U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ending March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d)
OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Commission file number 0-7267
WEB PRESS CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
Washington 91-0851298
_______________________________ ____________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22023 68th Avenue S., Kent, Washington 98032
____________________________________________
(Address of principal executive offices)
Registrant's telephone number, including area code (253) 395-3343
______________
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past ninety
(90) days. Yes X No _
All reports during the preceding 12 months have been filed.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date
(applicable only to corporate issuers): Common Stock, $.025 par
value per share; 3,105,413 shares outstanding as of May 13, 1998.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Page 1 of 14 pages in this document
1
<PAGE>
INTRODUCTORY REMARKS
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading.
The information furnished reflects all adjustments which are, in
the opinion of management, necessary to a fair statement of the
results for the interim period.
It is suggested that these condensed financial statements be read
in conjunction with the financial statements and the notes
therein included in the Company's latest annual report on Form
10-KSB.
2
<PAGE>
PART I
______
FINANCIAL INFORMATION
_____________________
WEB PRESS CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS March 31, 1998
______________
Current Assets:
Cash............................. $ 36
Accounts receivable, less
allowance for doubtful
accounts of $5................... 964
Inventories...................... 3,843
Refundable income taxes.......... 111
Deposits......................... 51
Deferred tax assets.............. 83
Prepaid expenses................. 19
______
Total Current Assets............. 5,107
Machinery and Leasehold Improvements,
at cost:
Machinery and equipment.......... 3,260
Leasehold improvements........... 195
______
3,455
Less accumulated depreciation
and amortization............... 2,559
______
Machinery and Leasehold
Improvements (Net)............. 896
______
Total Assets..................... $6,003
______
______
The above figures are unaudited. The accompanying notes are an
integral part of the Consolidated Financial Statements.
3
<PAGE>
WEB PRESS CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 1998
______________
Current Liabilities:
Note payable to bank..................... $ 437
Accounts payable......................... 428
Customer deposits........................ 196
Accrued expenses......................... 559
Current portion of long-term debt........ 318
______
Total Current Liabilities................... 1,938
Long-Term Debt, less current portion........ 1,007
Deferred Tax Liabilities.................... 438
Commitments
Stockholders' Equity:
Common stock, par value $.025 per share:
Authorized, 4,000,000 shares
Issued, 3,436,513 shares................ 86
Paid-in capital.......................... 320
Retained earnings........................ 2,311
______
2,717
Treasury stock, 331,100 shares at cost... (97)
______
Total Stockholders' Equity.................. 2,620
______
Total Liabilities and
Stockholders' Equity....................... $6,003
______
______
The above figures are unaudited. The accompanying notes are an
integral part of the Consolidated Financial Statements.
4
<PAGE>
WEB PRESS CORPORATION
Consolidated Statements of Operations
For the three months ending March 31,
(Dollars in Thousands Except Earnings Per Share)
1998 1997
____ ____
Sales......................... $1,015 $1,460
Cost of sales................. 768 1,119
______ ______
247 341
Selling, general and
administrative expenses..... 334 285
______ ______
(87) 56
Interest expense.............. 46 39
______ ______
Earnings (loss) before taxes
(benefit)................... (133) 17
Taxes (benefit) on earnings
(loss)...................... (45) 6
______ ______
Net earnings(loss)............ $ (88) $ 11
______ ______
______ ______
Net earnings(loss) per share.. $(.03) $.004
_____ _____
_____ _____
The above figures are unaudited. The accompanying notes are an
integral part of the Consolidated Financial Statements.
5
<PAGE>
WEB PRESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ending March 31,
(Dollars in Thousands)
1998 1997
____ ____
Cash flows from operating activities:
Net earnings (loss)...................... $ (88) $ 11
Adjustments to reconcile net
earnings (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization.......... 52 52
Inventory valuation reserve............ 16
Provision for losses on accounts
receivable........................... 2 3
Deferred taxes......................... (45) 6
Retirement of plant assets............. 5
Increase (Decrease) in cash from
changes in operating accounts:
Accounts receivable................. 2,507 (511)
Inventory............................ (1,109) (446)
Deposits............................. 56
Prepaid expenses..................... 19 (6)
Accounts payable..................... (260) 171
Customer deposits.................... 2 16
Accrued expenses..................... (749) 117
Income taxes payable................. (38)
______ _____
Total adjustments.................... 496 (636)
______ _____
Net cash provided(used) by
Operating activities................. 408 (625)
Cash flows from investing activities:
Capital expenditures..................... (451) (10)
Proceeds from retirement of plant
Assets................................. 55
______ _____
Net cash used by investing activities...... (396) (10)
(Continued on following page)
6
<PAGE>
(Continued from previous page)
Cash Flows from financing activities:
Proceeds from issuance of
long-term debt......................... 421 975
Payments on long-term debt............... (68) (865)
______ _____
Net borrowings (payments) from
financing activities................... (335) 546
______ _____
Net cash provided by financing
activities............................. 18 656
______ _____
Net increase in cash....................... 30 21
Cash at beginning of period................ 6 6
______ _____
Cash at end of period...................... $ 36 $ 27
Supplemental disclosures of cash
flow information:
Cash was paid during the year for:
Interest................................ $42 $21
Taxes................................... 38
The above figures are unaudited. The accompanying notes are an
integral part of the Consolidated Financial Statements.
