONED COURTS OR A JUDGE THEREOF) OR ANY
NOTICE IN CONNECTION WITH ANY PROCEEDINGS HEREUNDER, MAY BE SERVED INSIDE OR
OUTSIDE OF THE STATE OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK BY
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY PERSONAL SERVICE
PROVIDED A REASONABLE TIME FOR APPEARANCE IS PERMITTED, OR IN SUCH OTHER MANNER
AS MAY BE PERMISSIBLE UNDER THE RULES OF SAID COURTS. EACH PLEDGOR WAIVES ANY
OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREON AND SHALL
NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON
FORUM NON CONVENIENS.
19. No Waiver; Cumulative Remedies.
Any and all of Pledgee's rights with respect to the Liens granted under
this Agreement shall continue unimpaired, and each Pledgor shall be and remain
obligated in accordance with the terms hereof, notwithstanding (a) the
bankruptcy, insolvency or reorganization of any Pledgor, (b) the release or
substitution of any item of the Collateral at any time, or of any rights or
interests therein, or (c) any delay, extension of time, renewal, compromise or
other indulgence granted by Pledgee in reference to any of the Indebtedness.
Each Pledgor hereby waives all notice of any such delay, extension, release,
substitution, renewal, compromise or other indulgence, and hereby consents to be
bound hereby as fully and effectively as if such Pledgor had expressly agreed
thereto in advance. No failure on the part of Pledgee to exercise, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any such right, power or
remedy by Pledgee preclude any other or further exercise thereof or the exercise
of any right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law.
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20. Severability.
In case any security interest or other right of Pledgee shall be held to
be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability shall not affect any other security interest or other right,
privilege or power granted under this Agreement. In the event that any provision
of this Agreement or the application thereof to any Pledgor or any circumstance
in any jurisdiction governing this Agreement shall, to any extent, be invalid or
unenforceable under any applicable statute, regulation, or rule of law, such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform to such statute, regulation or
rule of law, and the remainder of this Agreement and the application of any such
invalid or unenforceable provision to parties, jurisdictions, or circumstances
other than to whom or to which it is held invalid or unenforceable shall not be
affected thereby, nor shall same affect the validity or enforceability of any
other provision of this Agreement.
21. Counterparts; Facsimiles.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which when taken together shall
constitute one and the same instrument. Any signature delivered by a party by
facsimile transmission shall be deemed an original signature hereto.
22. Miscellaneous.
(a) This Agreement constitutes the entire and final agreement among
the parties with respect to the subject matter hereof and neither this Agreement
nor any term hereof may be changed, discharged or terminated orally, but only by
an instrument in writing, signed by Pledgee and Pledgors. No waiver of any term
or condition of this Agreement, whether by delay, omission or otherwise, shall
be effective unless in writing and signed by the party sought to be charged, and
then such waiver shall be effective only in the specific instance and for the
purpose for which given.
(b) This Agreement shall be binding upon each Pledgor, and such
Pledgor's successors and assigns, and shall inure to the benefit of Pledgee and
its successors and assigns. The term "Pledgee", as used herein, shall include
any successor or assign of Pledgee at the time entitled to the pledged interest
in the Collateral.
(c) The headings and captions in this Agreement are for purposes of
reference only and shall not constitute part of this Agreement for any other
purpose.
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23. Expenses.
The Collateral shall also secure, and Pledgors shall pay to Pledgee on
demand, from time to time, all costs and expenses, (including but not limited
to, attorneys' fees and costs, taxes, and all transfer, recording, filing and
other charges) of, or incidental to, the custody, care, transfer, administration
of the Collateral or any other collateral, or in any way relating to the
enforcement, protection or preservation of the rights or remedies of Pledgee
under this Agreement or with respect to any of the Indebtedness.
24. Recapture
Anything in this Agreement to the contrary notwithstanding, if Pledgee
receives any payment or payments on account of the Indebtedness, which payment
or payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver, or any other party under the United States Bankruptcy Code, as
amended, or any other federal or state bankruptcy, reorganization, moratorium or
insolvency law relating to or affecting the enforcement of creditors' rights
generally, common law or equitable doctrine, then to the extent of any sum not
finally retained by Pledgee, each Pledgor's obligations to Pledgee shall be
reinstated and this Agreement shall remain in full force and effect (or be
reinstated) until payment shall have been made to Pledgee, which payment shall
be due on demand.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first written above.
AIR INDUSTRIES MACHINING, CORP.
By: /s/Peter D. Rettaliata
------------------------------
Name: Peter D. Rettaliata
Title: President
SIGMA METALS, INC.
By /s/Peter D. Rettaliata_
------------------------------
Name: Peter D. Rettaliata
Title: President
/s/ John Gantt
----------------------------------
John Gantt
/s/ Lugenia Gantt
----------------------------------
Lugenia Gantt
SCHEDULE A
PLEDGED STOCK
Stock Certificate Par Value Number of
Issuer Class of Stock Number Shares
Welding Metallurgy, Inc. Common 5 None 65
(issued to Air Industries Machining, Corp.)
Welding Metallurgy, Inc. Common 6 None 35
(issued to Sigma Metals, Inc.)
Exhibit 10.9
PLEDGE AGREEMENT
This Pledge Agreement (this "Agreement") dated as of the date hereof
between STEEL CITY CAPITAL FUNDING LLC, having an office at 1600 Market Street,
31st Floor, Philadelphia, PA 19103, ("Pledgee") and AIR INDUSTRIES GROUP, INC.
(f/k/a Gales Industries Inc.), a Delaware corporation, having an office at 1479
Clinton Avenue, Bay Shore, New York 11706, ("Pledgor").
BACKGROUND TO THE AGREEMENT
Pledgor has executed and delivered to Pledgee a Guaranty and Suretyship
Agreement dated as of the date hereof (as amended, modified, restated or
supplemented from time to time, the "Guaranty and Suretyship Agreement")
pursuant to which Pledgor guaranteed to Pledgee the payment and performance of
all of the obligations and indebtedness of AIR INDUSTRIES MACHINING, CORP., a
New York corporation ("Air"), SIGMA METALS, INC., a New York corporation
("Sigma"), and WELDING METALLURGY, INC, a New York corporation ("WMI"; and
together with Air and Sigma, collectively, the "Borrowers") to Pledgee under a
Term Loan and Security Agreement dated as of the date hereof among Pledgee and
Borrowers (as amended, modified, restated or supplemented from time to time, the
"Loan Agreement").
In order to induce Pledgee to provide or continue to provide the financial
accommodations to Borrowers described in the Loan Agreement, and to secure
Pledgor's obligations to Pledgee under the Guaranty and Suretyship Agreement,
Pledgor has agreed to pledge and grant a security interest to Pledgee in the
Collateral (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
All capitalized terms used herein which are not defined shall have the
meanings given to them in the Loan Agreement.
2. Pledge and Grant of Security Interest.
To secure the full and punctual payment and performance of the (a)
Obligations and the obligations and liabilities of Pledgor to Pledgee under the
Guaranty and Suretyship Agreement and (b) all other indebtedness, obligations
and liabilities of Borrowers and Pledgor to Pledgee whether now existing or
hereafter arising, direct or indirect, liquidated or unliquidated, absolute or
contingent, due or not due and whether under, pursuant to or evidenced by a
note, agreement, guaranty, instrument or otherwise ((a) and (b) collectively,
the "Indebtedness"), Pledgor hereby pledges, assigns, hypothecates, transfers
and grants a security interest to Pledgee in all of the following (the
"Collateral"):
(a) the shares of stock set forth on Schedule A annexed hereto and
expressly made a part hereof (the "Pledged Stock"), the certificates
representing the Pledged Stock and all dividends, cash, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged Stock;
(b) all additional shares of stock of any issuer of the Pledged
Stock (the "Issuer") from time to time acquired by the Pledgor in any manner,
including, without limitation, stock dividends or a distribution in connection
with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off or
split-off (which shares shall be deemed to be part of the Collateral), and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares; and
(c) all options and rights, whether as an addition to, in
substitution of or in exchange for any shares of the Pledged Stock.
The security interest granted by Pledgor to Pledgee in the Pledged Stock
hereunder shall be subordinate only as follows: (a) in respect of the Pledged
Stock of Air, only to the security interest granted by Pledgor in favor of Luis
Peragallo ("Peragallo"), pursuant to (i) that certain Subordinated Secured
Promissory Note dated November 30, 2005 by Pledgor in favor of Peragallo in the
original principal amount of $962,000.00, and (ii) that certain Security
Agreement dated November 30, 2005 between Pledgor and Peragallo (collectively,
the "Peragallo Security Documents"); and (b) in respect of the Pledged Stock of
Sigma, only to the security interest granted by Pledgor (i) in favor of Carole
Tate ("Tate") pursuant to that certain Promissory Note dated April 12, 2007 by
Pledgor in favor of Tate in the original principal amount of $528,553.00, (ii)
in favor of George Elkins ("Elkins") pursuant to that certain Promissory Note
dated April 12, 2007 by Pledgor in favor of Elkins in the original principal
amount of $528,553.00, (iii) in favor of George Coonan ("Coonan"; together with
Tate and Elkins, collectively, the "Sigma Secured Parties") pursuant to that
certain Promissory Note dated April 12, 2007 by Pledgor in favor of Coonan in
the original principal amount of $27,107.00, and (iv) pursuant to that certain
Pledge Agreement dated as of April 12, 2007 among Sigma Secured Parties and
Pledgor (collectively, the "Sigma Security Documents").