7
<PAGE>
WEB PRESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDING MARCH 31, 1998
Note 1 - Summary of Significant Accounting Policies:
Principles of consolidation
___________________________
The accompanying consolidated financial statements include the
accounts of Web Press Corporation and Web Leader International,
Inc., its wholly owned Domestic International Sales Corporation
(DISC). All significant inter-company accounts and transactions
have been eliminated in consolidation.
Inventories
___________
Raw materials, work-in-progress and finished goods inventories
are stated at the lower of average cost or market. Used presses
and other related press equipment are stated at the lower of
cost (specific identification basis) or market. Inventory costs
include material, labor, and manufacturing overhead.
Inventories were classified as follows:
(Dollars in Thousands)
March 31, 1998
______________
Raw materials and parts
(including subassemblies)..... $1,273
Work-in-progress.............. 854
Finished goods................ 1,364
Used equipment................ 352
______
$3,843
______
______
Machinery and leasehold improvements
____________________________________
Machinery and equipment are depreciated on the straight-line
method, for financial statement purposes, based upon useful
lives of three to ten years. Leasehold improvements are
amortized over their useful lives or the term of the lease,
whichever is shorter. For income tax purposes, accelerated
methods are used for all eligible assets.
8
<PAGE>
Maintenance and repairs are charged directly to costs or
expenses as incurred. Equipment of only nominal value and
renewals and betterments that do not appreciably extend the life
of the asset are charged directly to costs or expenses.
Fully depreciated or fully amortized assets which are no longer
in use or are not identifiable are written off by charges to the
allowance for accumulated depreciation and amortization. When
assets are retired or disposed of, the costs and accumulated
depreciation of such assets are removed from the accounts and
the difference between the net depreciated cost and the amount
received is recorded in the statements of operatinos.
Revenue recognition
___________________
Revenue from sales of manufactured products under firm contracts
is recognized generally at the time equipment is available for
shipment. All freight and installation costs are accrued at the
time revenue is recognized. Estimated costs related to product
warranties are provided at the time of sale. Proceeds received
on contracts prior to recognition as a sale are recorded as
deposits.
Income taxes
____________
Income taxes are provided on income for financial reporting
purposes without regard to the period in which such taxes are
payable. Deferred taxes are provided for all significant items
which are reported for tax purposes in different periods than
the consolidated statements of earnings. Investment tax credits
are recorded as a reduction of federal income taxes in the year
available.
Earnings per share
__________________
Earnings per share calculations are based on the weighted
average number of shares outstanding.
Note 2 - Financing:
The Company has a line of credit with a commercial bank for
borrowing up to $1.200 million. The interest rate charged is 2
percent above the bank's prime rate. Borrowings against this
line were $437 thousand on March 31, 1998. Accounts receivable,
firm orders in production, inventories, and values in excess of
the long-term financing on equipment are pledged as collateral.
9
<PAGE>
The Company has a second line of credit with the bank for
borrowing up to an additional $1 million to manufacture
equipment for export. The loan is a revolving line of credit
based on a series of transactions backed by letter of credit
orders acceptable to the bank. The line is secured by an
"export working capital guarantee" from the Export-Import Bank
of the United States. The interest rate charged is 1.5 percent
above the bank's prime rate. There were no borrowings against
this line on March 31, 1998.
10
<PAGE>
Long-term debt consists of the following:
(Dollars in Thousands)
March 31, 1998
______________
Term note, 2% above prime rate, due
in monthly installments of $24,837
including interest. Final payment
due February, 2001........................ $ 749
Note payable for equipment, 8%, due in
monthly installments of $6,794
including interest. Final payment due
in March, 2003............................ 421
Note payable for equipment, 9.3%, due
in monthly installments of $2,198
including interest. Final payment due
in March, 2004............................ 121
Note payable for equipment and leasehold
improvements, 12%, due in monthly install-
ments of $2,262 including interest.
Final payment due in October, 1998........ 15
Note payable for equipment, 10%, due in
monthly installments of $1,039 including
interest. Final payment due in
November, 1998............................ 8
Note payable for equipment, 8.23%, due in
monthly installments of $277 including
interest. Final payment due in December,
2001...................................... 11
______
1,325
Less current portion...................... 318
______
$1,007
______
______
Equipment with an original cost of $621 thousand is pledged
as collateral under the notes payable for equipment and the
equipment purchase contracts.
11
<PAGE>
Note 3 - Common Stock:
The Company's Stock Option Plan permits issuance of stock
options to key employees at prices not less than 100% of market
price at the date of grant. An aggregate of 600,000 shares of
common stock is reserved in connection with this Plan. As of
March 31, 1998, no options had been granted under this Plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating results
Sales for the first quarter of 1998 were $1.015 million, compared
with $1.134 million for the same period in 1997. New equipment
sales accounted for most of the decline. Service and parts sales
were slightly lower in 1998, too. The Company sold one used
press in 1998. There was no used equipment sold in the first
quarter of 1997. The backlog of orders believed to be firm was
$3.155 million on May 13, 1998, compared with $1.579 million on
May 13, 1997.
Cost of sales, expressed as a percentage of sales, decreased to
75.6 percent in the first quarter of 1998 compared with 76.6
percent in the first quarter of 1997. Gross profits were $247
thousand and $341 thousand in the first quarter of 1998 and 1997,
respectively.
Selling, general and administrative expenses increased by $49
thousand in the first quarter of 1998 compared with the same
period in 1997. Most of the increase was in selling expenses,
which increased $40 thousand due to higher payroll, advertising
and promotion, and travel expenses. General and administrative
expenses increased $9 thousand due to higher payroll expenses and
personnel recruiting costs. Most other expenses were
approximately the same in 1998 as they were in 1997.
Interest expense was $46 thousand in the first quarter of 1998,
compared with $39 thousand in the first quarter of 1997. The
average interest rate on the Company's short-term borrowings from
the bank was 10.4 percent in 1998 and 10.5 percent in 1997. The
average amount of short-term borrowings outstanding decreased to
$322 thousand in 1998 from $374 thousand in 1997.
The Company had a net loss of $88 thousand in the first quarter
of 1998, compared with net earnings of $11 thousand in the first
12
<PAGE>
quarter of 1997. Lower booked sales of new equipment in the
first quarter of 1998 caused the net loss.
The Company's operating results for the first quarter are not
necessarily indicative of results to be expected for the full
year, particularly because of the high value of each order for
the Company's equipment and their irregular timing. The Company
expects 1998 sales to exceed 1997 sales and to operate profitably
for the year.
Liquidity
Net working capital was $3.169 million and the current ratio was
2.6:1 on March 31, 1998. Net cash provided from operating
activities was $408 thousand in the first quarter of 1998.
Changes in working capital components include an increase in
inventories of $1.109 million, a decrease in accounts receivable
of $2.507 million, and lower accrued expenses and accounts
payable of $749 thousand and $260 thousand, respectively.
Finished goods inventory increased to $1.364 million on March 31,
1998, an increase of $594 thousand from December 31, 1997. Work-
in-progress was $854 thousand on March 31, 1998, increasing $343
thousand from December 31, 1997. Used equipment inventory and
raw materials and parts inventories increased slightly in the
first quarter of 1998. The higher inventories are necessary to
meet press shipment requirements in the second and third quarters
of 1998.
Funds provided by operations are the Company's primary source of
liquidity. In addition, the Company uses short-term debt from
two separate revolving lines of credit with a commercial bank to
finance fluctuating working capital requirements. On March 31,
1998, the Company had additional borrowing capacity of $763
thousand from its operating line of credit. There were no
borrowings from its "export line" of credit on March 31, 1998.
Capital Resources
In February 1998, the Company borrowed $420,700 from the bank to
purchase a new machine tool. The loan is for 5 years, but will
be amortized over 7 years. The interest rate charged is 9
percent. The first payment was due on March 18, 1998, and was
for interest only. Commencing April 18, 1998, the Company will
make 59 additional monthly payments of $6,794, followed by one
final payment of $155,675 on February 18, 2003.
13
<PAGE>
Long-term debt and deferred income taxes (net of deferred tax
assets), as a percentage of total capitalization was 34 percent
on March 31, 1998. The Company believes that its borrowing
capacity is sufficient to provide for orderly growth.
Item 6. Exhibits and Reports on Form 8-K
_________________________________________
(a) Exhibits
(10) Material Contracts
The following exhibits are filed herewith:
(10a) being the Business Loan Agreement between Web Press
Corporation and Washington First International Bank
dated April 3, 1998.