3. Delivery of Collateral.
Within two (2) Business Days of payment in full of all obligations owing
to Peragallo or Sigma Secured Parties, Pledgor shall deliver or cause to be
delivered to Pledgee all certificates representing or evidencing the Pledged
Stock of Air or Sigma, respectively, and such certificates shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Pledgee. Pledgor hereby authorizes the Issuer upon
demand by Pledgee to deliver any certificates, instruments or other
distributions issued in connection with the Collateral directly to Pledgee, in
each case to be held by Pledgee, subject to the terms hereof. Following delivery
of the certificates representing or evidencing the Pledged Stock, Pledgee shall
2
have the right, at any time in its discretion and without notice to the Pledgor,
to transfer to or to register in the name of Pledgee or any of its nominees any
or all of the Pledged Stock. In addition, following the delivery of such
certificates, Pledgee shall have the right at any time to exchange certificates
or instruments representing or evidencing Pledged Stock for certificates or
instruments of smaller or larger denominations.
4. Representations and Warranties of Pledgor.
Pledgor represents and warrants to Pledgee (which representations and
warranties shall be deemed to continue to be made until all of the Indebtedness
has been paid in full and the Guaranty and Suretyship Agreement has been
irrevocably terminated) that:
(a) Pledgor has the requisite power and authority to enter into this
Agreement, to pledge the Collateral for the purposes described herein and to
carry out the transactions contemplated by this Agreement.
(b) The execution, delivery and performance by Pledgor of this
Agreement and the pledge of the Collateral hereunder have been duly and properly
authorized and do not and will not result in any violation of any agreement,
indenture, instrument, license, judgment, decree, order, law, statute, ordinance
or other governmental rule or regulation applicable to Pledgor.
(c) This Agreement constitutes the legal, valid and binding
obligation of Pledgor enforceable against Pledgor in accordance with its terms.
(d) Pledgor is the direct and beneficial owner of each share of the
Pledged Stock.
(e) All of the shares of the Pledged Stock have been duly
authorized, validly issued and are fully paid and nonassessable.
(f) Upon delivery of the Pledged Stock to Pledgee or an agent for
Pledgee, this Agreement creates and grants a valid first lien on and perfected
security interest in the Collateral and the proceeds thereof, subject to no
prior security interest, mortgage, pledge, claim, lien, charge, hypothecation,
assignment, offset or encumbrance whatsoever (collectively, "Liens") or to any
agreement purporting to grant to any third party a Lien upon the property or
assets of Pledgor which would include the Collateral.
(g) There are no restrictions on transfer of the Pledged Stock
contained in the Certificate of Incorporation or by-laws of the Issuer or
otherwise which have not otherwise been enforceably and legally waived by the
necessary parties.
(h) None of the Pledged Stock has been issued or transferred in
violation of the securities registration, securities disclosure or similar laws
of any jurisdiction to which such issuance or transfer may be subject.
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(i) There are no pending or, to the best of Pledgor's knowledge,
threatened actions or proceedings before any court, judicial body,
administrative agency or arbitrator which may materially adversely affect the
Collateral.
(j) No consent, approval, authorization or other order of any
person, firm, corporation or other entity ("Person") and no consent,
authorization, approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required by the Pledgor either (i)
for the pledge of the Collateral pursuant to this Agreement or for the
execution, delivery or performance of this Agreement or (ii) for the exercise by
the Pledgee of the voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement, except as may
be required in connection with such disposition by laws affecting the offering
and sale of securities generally.
(k) No notification of the pledge evidenced hereby to any Person is
required.
(l) The Pledged Stock constitutes one hundred percent (100%) of the
issued and outstanding shares of capital stock of the Issuers thereof set forth
on Schedule A annexed hereto.
(m) As of the date hereof, there are no existing options, warrants,
calls or commitments of any such character whatsoever relating to any Pledged
Stock and no indebtedness or other security convertible into any Pledged Stock.
The representations and warranties set forth in this Section 4 (other than
those contained in subsection (m)) shall survive the execution and delivery of
this Agreement.
5. Covenants.
Until such time as all of the Indebtedness has been paid in full and
the Guaranty and Suretyship Agreement has been irrevocably terminated, Pledgor
shall:
(a) Not sell, assign, transfer, convey, or otherwise dispose of its
rights in or to the Collateral or any interest therein; nor create, incur or
permit to exist any Lien whatsoever with respect to any of the Collateral or the
proceeds thereof other than that created hereby.
(b) At Pledgor's expense, defend Pledgee's right, title and security
interest in and to the Collateral against the claims of any Person and keep the
Collateral free from all Liens, except for (i) the Liens granted to Peragallo
under the Peragallo Security Documents, (ii) the Liens granted to Sigma Secured
Parties under the Sigma Security Documents, and (iii) the Liens granted to
Pledgee under this Agreement.
(c) At any time, and from time to time, upon the written request of
Pledgee, execute and deliver such further documents and do such further acts and
things as Pledgee may reasonably request in order to effect the purposes of this
Agreement including, but without limitation, delivering to Pledgee upon the
occurrence of an Event of Default irrevocable proxies in respect of the
Collateral in form satisfactory to Pledgee. Until receipt thereof, this
Agreement shall constitute Pledgor's proxy to Pledgee or its nominee to vote all
shares of Collateral then registered in Pledgor's name.
4
(d) Within two (2) Business Days of receipt thereof by Pledgor,
deliver to Pledgee all notices and statements relating to the Collateral
received by Pledgor.
(e) Not consent to or approve the issuance of (i) any additional
shares of any class of capital stock of the Issuer; (ii) any securities
convertible either voluntarily by the holder thereof or automatically upon the
occurrence or nonoccurrence of any event or condition into, or any securities
exchangeable for, any such shares; or (iii) any warrants, options, contracts or
other commitments entitling any person to purchase or otherwise acquire any such
shares.
(f) Not create, incur, assume or suffer to exist any Lien or other
encumbrance of any kind (including the charge on property purchased under
conditional sales or other title retention agreements) upon any property or
assets, whether now owned or hereafter acquired, except for liens incidental to
the conduct of Pledgor's business or the ownership of its assets or properties
not incurred in connection with the borrowing of money or the acquisition of any
asset, and which in the aggregate do not materially detract from Pledgor's
operations, property or financial condition.
(g) Not convey, sell, lease, transfer or otherwise dispose of in one
or a series of related transactions, all or any substantial part of its
property, business or assets.
6. Voting Rights and Dividends.
In addition to Pledgee's rights and remedies set forth in Section 8
hereof, in case an Event of Default shall have occurred and has been declared by
Pledgee, Pledgee shall (i) vote the Collateral, (ii) be entitled to give
consents, waivers and ratifications in respect of the Collateral (Pledgor hereby
irrevocably constituting and appointing Pledgee, with full power of
substitution, the proxy and attorney-in-fact of Pledgor for such purposes) and
(iii) be entitled to collect and receive for its own use cash dividends paid on
the Collateral. Pledgor shall not be permitted to exercise or refrain from
exercising any voting rights or other powers if, in the reasonable judgment of
Pledgee, such action would have a material adverse effect on the value of the
Collateral or any part thereof; and, provided, further, that Pledgor shall give
at least five (5) days' written notice of the manner in which Pledgor intends to
exercise, or the reasons for refraining from exercising, any voting rights or
other powers other than with respect to any election of directors and voting
with respect to any incidental matters. All dividends and all other
distributions in respect of any of the Collateral, whenever paid or made, shall
be delivered to Pledgee to hold as Collateral and shall, if received by the
Pledgor, be received in trust for the benefit of Pledgee, be segregated from the
other property or funds of the Pledgor, and be forthwith delivered to Pledgee as
Collateral in the same form as so received (with any necessary endorsement).
7. Events of Default.
5
The term "Event of Default" wherever used herein shall mean the occurrence
of any one of the following events:
(a) An Event of Default shall occur under the Loan Agreement or
Pledgor or the Issuer shall default in the payment of any Obligation or any
default shall have occurred under the Guaranty and Suretyship Agreement;
(b) Pledgor shall default in the performance of any of its
undertakings or obligations under any agreement between Pledgor and Pledgee,
including, without limitation, this Agreement;
(c) Any representation, warranty, statement or covenant made or
furnished to Pledgee by or on behalf of Pledgor proves to have been false in any
material respect when made or furnished or is breached, violated or not complied
with; or
(d) The Collateral is subjected to levy of execution, attachment,
distraint or other judicial process; or the Collateral is the subject of a claim
(other than by Pledgee) of a Lien or other right or interest in or to the
Collateral.
(e) Pledgor or any Borrower shall (i) apply for, consent to, or
suffer to exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or other fiduciary of itself or of all or a
substantial part of its property, (ii) make a general assignment for the benefit
of creditors, (iii) commence a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt
or insolvent, (v) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vi) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (vii) take any action for the
purpose of effecting any of the foregoing.