(10b) being the Borrowing Agreement between Web Press
Corporation and the Export-Import Bank of the United
States dated April 3, 1998.
(b) Reports on Form 8-K -- There are no reports on Form 8-K
filed for the three months ending March 31, 1998.
SIGNATURE
_________
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 thereunto duly authorized.
WEB PRESS CORPORATION
_____________________
(Registrant)
May 13, 1998 \s\ Gary B. Palmer
____________ _________________________
Date Gary B. Palmer, President
May 13, 1998 \s\ Craig L. Mathison
____________ _____________________
Date Craig L. Mathison
Secretary/Treasurer
(Principal Accounting Officer)
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 969
<ALLOWANCES> 5
<INVENTORY> 964
<CURRENT-ASSETS> 3,843
<PP&E> 3,455
<DEPRECIATION> 2,559
<TOTAL-ASSETS> 6,003
<CURRENT-LIABILITIES> 1,938
<BONDS> 0
<COMMON> 86
0
0
<OTHER-SE> 2,534
<TOTAL-LIABILITY-AND-EQUITY> 6,003
<SALES> 1,015
<TOTAL-REVENUES> 1,015
<CGS> 768
<TOTAL-COSTS> 768
<OTHER-EXPENSES> 334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> (133)
<INCOME-TAX> (45)
<INCOME-CONTINUING> (88)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (88)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
<PAGE>
Exhibit (10a)
LOAN AGREEMENT
_____________________________________________________________________________
Principal Loan Date Maturity Loan No. Call Collateral
$1,000,000.00 04-03-1998 10-15-1998 8015480008 14
Account Officer Initials
801548 305
_____________________________________________________________
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
______________________________________________________________________________
Borrower: WEB PRESS CORPORATION AND Lender: Washington First
WEB LEADER INTERNATIONAL, INC. International Bank
22023 68TH AVENUE SOUTH 9709 Third Avenue NE
KENT, WA 98032 Suite 110
Seattle, WA 98115
THIS LOAN AGREEMENT between WEB PRESS CORPORATION AND WEB LEADER
International, INC. ("Borrower") and Washington First International Bank
("Lender") is made and executed on the following terms and conditions.
Borrower has received prior commercial loans from Lender or has applied to
Lender for a commercial loan or loans and other financial accommodations,
including those which may be described on any exhibit or schedule attached to
this Agreement. All such loans and financial accommodations, together with all
future loans and financial accommodations from Lender to Borrower, are
referred to in this Agreement individually as the "Loan" and collectively as
the "Loans." Borrower understands and agrees that: (a) in granting, renewing,
or extending any Loan, Lender is relying upon Borrower's representations,
warranties, and agreements, as set forth in this Agreement; (b) the granting,
renewing, or extending of any Loan by Lender at all times shall be subject to
Lender's sole judgment and discretion; and (c) all such Loans shall be and
shall remain subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of April 3, 1998, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America
Agreement. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
Account. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds under this
Agreement.
Borrower. The word "Borrower" means WEB PRESS CORPORATION AND WEB LEADER
INTERNATIONAL, INC. The word "Borrower" also includes, as applicable, all
subsidiaries and affiliates of Borrower as provided below in the paragraph
titled "Subsidiaries and Affiliates."
Borrowing Base. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $1,000,000.00; or (b) the sum of (i)
90.000% of the aggregate amount of Eligible Accounts, plus (ii) 75.000% of
the aggregate amount of Eligible Inventory.
Business Day. The words "Business Day" mean a day on which commercial
banks are open for business in the State of Washington.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and income, plus depreciation and amortization.
Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
mortgage, deed of trust, assignment, pledge chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt,
lien, charge, lien or title retention contract, lease or consignment
intended as a security device, or any other security or lien interest
whatsoever, whether created by law, contract, or otherwise. The word
"Collateral" includes without limitation all collateral described below in
the section titled "COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable
to Lender. The net amount of any Eligible Account against which Borrower
may borrow shall exclude all returns, discounts, credits, and offsets of
any nature. Unless otherwise agreed to by Lender in writing, Eligible
Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an officer, an
employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary
of, or affiliated with or related to Borrower or its shareholders,
officers, or directors.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the
Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a resident
of the United States, except to the extent such Accounts are supported
by insurance, bonds or other assurances satisfactory to Lender.
(e) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower.
(f) Accounts with are subject to dispute, counterclaim, or setoff.
(g) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account Debtor.
(h) Accounts with respect to which Lender, in its sole discretion, deems
the creditworthiness or financial condition of the Account Debtor to be
unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief under
any provision of any state or federal bankruptcy, insolvency, or debtor-
in-relief acts; or who has had appointed a trustee, custodian, or
receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or fails
generally to pay its debts (including its payrolls) as such debts may
become due.
(j) Accounts with respect to which the Account Debtor is the United
States government or any department or agency of the United States.
<PAGE>
04-03-1998 LOAN AGREEMENT Page 2
(Continued)
Eligible Inventory. The words "Eligible Inventory" mean, at any time, all
of Borrower's inventory as defined below except:
(a) Inventory which is not owned by Borrower free and clear of all
security interests, liens, encumbrances, and claims of third parties.
(b) Inventory which Lender, in its sole discretion, deems to be
obsolete, unsalable, damaged, defective, or unfit for further
processing.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date of termination
of Lender's commitment to lend under this Agreement.
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
Inventory. The word "Inventory" means all of Borrower's raw materials,
work in process, finished goods, merchandise, parts and supplies, of every
kind and description, and goods held for sale or lease or furnished under
contracts of service in which Borrower now has or hereafter acquires any
right, whether held by Borrower or others, and all documents of title,
warehouse receipts, bills of lading, and all other documents of every type
covering all or any part of the foregoing. Inventory includes inventory
temporarily out of Borrower's custody or possession and all returns on
Accounts.
Lender. The word "Lender" means Washington First International Bank, its
successors and assigns.
Line of Credit. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrowers readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, it any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) less total Debt.
Working Capital. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject to
the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered by
Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and shall be
in full force and effect.
<PAGE>
04-03-1998 LOAN AGREEMENT Page 3
(Continued)
(d) All guaranties required by Lender for the Line of Credit shall have
been executed by each Guarantor, delivered to Lender, and be in full
force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, inventory, books, records,
and operations, and Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due
and payable.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
Making Loan Advances. Advances under the credit facility, as well as
directions for payment from Borrower's accounts, may be requested orally or
in writing by authorized persons. Lender may, but need not, require that
all oral requests be confirmed in writing. Each Advance shall be
conclusively deemed to have been made at the request of and for the benefit
of Borrower (a) when credited to any deposit account of Borrower maintained
with Lender or (b) when advanced in accordance with the instructions of an
authorized person. Lender, at its option, may set a cutoff time, after
which all requests for Advances will be treated as having been requested on
the next succeeding Business Day.
Mandatory Loan Repayments. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay to
Lender an amount equal to the difference between the outstanding principal
balance of the Advances and the Borrowing Base. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid principal amount
of all Advances then outstanding and all accrued unpaid interest, together
with all other applicable fees, costs and charges, if any, not yet paid.
Loan Account. Lender shall maintain on its books a record of account in
which Lender shall make entries for each advance and such other debits and
credits as shall be appropriate in connection with the credit facility.
Lender shall provide Borrower with periodic statements of Borrower's
account, which statements shall be considered to be correct and conclusively
binding on Borrower unless Borrower notifies Lender to the contrary within
thirty (30) days after Borrower's receipt of any such statement which
Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owned by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such property
and assets as Lender may require (the "Collateral"), including without
limitation Borrower's present and future Accounts, general intangibles, and
Inventory. Lender's Security Interests in the Collateral shall be continuing
liens and shall include the proceeds and products of the Collateral, including
without limitation the proceeds of any insurance. With respect to the
Collateral, Borrower agrees and represents and warrants to Lender:
Perfection of Security Interests. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and
any similar statements as may be required by applicable law, and will file
such financing statements and all such similar statements in the appropriate
location or locations. Borrower hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue any Security Interest. Lender may at any time, and
without further authorization from Borrower, file a carbon, photograph,
facsimile, or other reproduction of any financing statement for use as a
financing statement. Borrower will reimburse Lender for all expenses fore
the perfection, termination, and the continuation of the perfection of
Lender's security interest in the Collateral. Borrower promptly will notify
Lender of any change in Borrower's name including any change to the assumed
business names of Borrower. Borrower also promptly will notify Lender of
any change in Borrower's Social Security Number or Employer Identification
Number. Borrower further agrees to notify Lender in writing prior to any
change in address or location of Borrower's principal governance office or
should Borrower merge or consolidate with any other entity.
Collateral Records. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings. With respect to the Inventory,
Borrower agrees to keep and maintain such records as Lender may require,
including without limitation information concerning Eligible Inventory and
records itemizing and describing the kind, type, quality, and accurate and
complete list of all locations at which Borrower keeps or maintains business
records concerning Borrower's Accounts and Inventory: KENT, WASHINGTON.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of
Accounts and Inventory and Eligible Accounts and Eligible Inventory, in form
and substance satisfactory to the Lender. Thereafter Borrower shall execute
and deliver to Lender such supplemental schedules of Eligible Accounts and
Eligible Inventory and such other matters and information relating to the
Accounts and Inventor as Lender may request. Supplemental schedules shall
be delivered according to the following schedule: Borrower understands and
agrees to provide Lender with updated Borrowing Base Certificate with each
advance request.