8. Remedies.
Upon the occurrence of an Event of Default, Pledgee may:
(a) Demand, collect, receipt for, settle, compromise, adjust, sue
for, foreclose or realize upon the Collateral (or any part thereof), as Pledgee
may determine in its sole discretion;
(b) Transfer any or all of the Collateral into its name, or into the
name of its nominee or nominees;
(c) Exercise all rights with respect to the Collateral including,
without limitation, all rights of conversion, exchange, subscription or any
other rights, privileges or options pertaining to any shares of the Collateral
as if it were the absolute owner thereof, including, but without limitation, the
right to exchange, at its discretion, any or all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
the Issuer thereof, or upon the exercise by the Issuer of any right, privilege
6
or option pertaining to any of the Collateral, and, in connection therewith, to
deposit and deliver any and all of the Collateral with any committee,
depository, transfer agent, registrar or other designated agent upon such terms
and conditions as it may determine, all without liability except to account for
property actually received by it;
(d) Subject to the requirements of applicable law, sell, assign and
deliver the whole or, from time to time, any part of the Collateral at the time
held by Pledgee, at any private or public sale or auction, with or without
demand, advertisement or notice of the time or place of sale or adjournment
thereof or otherwise (all of which are hereby waived, except such notice as is
required by applicable law and cannot be waived), for cash or credit or for
other property for immediate or future delivery, and for such price or prices
and on such terms as Pledgee in its sole discretion may determine, or as may be
required by applicable law.
Pledgor hereby waives and releases any and all right or equity of
redemption, whether before or after sale hereunder. At any such sale, unless
prohibited by applicable law, Pledgee may bid for and purchase the whole or any
part of the Collateral so sold free from any such right or equity of redemption.
All moneys received by Pledgee hereunder whether upon sale of the Collateral or
any part thereof or otherwise shall be held by Pledgee and applied by it as
provided in Section 11 hereof. No failure or delay on the part of Pledgee in
exercising any rights hereunder shall operate as a waiver of any such rights nor
shall any single or partial exercise of any such rights preclude any other or
future exercise thereof or the exercise of any other rights hereunder. Pledgee
shall have no duty as to the collection or protection of the Collateral or any
income thereon nor any duty as to preservation of any rights pertaining thereto,
except to apply the funds in accordance with the requirements of Section 11
hereof. Pledgee may exercise its rights with respect to property held hereunder
without resort to other security for or sources of reimbursement for the
Indebtedness. In addition to the foregoing, Pledgee shall have all of the
rights, remedies and privileges of a secured party under applicable law and the
Uniform Commercial Code of New York regardless of the jurisdiction in which
enforcement hereof is sought.
9. Registration.
If Pledgee shall exercise its right to sell all or any part of the
Collateral, and if, in the opinion of counsel for Pledgee, it is necessary to
have the Collateral being sold registered under the provisions of the Securities
Act of 1933, as amended (the "Securities Act"), Pledgor will use its best
efforts to cause the Issuer to execute and deliver, and to cause the directors
and officers of the Issuer to execute and deliver, all at Pledgor's expense, all
such instruments and documents and to do or cause to be done all such other acts
and things as may be necessary to register the Collateral being sold under the
provisions of the Securities Act. Pledgor shall cause any such registration
statement to become effective and to remain effective for a period of one year
from the date of the first public offering of the Collateral being sold and to
make all amendments thereto and to related documents which, in the opinion of
Pledgee or its counsel, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. Pledgor shall also cause
the Issuer to comply with the provisions of the "Blue Sky" law of any
jurisdiction which Pledgee shall designate in connection with any sale
hereunder; and to cause the Issuer to make available to its security holders, as
7
soon as practicable, an earnings statement (which need not be audited) covering
a period of at least twelve months but not more than eighteen months, beginning
with the first month after the effective date of any such registration
statement, which earnings statement will satisfy the provisions of Section 11(a)
of the Securities Act. Pledgor acknowledges that a breach of any of the
covenants contained in this Section may cause irreparable injury to Pledgee,
that Pledgee will have no adequate remedy at law with respect to such breach
and, as a consequence, such covenants of Pledgor shall be specifically
enforceable against Pledgor.
10. Private Sale.
Notwithstanding anything contained in Section 9, Pledgor recognizes that
Pledgee may be unable to effect (or to do so only after delay which would
adversely affect the value that might be realized from the Collateral) a public
sale of all or part of the Collateral by reason of certain prohibitions
contained in the Securities Act, and may be compelled to resort to one or more
private sales to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. Pledgor
agrees that any such private sale may be at prices and on terms less favorable
to the seller than if sold at public sales and that such private sales shall be
deemed to have been made in a commercially reasonable manner. Pledgor agrees
that Pledgee has no obligation to delay sale of any Collateral for the period of
time necessary to permit the Issuer to register the Collateral for public sale
under the Securities Act.
11. Proceeds of Sale.
The proceeds of any collection, recovery, receipt, appropriation,
realization, disposition or sale of the Collateral shall be applied by Pledgee
as follows:
(a) First, to the payment of all costs, expenses and charges of
Pledgee and to the reimbursement of Pledgee for the prior payment of such costs,
expenses and charges incurred in connection with the care and safekeeping of any
of the Collateral (including, without limitation, the expenses of any sale or
other proceeding, the expenses of any taking, attorneys' fees and expenses,
court costs, any other fees or expenses incurred or expenditures or advances
made by Pledgee in the protection, enforcement or exercise of its rights, powers
or remedies hereunder) with interest on any such reimbursement at the rate
prescribed in the Loan Agreement as the Default Rate from the date of payment.
(b) Second, to the payment of the Indebtedness, in whole or in part,
in such order as Pledgee may elect, whether such Indebtedness is then due or not
due.
(c) Third, to such Persons as required by applicable law including,
without limitation, Section 9-615(a)(3) of the Uniform Commercial Code.
(d) Fourth, to the extent of any surplus thereafter remaining, to
Pledgor or as a court of competent jurisdiction may direct.
8
In the event that the proceeds of any collection, recovery, receipt,
appropriation, realization or sale are insufficient to satisfy the Indebtedness,
Pledgor shall be liable for the deficiency together with interest thereon at the
rate prescribed in the Loan Agreement as the Default Rate plus the costs and
fees of any attorneys employed by Pledgee to collect such deficiency.
Pledgee, in its sole and absolute discretion, with or without notice
to Pledgor, may deposit any proceeds of any collection, recovery, receipt,
appropriation, realization, disposition or sale of the Collateral in a
non-interest bearing cash collateral deposit account to be maintained as
security for the Indebtedness.
12. Waiver of Marshaling.
Pledgor hereby waives any right to compel any marshaling of any of the
Collateral.
13. Pledgee Appointed Attorney-In-Fact and Performance by Pledgee.
Upon the occurrence of an Event of Default, Pledgor hereby irrevocably
constitutes and appoints Pledgee as Pledgor's true and lawful attorney-in-fact,
with full power of substitution, to execute, acknowledge and deliver any
instruments and to do in Pledgor's name, place and stead, all such acts, things
and deeds for and on behalf of and in the name of Pledgor, which Pledgor could
or might do or which Pledgee may deem necessary, desirable or convenient to
accomplish the purposes of this Agreement, including, without limitation, to
execute such instruments of assignment or transfer or orders and to register,
convey or otherwise transfer title to the Collateral into Pledgee's name.
Pledgor hereby ratifies and confirms all that said attorney-in-fact may so do
and hereby declares this power of attorney to be coupled with an interest and
irrevocable. If Pledgor fails to perform any agreement herein contained, Pledgee
may itself perform or cause performance thereof, and any costs and expenses of
Pledgee incurred in connection therewith shall be paid by Pledgor as provided in
Section 24 hereof.
14. Termination.
This Agreement shall terminate and Pledgor shall be entitled to the
return, at Pledgor's expense, of such of the Collateral as has not theretofore
been sold, disposed of or otherwise applied pursuant to this Agreement upon
payment in full of the Indebtedness and irrevocable termination of the Guaranty
and Suretyship Agreement.
15. Concerning Pledgee.
The recitals of fact herein shall be taken as statements of Pledgor for
which Pledgee assumes no responsibility. Pledgee makes no representation to
anyone as to the value of the Collateral or any part thereof or as to the
validity or adequacy of the security afforded or intended to be afforded thereby
or as to the validity of this Agreement. Pledgee shall be protected in relying
upon any notice, consent, request or other paper or document believed by it to
be genuine and correct and to have been signed by a proper person. The
permissive rights of Pledgee hereunder shall not be construed as duties of
Pledgee. Pledgee shall be under no obligation to take any action toward the
9
enforcement of this Agreement or rights or remedies in respect of any of the
Collateral. Pledgee shall not be personally liable for any action taken or
omitted by it in good faith and reasonably believed by it to be within the power
or discretion conferred upon it by this Agreement.
16. Notices.
Any notice or other communication required or permitted pursuant to this
Agreement shall be deemed given (a) when personally delivered to any officer of
the party to whom it is addressed, (b) on the earlier of actual receipt thereof
or three (3) days following posting thereof by certified or registered mail,
postage prepaid, (c) upon actual receipt thereof when sent by a recognized
overnight delivery service or (d) upon actual receipt thereof when sent by
telecopier to the number set forth below with electronic confirmation of
receipt, in each case addressed to each party at its address or telecopier
number set forth below or at such other address or telecopier number as has been
furnished in writing by a party to the other by like notice:
If to Pledgee: Steel City Capital Funding LLC
1600 Market St., 31st Floor
Philadelphia, PA 19103
Attention: Thomas J. Bugieda, VP
Telephone: (215) 585-5369
Facsimile: (215) 585-4771
with a copy to: Hahn & Hessen LLP
488 Madison Avenue
New York, NY 10022
Attention: Steven J. Seif, Esq.
Telephone: (212) 478-7370
Facsimile: (212) 478-7400
If to Pledgor: Air Industries Group, Inc.
1479 Clinton Avenue
Bay Shore, New York 11706
Attention: Louis Giusto
Telephone: (631) 968-5000
Facsimile: (631) 968-5377
with a copy to: Eaton & Van Winkle LLP
3 Park Avenue, 16th floor
New York, New York 10016-2078
Attention: Charles Fewell, Esq.
Telephone: (212) 561-3627
Facsimile: (212) 779-9928
17. Governing Law.
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This Agreement and all rights and obligations hereunder shall be governed
by and construed and enforced in all respects in accordance with the laws of the
State of New York applied to contracts to be performed wholly within the State
of New York.
18. Waivers.
(a) EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OTHER AGREEMENT EXECUTED
OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HERETO HEREBY AGREES
AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF EACH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
19. Litigation.
PLEDGOR EXPRESSLY CONSENTS TO THE JURISDICTION AND VENUE OF EACH COURT OF
COMPETENT JURISDICTION LOCATED IN THE STATE OF NEW YORK FOR ALL PURPOSES IN
CONNECTION WITH THIS AGREEMENT. ANY JUDICIAL PROCEEDING BY PLEDGOR AGAINST
PLEDGEE INVOLVING, DIRECTLY OR INDIRECTLY ANY MATTER OR CLAIM IN ANY WAY ARISING
OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A
STATE COURT LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. PLEDGOR
FURTHER CONSENTS THAT ANY SUMMONS, SUBPOENA OR OTHER PROCESS OR PAPERS
(INCLUDING, WITHOUT LIMITATION, ANY NOTICE OR MOTION OR OTHER APPLICATION TO
EITHER OF THE AFOREMENTIONED COURTS OR A JUDGE THEREOF) OR ANY NOTICE IN
CONNECTION WITH ANY PROCEEDINGS HEREUNDER, MAY BE SERVED INSIDE OR OUTSIDE OF
THE STATE OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY PERSONAL SERVICE PROVIDED A
REASONABLE TIME FOR APPEARANCE IS PERMITTED, OR IN SUCH OTHER MANNER AS MAY BE
PERMISSIBLE UNDER THE RULES OF SAID COURTS. PLEDGOR WAIVES ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREON AND SHALL NOT ASSERT ANY
DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON
CONVENIENS.
20. No Waiver; Cumulative Remedies.
11
Any and all of Pledgee's rights with respect to the Liens granted under
this Agreement shall continue unimpaired, and Pledgor shall be and remain
obligated in accordance with the terms hereof, notwithstanding (a) the
bankruptcy, insolvency or reorganization of Pledgor, (b) the release or
substitution of any item of the Collateral at any time, or of any rights or
interests therein, or (c) any delay, extension of time, renewal, compromise or
other indulgence granted by Pledgee in reference to any of the Indebtedness.
Pledgor hereby waives all notice of any such delay, extension, release,
substitution, renewal, compromise or other indulgence, and hereby consents to be
bound hereby as fully and effectively as if Pledgor had expressly agreed thereto
in advance. No failure on the part of Pledgee to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any such right, power or
remedy by Pledgee preclude any other or further exercise thereof or the exercise
of any right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law.
21. Severability.
In case any security interest or other right of Pledgee shall be held to
be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability shall not affect any other security interest or other right,
privilege or power granted under this Agreement. In the event that any provision
of this Agreement or the application thereof to Pledgor or any circumstance in
any jurisdiction governing this Agreement shall, to any extent, be invalid or
unenforceable under any applicable statute, regulation, or rule of law, such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform to such statute, regulation or
rule of law, and the remainder of this Agreement and the application of any such
invalid or unenforceable provision to parties, jurisdictions, or circumstances
other than to whom or to which it is held invalid or unenforceable shall not be
affected thereby, nor shall same affect the validity or enforceability of any
other provision of this Agreement.
22. Counterparts; Facsimiles.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which when taken together shall
constitute one and the same instrument. Any signature delivered by a party by
facsimile transmission shall be deemed an original signature hereto.
23. Miscellaneous.
(a) This Agreement constitutes the entire and final agreement among
the parties with respect to the subject matter hereof and neither this Agreement
nor any term hereof may be changed, discharged or terminated orally, but only by
an instrument in writing, signed by Pledgee and Pledgor. No waiver of any term
or condition of this Agreement, whether by delay, omission or otherwise, shall
be effective unless in writing and signed by the party sought to be charged, and
then such waiver shall be effective only in the specific instance and for the
purpose for which given.
12
(b) This Agreement shall be binding upon Pledgor, and Pledgor's
successors and assigns, and shall inure to the benefit of Pledgee and its
successors and assigns. The term "Pledgee", as used herein, shall include any
successor or assign of Pledgee at the time entitled to the pledged interest in
the Collateral.
(c) The headings and captions in this Agreement are for purposes of
reference only and shall not constitute part of this Agreement for any other
purpose.
24. Expenses.
The Collateral shall also secure, and Pledgor shall pay to Pledgee on
demand, from time to time, all costs and expenses, (including but not limited
to, attorneys' fees and costs, taxes, and all transfer, recording, filing and
other charges) of, or incidental to, the custody, care, transfer, administration
of the Collateral or any other collateral, or in any way relating to the
enforcement, protection or preservation of the rights or remedies of Pledgee
under this Agreement or with respect to any of the Indebtedness.
25. Recapture
Anything in this Agreement to the contrary notwithstanding, if Pledgee
receives any payment or payments on account of the Indebtedness, which payment
or payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver, or any other party under the United States Bankruptcy Code, as
amended, or any other federal or state bankruptcy, reorganization, moratorium or
insolvency law relating to or affecting the enforcement of creditors' rights
generally, common law or equitable doctrine, then to the extent of any sum not
finally retained by Pledgee, Pledgor's obligations to Pledgee shall be
reinstated and this Agreement shall remain in full force and effect (or be
reinstated) until payment shall have been made to Pledgee, which payment shall
be due on demand.
13
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first written above.
AIR INDUSTRIES GROUP, INC.
(f/k/a Gales Industries Inc.)
By: /s/ Peter D. Rettaliata
--------------------------
Name: Peter D. Rettaliata
Its: President
STEEL CITY CAPITAL FUNDING LLC
By: /s/ Kevin Madigan
--------------------------
Name: Kevin Madigan
Its: Managing Director
SCHEDULE A
PLEDGED STOCK
Stock Certificate Par Value Number of
Issuer Class of Stock Number Shares
Air Industries Machining, Corp. Common 8 n/a 100
Sigma Metals, Inc. Common 9 n/a 100
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE LIENS AND SECURITY INTEREST
GRANTED TO STEEL CITY CAPITAL FUNDING LLC PURSUANT TO THIS AGREEMENT AND THE
EXERCISE OF ANY RIGHT OR REMEDY BY STEEL CITY CAPITAL FUNDING LLC HEREUNDER ARE
SUBJECT TO THE PROVISIONS OF THAT CERTAIN INTERCREDITOR AGREEMENT, DATED AS OF
AUGUST 24, 2007 (THE "INTERCREDITOR AGREEMENT"), AMONG PNC BANK, NATIONAL
ASSOCIATION AND STEEL CITY CAPITAL FUNDING LLC; AND EACH HOLDER OF THE
OBLIGATIONS HEREUNDER, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND
BY THE PROVISIONS OF THE INTERCREDITOR AGREEMENT. IN THE EVENT OF ANY CONFLICT
BETWEEN THE TERMS OF THE INTERCREDITOR AGREEMENT AND THIS AGREEMENT, THE TERMS
OF THE INTERCREDITOR AGREEMENT SHALL GOVERN AND CONTROL.
GUARANTOR SECURITY AGREEMENT
This Security Agreement (this "Agreement") is dated as of August 24, 2007
between STEEL CITY CAPITAL FUNDING LLC , having an office at 1600 Market Street,
31st Floor, Philadelphia, PA 19103 ("Secured Party") and AIR INDUSTRIES GROUP,
INC. (f/k/a Gales Industries Incorporated), a Delaware corporation, having its
principal place of business at 1479 Clinton Avenue, Bay Shore, NY 11706
("Company").