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; and (c) Lender,
its assigns, or agents shall have the right at any time and at Borrower's
expense to inspect, examine, and audit Borrower's records and to confirm
with Account Debts the accuracy of such Accounts.
Representations and Warranties Concerning Inventory. With respect to the
Inventory, Borrower represents and warrants to Lender: (a) All Inventory
represented by Borrower to be Eligible Inventory for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Inventory; (b) All Inventory values listed on schedules delivered Lender
will be true and correct, subject to immaterial variance; (c) The value of
the Inventory will be determined on a consistent accounting basis; (d)
Except as agreed to the contrary by Lender in writing, all Eligible
Inventory is now and at all times hereafter will be in Borrower's physical
possession and shall not be held by others on consignment, sale on approval,
or sale or return; (e) Except as reflected in the Inventory schedules
delivered to Lender, all Eligible Inventory is now and at all times
hereafter will be of good and merchantable quality, free from defects; (f)
Eligible Inventory is not now and will not at any time hereafter be stored
with a bailee, warehouseman, or similar party without Lender's prior written
consent, and, in such event, Borrower will concurrently at the time of
bailment cause any such bailee, warehouseman, or similar party to issue and
deliver to Lender, in form acceptable to Lender, warehouse receipts in
Lender's name evidencing the storage of Inventory; and (g) Lender, its
assigns, or agents shall have the right at any time and at Borrower's
expense to inspect and examine the Inventory and to check and test the same
as to quality, quantity, value, and condition.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Washington
<PAGE>
04-03-1998 LOAN AGREEMENT Page 4
(Continued)
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified as
a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrowers financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there has
been no use, generation, manufacture, storage, treatment, disposal, release
or threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no knowledge
of, or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance on, under, about or from the properties
by any prior owners or occupants of any of the properties, or (ii) any
actual or threatened litigation or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant, contractor,
agent or other authorized user of any of the properties shall use,
generate, manufacture, store, treat, dispose of, or release any hazardous
waste or substance on, under, about or from any of the properties; and any
such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above. Borrower
authorizes Lender and its agents to enter upon the properties to make such
inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating the properties for hazardous
waste and hazardous substances. Borrower hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach of
this section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release occurring
prior to Borrower's ownership or interest in the properties, whether or not
the same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnity, shall
survive the payment of the Indebtedness and the termination or expiration
of this Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
assessments and other governmental charges have been paid in full, except
those presently being or to be contested by Borrower in good faith in the
ordinary course of business and for which adequate reserves have been
provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect
to any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
Location of Borrowers Offices and Records. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 22023 - 68TH AVENUE SOUTH, KENT, WA 98032. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
Survival of Representations and Warranties. Borrower understands and agrees
that Lender, without independent investigation,, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.
<PAGE>
04-03-1998 LOAN AGREEMENT Page 5
(Continued)
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Financial Statements.- Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited
by a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than forty five (45) days after the end of
each fiscal quarter, Borrowers balance sheet and profit and loss statement
for the period ended, prepared and certified as correct to the best
knowledge and belief by Borrower's chief financial officer or other officer
or person acceptable to Lender. All financial reports required to be
provided under this Agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 1.90 to 1.00.
Working Capital. Maintain Working Capital in excess of $2,250,000.00.
Current Ratio. Maintain a ratio of Current Assets to Current Liabilities
in excess of 1.50 to 1.00.
Other Ratio. Maintain a ratio of EARNINGS BEFORE INTEREST AND TAXES TO
INTEREST EXPENSE IN EXCESS OF 1.40 to 1.00. Except as provided above,
all computations made to determine compliance with the requirements
contained in this paragraph shall be made in accordance with generally
accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages and
with insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies
or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be canceled or diminished without
at least ten (10) days' prior written notice to Lender. Each insurance
policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission or
default of Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security interest
for the Loans, Borrower will provide Lender with such loss payable or
other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantors
named below, on Lenders forms, and in the amounts and under the conditions
spelled out in those guaranties.