BACKGROUND
AIR INDUSTRIES MACHINING, CORP., a corporation organized under the laws of
the State of New York ("Air"), SIGMA METALS, INC., a corporation organized under
the laws of the State of New York ("Sigma"), WELDING METALLURGY, INC., as
successor by merger with WMS Merger Corp., a corporation organized under the
laws of the State of New York ("WMI"; and together with Air and Sigma, each a
"Borrower" and collectively, the "Borrowers"), and Secured Party are parties to
that certain Term Loan and Security Agreement dated as of even date herewith (as
amended, supplemented, restated or modified from time to time, the "Loan
Agreement"). Pursuant to the terms of the Loan Agreement, Secured Party has
agreed to make certain extensions of credit available to the Borrowers. Secured
Party is willing to make such extensions of credit available to the Borrowers
only upon the condition, among others, that the Company execute and deliver its
Guaranty of the obligations of Borrowers to Secured Party and that the Company
secure its Guaranty by executing and delivering this Agreement to Secured Party.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
and the terms and conditions contained herein, the parties hereto agree as
follows:
1. A. General Definitions. When used in this Agreement, the following
terms shall have the following meanings:
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all Investment Property;
(f) all Real Property;
(g) all Subsidiary Stock;
(h) the Leasehold Interests;
(i) all of Company's right, title and interest in and to, whether now
owned or hereafter acquired and wherever located, (i) its respective goods and
other property including, but not limited to, all merchandise returned or
rejected by Customers, relating to or securing any of the Receivables; (ii) all
of Company's rights as a consignor, a consignee, an unpaid vendor, mechanic,
artisan, or other lienor, including stoppage in transit, setoff, detinue,
replevin, reclamation and repurchase; (iii) all additional amounts due to
Company from any Customer relating to the Receivables; (iv) other property,
including warranty claims, relating to any goods securing the Obligations; (v)
all of Company's contract rights, rights of payment which have been earned under
a contract right, instruments (including promissory notes), documents, chattel
paper (including electronic chattel paper), warehouse receipts, deposit
accounts, letters of credit and money; (vi) all commercial tort claims (whether
now existing or hereafter arising); (vii) if and when obtained by Company, all
real and personal property of third parties in which Company has been granted a
lien or security interest as security for the payment or enforcement of
Receivables; (viii) all letter of credit rights (whether or not the respective
letter of credit is evidenced by a writing); (ix) all supporting obligations;
and (x) any other goods, personal property or real property now owned or
hereafter acquired in which Company has expressly granted a security interest or
may in the future grant a security interest to Secured Party hereunder, or in
any amendment or supplement hereto or thereto, or under any other agreement
between Secured Party and Company;
(j) all of Company's ledger sheets, ledger cards, files, correspondence,
records, books of account, business papers, computers, computer software (owned
by Company or in which it has an interest), computer programs, tapes, disks and
documents relating to (a), (b), (c), (d), (e), (f), (g), (h) or (i) of this
Paragraph; and
(k) all proceeds and products of (a), (b), (c), (d), (e), (f), (g), (h),
(i) and (j) in whatever form, including, but not limited to: cash, deposit
accounts (whether or not comprised solely of proceeds), certificates of deposit,
insurance proceeds (including hazard, flood and credit insurance), negotiable
instruments and other instruments for the payment of money, chattel paper,
security agreements, documents, eminent domain proceeds, condemnation proceeds
and tort claim proceeds.
2
"Company" shall have the meaning set forth in the introductory paragraph
hereof and shall extend to all permitted successors and assigns.
"Customer" means and includes the account debtor with respect to any
Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with Company, pursuant
to which Company is to deliver any personal property or perform any services.
"Default" means any act or event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.
"Environmental Complaint" means any notice of violation, request for
information or notification that Company is potentially responsible for
investigation or cleanup of environmental conditions on its property, demand
letter or complaint, order, citation, or other written notice with regard to any
Hazardous Discharge or violation of any environmental laws affecting its
property or Company's interest therein.
"Equipment" shall mean and include all of Company's goods (other than
Inventory) whether now owned or hereafter acquired and wherever located
including all equipment, machinery, apparatus, motor vehicles, fittings,
furniture, furnishings, fixtures, parts, accessories and all replacements and
substitutions therefor or accessions thereto.
"Event of Default" means the occurrence of any of the events set forth in
Section 12.
"GAAP" means generally accepted accounting principles, practices and
procedures in effect from time to time.
"General Intangibles" shall mean and include all of Company's general
intangibles, whether now owned or hereafter acquired including, without
limitation, all payment intangibles, all choses in action, causes of action,
corporate or other business records, inventions, designs, patents, patent
applications, equipment formulations, manufacturing procedures, quality control
procedures, trademarks, trademark applications, service marks, trade secrets,
goodwill, copyrights, design rights, software, computer information, source
codes, codes, records and dates, registrations, licenses, franchises, customer
lists, tax refunds, tax refund claims, computer programs, all claims under
guaranties, security interests or other security held by or granted to Company
to secure payment of any of the Receivables by a Customer (other than to the
extent covered by Receivables) all rights of indemnification and all other
intangible property of every kind and nature (other than Receivables).
"Guaranty" means the Guaranty and Suretyship Agreement dated as of the
date hereof which is executed by the Company in favor of Secured Party, as
amended, modified, supplemented or restated from time to time.
"Hazardous Discharge" means any release or threat of release of a
reportable quantity of any hazardous substances on Company's property.
3
"Intercreditor Agreement" means that certain Intercreditor Agreement,
dated as of July ___, 2007 among PNC Bank, National Association and Secured
Party, as amended, modified, supplemented or restated from time to time.
"Inventory" shall mean and include all of Company's now owned or hereafter
acquired goods, merchandise and other personal property, wherever located, to be
furnished under any consignment arrangement, contract of service or held for
sale or lease, all raw materials, work in process, finished goods and materials
and supplies of any kind, nature or description which are or might be used or
consumed in Company's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"Investment Property" means shall have the meaning set forth in the UCC,
and shall mean and include all of Company's now owned or hereafter acquired
securities, whether certificated or uncertificated, securities entitlements,
securities accounts, commodity and futures contracts and commodity and futures
accounts.
"Leasehold Interests" shall mean all of Company's right, title and
interest in and to the premises set forth on Schedule 1(A) attached hereto.
"Loans" means all extensions of credit under the Loan Agreement.
"Loan Agreement" shall have the meaning set forth in the Background
paragraph hereof.
"Obligations" means and includes all Loans and obligations of the Company
to Secured Party under the Guaranty, all advances, debts, liabilities,
obligations, covenants and duties owing by Company to Secured Party (or any
corporation that directly or indirectly controls or is controlled by or is under
common control with Secured Party) of every kind and description (whether or not
evidenced by the Guaranty, any note or other instrument and whether or not for
the payment of money or the performance or non-performance of any act), direct
or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, whether existing by operation of law or
otherwise now existing or hereafter arising including, without limitation, any
debt, liability or obligation owing from Company to others which Secured Party
may have obtained by assignment or otherwise and further including, without
limitation, all payments Company is required to make by law or otherwise arising
under or as a result of this Agreement, together with all reasonable expenses
and reasonable attorneys' fees chargeable to Company's account or incurred by
Secured Party in connection with Company's account whether provided for herein
or in any other agreement, instrument or document executed by or on behalf of
the Company or delivered to Secured Party relating to this Agreement or the
transactions contemplated hereby.
"Permitted Liens" means (i) liens of carriers, warehousemen, mechanics and
materialmen incurred in the ordinary course of business securing sums not
overdue; (ii) liens incurred in the ordinary course of business in connection
with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (a) not
overdue or (b) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of Company in
conformity with GAAP, (iii) liens in favor of Secured Party, (iv) liens for
taxes (a) not yet due or (b) being diligently contested in good faith, provided
that adequate reserves with respect thereto are maintained on the books of
Company in conformity with GAAP, provided, that, the lien shall have no effect
on the priority of the liens in favor of Secured Party or the value of the
assets in which Secured Party has such a lien and a stay of enforcement of any
such lien shall be in effect and (v) liens specified on Schedule 1(B) hereto.
4
"Person" shall mean any individual, sole proprietorship, partnership,
corporation, business trust, joint stock company, trust, unincorporated
organization, association, limited liability company, institution, public
benefit corporation, joint venture, entity or government (whether Federal,
state, county, city, municipal or otherwise, including any instrumentality,
division, agency, body or department thereof).
"Real Property" shall mean all of Company's right, title and interest in
and to the owned and leased premises identified on Schedule 1(C) hereto.
"Receivables" shall mean and include, as to Company, all of Company's
accounts, contract rights, instruments (including those evidencing indebtedness
owed to Company by its Affiliates), documents, chattel paper (including
electronic chattel paper), general intangibles relating to accounts, drafts and
acceptances, credit card receivables and all other forms of obligations owing to
Company arising out of or in connection with the sale or lease of Inventory or
the rendition of services, all supporting obligations, guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to Secured Party
hereunder.
"Secured Party" shall have the meaning set forth in the introductory
paragraph hereof and shall include its successors and assigns.
"Subsidiary" of any Person means a corporation or other entity of whose
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Subsidiary Stock" shall mean all of the issued and outstanding equity
interests of any Subsidiary owned by the Company (not to exceed 65% of the
equity interests of any foreign Subsidiary).
"UCC" means the Uniform Commercial Code as adopted in the State of New
York as amended or revised from time to time, and any successor statute.
B. Accounting Terms. Any accounting terms used in this Agreement which are
not specifically defined shall have the meanings customarily given them in
accordance with GAAP.
C. Other Terms. All other terms used in this Agreement and defined in the
UCC shall have the meaning given therein unless otherwise defined herein. To the
extent the definition of any category or type of collateral is expanded by any
amendment, modification or revision to the UCC, such expanded definition will
apply automatically as of the date of such amendment, modification or revision.