Guarantors Amounts
__________ _______
ALAN W. WHITE Unlimited
ROLYNN G. MERCER Unlimited
ROY B. THOMPSON Unlimited
EDWIN P. BEIERLORZER Unlimited
GARY B. PALMER $1,000,000.00
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for the following specific
purposes: FUNDS TO BE USED ONLY FOR EXPORT WORKING CAPITAL RELATED
TRANSACTIONS.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and clams against Borrower's properties,
income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans with Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books,
<PAGE>
04-03-1998 LOAN AGREEMENT Page 6
(Continued)
accounts, and records. If Borrower now or at any time hereafter maintains
any records (including without limitation computer generated records and
computer software programs for the generation of such records) in the
possession of a third party, Borrower, upon request or Lender, shall notify
such party to permit Lender free access to such records at all reasonable
times and to provide Lender with copies of any records it may request, all
at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrowers part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or Its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (C) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds
if: (a) Borrower or any Guarantor is in default under the terms of this
Agreement or any of the Related Documents or any other agreement that Borrower
or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes
insolvent, files a petition in bankruptcy or similar proceedings, or is
adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's
financial condition, in the financial condition of any Guarantor, or in the
value of any Collateral securing any Loan; or (d) any Guarantor seeks, claims
or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of
the Loan or any other loan with Lender.
DISPOSITION OF CASH COLLATERAL ACCOUNT PROCEEDS.
Account proceeds will be deposited to cash collateral account #120004015:
______ all proceeds
______ proceeds of accounts or invoices assigned
______ (specify)___________________________________
Cash Collateral account funds will be applied to note balance:
___MONDAY, TUESDAY, WEDNESDAY, THURSDAY_ and_FRIDAY____ __________of each
week. (day of week)
or days after deposit.
or business days after deposit.
PAYMENT OF INTEREST.
_______Interest is to be paid, first from each payment.
_______Interest is to be paid, monthly per billing statement.
X Interest is to be paid, by charging account #120004023.
_______
_______Interest is to be paid, (specify)_________________________.
COLLATERAL SCHEDULE TIMETABLES.
Borrower shall execute and deliver to Lender the following schedules:
Accounts Receivables Agings X Monthly _____ Quarterly _____ Other____within 20
___
days.
Accounts Payable Agings X Monthly _____ Quarterly _____ Other _____ within
___
20 days.
Inventory Schedules X Quarterly ______ Other____within 20 days.
___
Other Schedules ___________________________.
**Above schedules must include a Borrowing Base Certificate..
TERMS OF SALE (NOT TO EXCEED 180 DAYS). Borrower understands and agrees that
all Terms of Sale transactions must be supported by irrevocable letter of
credit. If there is an existing opened account, it must already be insured
through Ex-Im Bank credit insurance to cover for comprehensive commercial and
political risk. For each advance, documentation must be provided to the
Lender which details the cost of materials and labor incurred related to the
transaction. All downpayments received on the order must first be fully
expended for materials and labor on the related transaction before funds can
be advanced from the line of credit.
DIVIDEND RESTRICTIONS. Borrower understands and agrees that they shall not
pay any dividends (other than dividends payable in shares of the Borrower's
stock) on any class of shares of the Borrower's stock.
LOANS TO STOCKHOLDERS AND AFFILIATES. Borrower understands and agrees that
they shall not make any loans to any stockholder or entity
<PAGE>
04-03-1998 LOAN AGREEMENT Page 7
(Continued)
affiliated with the Borrower (for a period exceeding sixty (60) consecutive
days).
ADDITIONAL DEBT. Borrower understands and agrees that they shall not incur,
guarantee or become in any way liable with respect to debts outside the
ordinary course of business except for renewal or extensions of debts
outstanding.
CAPITAL EXPENDITURES. Borrower understands and agrees that they shall not
make any plant or fixed capital expenditures, or make any commitment to
purchase or lease any real or personal property or replacement equipment
subject to a purchase money security interest, trust deed or lease, in excess
of $400,000.00.
LIMITATION OF ELIGIBLE INVENTORY AND ACCOUNTS RECEIVABLE. Borrower
understands and agrees that in order to determine Borrowing Base, Lender will
use eligible export-related inventory and export-related accounts receivable.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all
accounts Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
Change In Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lenders sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice
of any kind to Borrower, except that in the case of an Event of Default of the
type described in the "Insolvency" subsection above, such acceleration shall
be automatic and not optional. In addition, Lender shall have all the rights
and remedies provided in the Related Documents or available at law, in equity,
or otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take
action to perform an obligation of Borrower or of any Grantor shall not affect
Lender's right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of King
County, the State of Washington. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington.
Caption headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
<PAGE>
04-03-1998 LOAN AGREEMENT Page 8
(Continued)
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrowers current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
APRIL 3,1998.
BORROWER:
WEB PRESS CORPORATION AND WEB LEADER INTERNATIONAL, INC.