5
2. Security Interest.
(a) Subject to the terms and provisions of the Intercreditor
Agreement, to secure the prompt payment and performance to Secured Party of the
Obligations, Company hereby assigns, pledges and grants to Secured Party a
continuing security interest in and to all of its Collateral, whether now owned
or existing or hereafter acquired or arising and wheresoever located. Company
shall mark its books and records as may be necessary or appropriate to evidence,
protect and perfect Secured Party's security interest and shall cause its
financial statements to reflect such security interest. Company shall promptly
provide Secured Party with written notice of all commercial tort claims, such
notice to contain the case title together with the applicable court and a brief
description of the claim(s). Upon delivery of each such notice, Company shall be
deemed to hereby grant to Secured Party a security interest and lien in and to
such commercial tort claims and all proceeds thereof.
(b) Company shall take all action that may be necessary or
desirable, or that Secured Party may request, so as at all times to maintain the
validity, perfection, enforceability and priority of Secured Party's security
interest in the Collateral or to enable Secured Party to protect, exercise or
enforce its rights hereunder and in the Collateral, including, but not limited
to, (i) immediately discharging all liens other than Permitted Encumbrances,
(ii) obtaining landlords' or mortgagees' lien waivers, (iii) delivering to
Secured Party, endorsed or accompanied by such instruments of assignment as
Secured Party may specify, and stamping or marking, in such manner as Secured
Party may specify, any and all chattel paper, instruments, letters of credits
and advices thereof and documents evidencing or forming a part of the
Collateral, (iv) entering into warehousing, lockbox and other custodial
arrangements satisfactory to Secured Party, and (v) executing and delivering
financing statements, control agreements, instruments of pledge, mortgages,
notices and assignments, in each case in form and substance satisfactory to
Secured Party, relating to the creation, validity, perfection, maintenance or
continuation of Secured Party's security interest under the Uniform Commercial
Code or other applicable law. Secured Party is hereby authorized to file
financing statements signed by Secured Party instead of Company in accordance
with the UCC. By its signature hereto, Company hereby authorizes Secured Party
to file against Company, one or more financing continuation or amendment
statements pursuant to the UCC in form and substance satisfactory to Secured
Party (which statements may have a description of collateral which is broader
than that set forth herein). All charges, expenses and fees Secured Party may
incur in doing any of the foregoing, and any local taxes relating thereto, shall
be paid to Secured Party immediately upon demand.
3. Representations Concerning the Collateral. Company represents and
warrants:
(a) the Collateral (i) is owned solely by Company free and clear of
all claims, liens, security interests and encumbrances (including without
limitation any claims of infringement) except (A) those in Secured Party's favor
and (B) Permitted Liens and (ii) is not subject to any agreement prohibiting the
granting of a security interest or requiring notice of or consent to the
granting of a security interest;
6
(b) (i) all Receivables (x) represent complete bona fide
transactions with Customers in the ordinary course of the Company's business
which require no further act under any circumstances on Company's part to make
such Receivables payable by the Customers, (y) to the best of Company's
knowledge, are not subject to any present, future or contingent offsets,
disputes or counterclaims, and (z) do not represent bill and hold sales,
consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of Company, (ii) to the best of the Company's
knowledge, there are no facts, events or occurrences which in any way impair the
validity of any Receivable or enforcement thereof or tend to reduce the amount
payable under any Receivables and (iii) the Company has no knowledge that any
Customer is unable generally to pay its debts as they become due.
(c) all Inventory is of good and merchantable quality, free from any
defects. No Inventory is subject to any licensing, patent, royalty, trademark,
tradename or copyright agreements with any third parties. The completion of
manufacture, sale or other disposition of Inventory by Secured Party following
an Event of Default shall not require the consent of any Person and shall not
constitute a breach or default under any contract or agreement to which the
Company is a party or to which such property is subject.
4. Covenants Concerning the Collateral. Company covenants that from and
after the date of this Agreement and until the Obligations are paid in full in
cash it shall:
(a) not dispose of any of the Collateral whether by sale, lease or
otherwise except for (i) the sale of Inventory in the ordinary course of
business and (ii) the disposition or transfer of obsolete and worn-out Equipment
in the ordinary course of business during any fiscal year having an aggregate
fair market value of not more than $100,000 and only to the extent that (x) the
proceeds of any such disposition are used to acquire replacement Equipment which
is subject to Secured Party's first priority security interest or (y) the
proceeds of which are remitted to Secured Party in reduction of the Obligations;
(b) not encumber, mortgage, pledge, assign or grant any security
interest in any Collateral or any of Company's other assets to anyone other than
Secured Party, except for Permitted Liens;
(c) place notations upon Company's books of account and any
financial statement prepared by Company to disclose Secured Party's security
interest in the Collateral;
(d) defend the Collateral against the claims and demands of all
parties.
(e) keep and maintain the Equipment in good operating condition,
except for ordinary wear and tear, and shall make all necessary repairs and
replacements thereof so that the value and operating efficiency shall at all
times be maintained and preserved. Company shall not permit any such items to
become a fixture to real estate or accessions to other personal property;
(f) not extend the payment terms of any Receivable without prompt
notice thereof to Secured Party; and
(g) perform all other steps requested by Secured Party to create and
maintain in Secured Party's favor a valid perfected first priority security
interest in all Collateral.
7
5. Collection and Maintenance of Collateral and Records. Company shall
keep and maintain, at its own cost and expense, satisfactory and complete
records of the Collateral including, without limitation, a record of any and all
payments received and any and all credits granted with respect to the Collateral
and all other dealings with the Collateral. Secured Party may at any time verify
Company's Receivables utilizing an audit control company or any other agent of
Secured Party. Secured Party or Secured Party's designee may notify Customers at
any time, at Secured Party's sole discretion, of Secured Party's security
interest in Receivables (contracts, instruments, or chattel paper as the case
may be), collect them directly from the Customers or parties to contracts,
instruments and chattel paper and charge the collection costs and expenses to
Company's account, but, unless and until Secured Party does so or gives Company
other instructions, Company shall collect all Receivables for Secured Party,
receive all payments thereon for Secured Party's benefit in trust as Secured
Party's trustee and immediately deliver them to Secured Party in their original
form with all necessary endorsements or, as directed by Secured Party, deposit
such payments as directed by Secured Party. Company shall provide Secured Party,
as requested by Secured Party, such schedules, documents and/or information
regarding the Collateral as Secured Party may require.
6. Inspections. At all times during normal business hours, Secured Party
shall have the right to (a) visit and inspect Company's properties and the
Collateral, (b) inspect, audit and make extracts from Company's relevant books
and records, including, but not limited to, management letters prepared by
independent accountants and (c) discuss with Company's principal officers and
independent accountants, Company's business, assets, liabilities, financial
condition, results of operations and business prospects, and Company shall
furnish all such assistance and information as Secured Party may require in
connection therewith. Company will deliver to Secured Party any instrument
necessary for Secured Party to obtain records from any service bureau
maintaining records for Company.
7. Additional Representations, Warranties and Covenants. Company
represents, warrants, and covenants that:
(a) Company is a corporation duly organized and validly existing
under the laws of the State of Delaware and duly qualified and in good standing
in every other state or jurisdiction in which the nature of Company's business
or the ownership of its assets requires such qualification.
(b) the execution, delivery and performance of this Agreement (i)
has been duly authorized, (ii) is not in contravention of Company's certificate
of incorporation, by-laws or of any indenture, agreement or undertaking to which
Company is a party or by which Company is bound and (iii) is within Company's
corporate powers.
(c) this Agreement is Company's legal, valid and binding obligation,
enforceable in accordance with its terms.
(d) it keeps and will continue to keep all of its books and records
concerning the Collateral at Company's chief executive offices located at the
address set forth in the introductory paragraph of this Agreement and will not
move such books and records without giving Secured Party at least thirty (30)
days prior written notice and taking all actions deemed by the Secured Party
necessary to continuously protect and perfect Secured Party's liens upon the
Collateral; and the Collateral is not stored or located at any locations other
than as set forth on Schedule 7(d).
8
(e) (i) the operation of Company's business is and will continue to
be in compliance in all material respects with all applicable federal, state and
local laws, including but not limited to all applicable environmental laws and
regulations;
(ii) Company will establish and maintain a system to assure
and monitor continued compliance with all applicable environmental laws, which
system shall include periodic reviews of such compliance;
(iii) Company shall respond promptly to any Hazardous
Discharge or Environmental Complaint and take all necessary action in order to
safeguard the health of any Person and to avoid subjecting the Collateral to any
lien, charge, claim or encumbrance;
(iv) Company shall defend and indemnify the Secured Party and
hold the Secured Party harmless from and against all loss, liability, damage and
expense, claims, costs, fines and penalties, including attorney's fees, suffered
or incurred by the Secured Party under or on account of any environmental laws;
(f) there is no pending or threatened litigation, actions or
proceeding which involve the possibility of materially and adversely affecting
the Company's business, assets, operations, condition or prospects, financial or
otherwise, or the Collateral or the ability of Company to perform this
Agreement;
(g) it will pay or discharge when due all taxes, assessments and
governmental charges or levies imposed upon it unless same are not delinquent or
same constitute Permitted Liens;
(h) it will promptly inform Secured Party in writing of: (i) the
commencement of all proceedings and investigations by or before and/or the
receipt of any notices from, any governmental or nongovernmental body and all
actions and proceedings in any court or before any arbitrator against or in any
way concerning any of Company's properties, assets or business, which might
singly or in the aggregate, have a materially adverse effect on Company; (ii)
any amendment of Company's certificate of incorporation or by-laws; (iii) any
change in Company's business, assets, liabilities, condition (financial or
otherwise), results of operations or business prospects which has had or might
have a materially adverse effect on Company; (iv) any Event of Default or
Default; (v) any default or any event which with the passage of time or giving
of notice or both would constitute a default under any agreement for the payment
of money to which Company is a party or by which Company or any of Company's
properties may be bound which would have a material adverse effect on Company's
business, operations, property or condition (financial or otherwise) or the
Collateral; (vi) any change in the location of Company's executive offices;
(vii) any change in the location of Company's Inventory or Equipment from the
locations listed on Schedule 7(d) attached hereto, (viii) any additional
licenses, patents, copyrights, trademarks, tradenames or corporate names; (ix)
any material delay in Company's performance of any of its obligations to any
Customer and of any assertion of any material claims, offsets or counterclaims
by any Customer and of any allowances, credits and/or other monies granted by it
to any Customer; (x) any material adverse information obtained by Company
relating to the financial condition of any Customer; and (xi) any material
return of goods;
9
(i) it will bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. At it's own cost and expense in
amounts and with carriers acceptable to Secured Party, it shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to Company's including,
without limitation, public and product liability insurance, worker's
compensation, insurance against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees and business interruption
insurance; and (ii) furnish Secured Party with (x) copies of all policies and
evidence of the maintenance of such policies at least thirty (30) days before
any expiration date, and (y) appropriate loss payable endorsements in form and
substance satisfactory to Secured Party, naming Secured Party as loss payee and
providing that as to Secured Party the insurance coverage shall not be impaired
or invalidated by any act or neglect of Company and the insurer will provide
Secured Party with at least thirty (30) days notice prior to cancellation.
Company shall instruct the insurance carriers that in the event of any loss
thereunder, the carriers shall make payment for such loss to Secured Party and
not to Company and Secured Party jointly. If any insurance losses are paid by
check, draft or other instrument payable to Company and Secured Party jointly,
Secured Party may endorse Company's name thereon and do such other things as
Secured Party may deem advisable to reduce the same to cash. Secured Party is
hereby authorized to adjust and compromise claims. All loss recoveries received
by Secured Party upon any such insurance may be applied to the Obligations, in
such order as Secured Party in its sole discretion shall determine. Any surplus
shall be paid by Secured Party to Company or applied as may be otherwise
required by law. Any deficiency thereon shall be paid by Company to Secured
Party, on demand;
(j) any time and from time to time, upon the written request of
Secured Party and at the sole expense of Company, Company shall promptly and
duly execute and deliver any and all such further instruments and documents and
take such further actions as Secured Party may reasonably deem desirable to
obtain the full benefits of this Agreement and of the rights and powers herein
granted;
(k) it will not (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of trade debt) whether secured or unsecured other than
Company's indebtedness to Secured Party and as set forth on Schedule 7(k)
attached hereto and made a part hereof; (ii) declare, pay or make any dividend
or distribution on any shares of the common stock or preferred stock of Company
or apply any of its funds, property or assets to the purchase, redemption or
other retirement of any common or preferred stock of Company; (iii) directly or
indirectly, prepay any indebtedness (other than to Secured Party), or
repurchase, redeem, retire or otherwise acquire any indebtedness of Company;
(iv) make advances, loans or extensions of credit to any Person; (v) become
either directly or contingently liable upon the obligations of any Person by
assumption, endorsement or guaranty thereof or otherwise; (vi) enter into any
merger, consolidation or other reorganization with or into any other Person or
acquire all or a portion of the assets or stock of any Person or permit any
other Person to consolidate with or merge with it; (vii) form any Subsidiary or
enter into any partnership, joint venture or similar arrangement; (viii)
materially change the nature of the business in which it is presently engaged;
(ix) enter into any transaction with any Affiliate, except in ordinary course on
arms-length terms; or (xi) bill Receivables under any name except the present
name of the Company.
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8. Power of Attorney. Company hereby irrevocably appoints Secured Party or
any other Person whom Secured Party may designate as Company's attorney-in-fact,
with full power and authority in place and stead of Company and in the name of
Company or in its own name to: (i) endorse Company's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into Secured Party's possession; (ii) sign Company's name on any invoice or
bill of lading relating to any Receivables, drafts against customers, schedules
and assignments of Receivables, notices of assignment, financing statements and
other public records, verifications of account and notices to or from Customers;
(iii) verify the validity, amount or any other matter relating to any Receivable
by mail, telephone, telegraph or otherwise with Customers; (iv) execute customs
declarations and such other documents as may be required to clear Inventory
through United States Customs; (v) do all things necessary to carry out this
Agreement and all related documents; (vi) continue any insurance existing
pursuant to the terms of this Agreement and pay all or any part of the premium
therefor and the cost thereof; and (vii) on or after the occurrence of an Event
of Default, notify the post office authorities to change the address for
delivery of Company's mail to an address designated by Secured Party, and to
receive, open and dispose of all mail addressed to Company. Company hereby
ratifies and approves all acts of the attorney. The powers conferred on the
Secured Party hereunder are solely to protect its interests in the Collateral
and shall not impose any duty upon it to exercise any such powers. Neither
Secured Party nor the attorney will be liable for any acts or omissions or for
any error of judgment or mistake of fact or law. This power, being coupled with
an interest, is irrevocable so long as any Receivable which is assigned to
Secured Party or in which Secured Party has a security interest remains unpaid
and until the Obligations are paid in full in cash.
9. Expenses. Company shall pay all of Secured Party's out-of-pocket costs
and expenses, including without limitation fees and disbursements of counsel and
appraisers, in connection with the preparation, execution and delivery of this
Agreement and in connection with the prosecution or defense of any action,
contest, dispute, suit or proceeding concerning any matter in any way arising
out of, related to or connected with this Agreement. Company shall also pay all
of Secured Party's out-of-pocket costs and expenses, including, without
limitation, fees and disbursements of counsel, in connection with (a) the
preparation, execution and delivery of any waiver, any amendment thereto or
consent proposed or executed in connection with the transactions contemplated by
this Agreement, (b) Secured Party's obtaining performance of the Company's
obligations under this Agreement, including, but not limited to, the enforcement
or defense of Secured Party's security interests, assignments of rights and
liens hereunder as valid perfected security interests, (c) any attempt to
inspect, verify, protect, collect, sell, liquidate or otherwise dispose of any
Collateral and (d) any consultations in connection with any of the foregoing.
All such costs and expenses together with all filing, recording and search fees,
taxes and interest payable by Company to Secured Party shall be payable on
demand and shall be secured by the Collateral.
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10. Assignment By Secured Party. Secured Party may assign any or all of
the Obligations together with any or all of the security therefor and any
transferee shall succeed to all of Secured Party's rights with respect thereto.
Upon such transfer, Secured Party shall be released from all responsibility for
the Collateral to the extent same is assigned to any transferee.
11. Waivers. The Company waives demand, notice, protest, notice of
acceptance of this Agreement, notice of loans made, credit extended, Collateral
received or delivered or other action taken in reliance hereon and all other
demands and notices of any description. With respect to both the Obligations and
the Collateral, the Company assents to any extension or postponement of the time
of payment or any other indulgence, to any substitution, exchange or release of
or failure to perfect any security interest in any Collateral, to the addition
or release of any party or person primarily or secondarily liable, to the
acceptance of partial payment thereon and the settlement, compromising or
adjusting of any thereof, all in such manner and at such time or times as the
Secured Party may deem advisable.
12. Events of Default. The occurrence of any one or more of the following
events shall constitute an "Event of Default":
(a) the occurrence of a Default or Event of Default under the Loan
Agreement.
(b) failure by the Company to make payment of any of its Obligations
when required hereunder.
(c) failure to perform under and/or committing any breach of this
Agreement or the Guaranty or any other agreement between Company and Secured
Party.
(d) a default by Company in the payment, when due, of any principal
of or interest on any indebtedness for money borrowed.
(e) occurrence of a default under any agreement to which Company is
a party with third parties which has a material adverse affect upon Company's
business, operations, property or condition (financial or otherwise) including
all leases for any premises where Inventory or Equipment is located.
(f) any representation, warranty or statement made by Company
hereunder, in the Guaranty, or in any certificate, statement or document
delivered pursuant to the terms hereof, or in connection with the transactions
contemplated by this Agreement should at any time be false or misleading in any
material respect.
(g) an attachment or levy is made upon a material portion of
Company's assets, or any judgment or judgments are rendered against Company for
an aggregate amount in excess of $250,000 which (i) is/are not contested in good
faith by the Company, (ii) the Company does not establish reserves with regard
thereto in an amount reasonably satisfactory to Secured Party, unless any such
judgment is fully covered by insurance and evidence thereof acceptable to
Secured Party in it sole discretion is provided to Secured Party, and (iii) the
enforcement of such judgment or judgments is/are not continuously stayed,
satisfied or discharged of record within forty (40) days of such rendering.
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(h) any lien created hereunder for any reason ceases to be or is not
a valid and perfected lien having a first priority interest.
(i) if Company shall (i) apply for, consent to or suffer to exist
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing.
(j) Company shall admit in writing its inability, or be generally
unable to pay its debts as they become due or cease operations of its present
business.
(k) Secured Party shall in good faith deem itself insecure or unsafe
or shall fear diminution in value, removal or waste of the Collateral.
(l) if the Company attempts to terminate, challenges the validity
of, or challenges its liability under, the Guaranty.
13. Remedies. Upon the occurrence and during the continuation of any Event
of Default, Secured Party shall have the right to demand repayment in full of
all Obligations, whether or not otherwise due (in such case Secured Party may
deposit any and all such amounts realized in a cash collateral deposit account
to be maintained as security for the Obligations). Until all Obligations have
been fully satisfied in cash, Secured Party shall retain its security interest
in all Collateral. Secured Party shall have, in addition to all other rights
provided herein, the rights and remedies of a secured party under the UCC and
under other applicable law, and all other legal and equitable rights to which
Secured Party may be entitled, including without limitation, the right to take
immediate possession of the Collateral and to require Company to assemble the
Collateral, at Company's expense, and to make it available to Secured Party at a
place designated by Secured Party which is reasonably convenient to both parties
and to enter any of the premises of Company or wherever the Collateral shall be
located, with or without force or process of law, and to keep and store the same
on said premises until sold (and if said premises be the property of Company,
Company agrees not to charge Secured Party for storage thereof). Further,
Secured Party may, at any time or times after a Default, sell and deliver all
Collateral held by or for Secured Party in one or more parcels at public or
private sale for cash, upon credit or otherwise, at such prices and upon such
terms as Secured Party, in Secured Party's sole discretion, deems advisable or
Secured Party may otherwise recover upon the Collateral in any commercially
reasonable manner as Secured Party, in its sole discretion, deems advisable.
Except as to that part of the Collateral which is perishable or threatens to
decline speedily in nature or is of a type customarily sold on a recognized
market, the requirement of reasonable notice shall be met if such notice is
mailed postage prepaid to Company at Company's address as shown in Secured
Party's records, at least five (5) days before the time of the event of which
notice is being given. Secured Party may be the purchaser at any sale, if it is
public. Until Secured Party is able to effect a sale, lease, or other
disposition of Collateral, Secured Party shall have the right to use or operate
Collateral, or any part thereof, to the extent that it deems appropriate for the
purpose of preserving Collateral or its value or for any other purpose deemed
appropriate by Secured Party. Secured Party shall have no obligation to Company
to maintain or preserve the rights of Company as against third parties with
respect to Collateral while Collateral is in the possession of Secured Party.
Secured Party may, if it so elects, seek the appointment of a receiver or keeper
to take possession of Collateral and to enforce any of Secured Party's remedies
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with respect to such appointment without prior notice or hearing. In connection
with the exercise of the foregoing remedies, Secured Party is granted permission
to use all of Company's (a) trademarks, tradenames, tradestyles, patents, patent
applications, licenses, franchises and other proprietary rights which are used
in connection with Inventory for the purpose of disposing of such Inventory and
(b) Equipment for the purpose of completing the manufacture of unfinished goods.
The proceeds realized from the sale of any Collateral shall be applied as
follows: first, to the costs, expenses and attorneys' fees and expenses incurred
by Secured Party for collection and for acquisition, completion, protection,
removal, storage, sale and deliver of the Collateral; second, to the payment of
the Obligations in such order as Secured Party elects. If any deficiency shall
arise, Company shall remain liable to Secured Party therefor.
14. Waiver; Cumulative Remedies. Failure by Secured Party to exercise any
right, remedy or option under this Agreement or any supplement hereto or any
other agreement between Company and Secured Party or delay by Secured Party in
exercising the same, will not operate as a waiver; no waiver by Secured Party
will be effective unless it is in writing and then only to the extent
specifically stated. Secured Party's rights and remedies under this Agreement
will be cumulative and not exclusive of any other right or remedy which Secured
Party may have.
15. Notices. Any notice or request hereunder may be given to Company or
Secured Party at the respective addresses set forth below or as may hereafter be
specified in a written notice designated as a change of address under this
Section 15. Any notice or request hereunder shall be given by (a) hand delivery,
(b) overnight courier, (c) registered or certified mail, return receipt
requested, (d) telex or telegram, subsequently confirmed by registered or
certified mail, or (e) telecopy to the number set out below (or such other
number as may hereafter be specified in a notice designated as a notice of
change of address) with electronic confirmation of its receipt. Any notice or
other communication required or permitted pursuant to this Agreement shall be
deemed given (a) when personally delivered to any officer of the party to whom
it is addressed, (b) on the earlier of actual receipt thereof or three (3) days
following posting thereof by certified or registered mail, postage prepaid, or
(c) upon actual receipt thereof when sent by a recognized overnight delivery
service or (d) upon actual receipt thereof when sent by telecopier to the number
set forth below with electronic confirmation of its receipt, in each case
addressed to each party at its address set forth below or at such other address
as has been furnished in writing by a party to the other by like notice:
If to Secured Party: Steel City Capital Funding LLC
1600 Market Street, 31st Floor
Philadelphia, Pennsylvania 19103
Attention: Thomas J. Bugieda
Telephone: 215-585-5369
Telecopy: 215-585-4771
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with a copy to: Hahn & Hessen LLP
488 Madison Avenue
New York, New York 10022
Attention: Steven J. Seif, Esq.
Telephone: 212-478-7370
Telecopy: 212-478-7400
If to Company: Air Industries Group, Inc.
1479 North Clinton Avenue
Bay Shore, New York 11706
Attention: Peter Rettaliata
Telephone: 631-968-5000
Telecopy: 631-968-5377
with a copy to: Eaton & Van Winkle LLP
3 Park Avenue, 16th floor
New York, New York 10016-2078
Attention: Vincent McGill, Esq.
Telephone: 212-561-3604
Telecopy: 212-779-9928
16. Governing Law and Waiver of Jury Trial. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. SECURED PARTY SHALL HAVE THE RIGHTS AND REMEDIES OF A SECURED PARTY
UNDER APPLICABLE LAW INCLUDING, BUT NOT LIMITED TO, THE UCC. COMPANY AGREES THAT
ALL ACTIONS AND PROCEEDINGS RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR
ANY OTHER OBLIGATIONS SHALL BE LITIGATED IN THE FEDERAL DISTRICT COURT OF THE
SOUTHERN DISTRICT OF THE STATE OF NEW YORK OR, AT SECURED PARTY'S OPTION, IN ANY
OTHER COURTS LOCATED IN THE STATE OF NEW YORK OR ELSEWHERE AS SECURED PARTY MAY
SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS AND COMPANY SUBMITS TO THE
PERSONAL JURISDICTION OF SUCH COURTS. COMPANY WAIVES PERSONAL SERVICE OF PROCESS
AND CONSENTS THAT SERVICE OF PROCESS UPON COMPANY MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO COMPANY AT COMPANY'S
ADDRESS APPEARING ON SECURED PARTY'S RECORDS, AND SERVICE SO MADE SHALL BE
DEEMED COMPLETED TWO (2) DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED. EACH
PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BETWEEN COMPANY AND SECURED PARTY, AND COMPANY WAIVES THE RIGHT TO ASSERT IN ANY
ACTION OR PROCEEDING INSTITUTED BY SECURED PARTY WITH REGARD TO THIS AGREEMENT
OR ANY OF THE OBLIGATIONS ANY OFFSETS OR COUNTERCLAIMS WHICH IT MAY HAVE.
17. Limitation of Liability. Company acknowledges and understands that in
order to assure repayment of the Obligations, Secured Party may be required to
exercise any and all of Secured Party's rights and remedies hereunder and agrees
that neither Secured Party nor any of Secured Party's agents shall be liable for
acts taken or omissions made in connection herewith or therewith except for
actual bad faith.
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18. Entire Understanding. This Agreement contains the entire understanding
between Company and Secured Party and any promises, representations, warranties
or guarantees not herein contained shall have no force and effect unless in
writing, signed by the Company and Secured Party. Neither this Agreement, nor
any portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged.
19. Severability. Wherever possible each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions thereof.
20. Captions. All captions are and shall be without substantive meaning or
content of any kind whatsoever.
21. Marshaling. Secured Party shall not be required to marshal any present
or future collateral security (including but not limited to this Agreement and
the Collateral) for, or other assurances of payment of, the Obligations or any
of them or to resort to such collateral security or other assurances of payment
in any particular order, and all of its rights hereunder and in respect of such
collateral security and other assurances of payment shall be cumulative and in
addition to all other rights, however existing or arising. To the extent that it
lawfully may, the Company hereby agrees that it will not invoke any law relating
to the marshaling of collateral which might cause delay in or impede the
enforcement of the Secured Party's rights under this Agreement or under any
other instrument creating or evidencing any of the Obligations or under which
any of the Obligations is outstanding or by which any of the Obligations is
secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, the Company hereby irrevocably waives the benefits of all such
laws.
22. Counterparts; Telecopied Signatures. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original and all of
which when taken together shall constitute one and the same instrument. Any
signature delivered by a party by facsimile transmission shall be deemed to be
an original signature hereto.
23. Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
AIR INDUSTRIES GROUP, INC.
By: /s/ Peter D. Rettaliata
-----------------------------
Name: Peter D. Rettaliata
Title:President
STEEL CITY CAPITAL FUNDING LLC
By: /s/ Kevin Madigan
-----------------------------
Name: Kevin Madigan
Title: Managing Director
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