By: /s/ GARY B. PALMER
__________________
President: WEB PRESS CORPORATION
By: /s/ GARY B. PALMER
__________________
Chairman: WEB LEADER INTERNATIONAL, INC.
LENDER:
Washington First International Bank
By: /s/ MICHAEL C.C. LUM
____________________
Authorized Officer
<PAGE>
PROMISSORY NOTE
______________________________________________________________________________
Principal Loan Date Maturity Loan No. Call Collateral
$1,000,000.00 04-13-1998 10-15-1998 8015480008 14
Account Officer Initials
801548 305
_____________________________________________________________
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
______________________________________________________________________________
Borrower: WEB PRESS CORPORATION AND Lender: Washington First
WEB LEADER INTERNATIONAL, INC. International Bank
22023 68TH AVENUE SOUTH 9709 Third Avenue NE
KENT, WA 98032 Suite 110
Seattle, WA 98115
______________________________________________________________________________
Principal Amount: $1,000,000.00 Initial Rate: 10.000%
Date of Note: April 3, 1998
PROMISE TO PAY. WEB PRESS CORPORATION AND WEB LEADER INTERNATIONAL, INC.
("Borrower") promises to pay to Washington First International Bank
("Lender"), or order, in lawful money of the United States of America, the
principal amount of One Million & 00/100 Dollars ($1,000,000.00) or so much as
may be outstanding, together with interest on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the date of each
advance until repayment of each advance.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in
one payment of all outstanding principal plus all accrued unpaid interest on
October 15, 1998. In addition, Borrower will pay regular monthly payments of
accrued unpaid interest beginning May 15, 1998, and all subsequent interest
payments are due on the same day of each month after that. The annual interest
rate for this Note is computed on a 365/360 basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to any unpaid collection costs and any late charges, then to any unpaid
interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate
(the "Index"). This is the rate Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may or
may not be the lowest rate available from Lender at any given time. Lender
will tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each DAY. The Index
currently is 8.500% per annum. The interest rate to be applied to the unpaid
principal balance of this Note will be at a rate of 1.500 percentage points
over the Index, resulting in an initial rate of 10.000% per annum. NOTICE:
Under no circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject
to refund upon early payment (whether voluntary or as a result of default),
except as otherwise required by law. Except for the foregoing, Borrower may
pay without penalty all or a portion of the amount owed earlier than it is
due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $15.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d)
Any representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding is commenced either by
Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any
creditor tries to take any of Borrower's property on or in which Lender has a
lien or security interest. This includes a garnishment of any of Borrowers
accounts with Lender. (g) Any guarantor dies or any of the other events
described in this default section occurs with respect to any guarantor of this
Note. (h) A material adverse change occurs in Borrower's financial condition,
or Lender believes the prospect of payment or performance of the Indebtedness
is impaired.
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this Note
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within fifteen
(15) days; or (b) if the cure requires more than fifteen (15) days,
immediately initiates steps which Lender deems in Lender's sole discretion to
be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the variable interest rate on this
Note to 6.500 percentage points over the Index. The interest rate will not
exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether
or not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. If not prohibited by applicable law, Borrower also will pay any
court costs, in addition to all other sums provided by law. This Note has been
delivered to Lender and accepted by Lender in the State of Washington. If
there is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of King County, the State of Washington. This Note
shall be governed by and construed in accordance with the laws of the State of
Washington.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all
accounts Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested only in writing by Borrower or by an authorized
person. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: GARY B. PALMER, President:
Web Press Corp.; CRAIG L.
<PAGE>
04-03-1998 PROMISSORY NOTE Page 2
(Continued)
MATHISON, Secretary/Treasurer: WEB PRESS CORP.; GARY B. PALMER, Chairman: WEB
LEADER INTERNATIONAL, INC.; and CHARLES A. GATH, President: International,
Inc. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to
any of Borrower's accounts with Lender. The unpaid principal balance owing on
this Note at any time may be evidenced by endorsements on this Note or by
Lenders internal records, including daily computer printouts. Lender will have
no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; or (d) Borrower has applied funds provided
pursuant to this Note for purposes other than those authorized by Lender.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lenders right to
declare payment of this Note on its demand. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive presentment demand for payment protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether
as maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by
Lender without the consent of or notice to anyone. All such parties also agree
that Lender may modify this loan without the consent of or notice to anyone
other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
WEB PRESS CORPORATION AND WEB LEADER INTERNATIONAL, INC.
BY: /s/ GARY B. PALMER
____________________________
President: WEB PRESS CORP.
BY: /s/ GARY B. PALMER
_________________________________________
Chairman: WEB LEADER INTERNATIONAL, INC.
<PAGE>
COMMERCIAL SECURITY AGREEMENT
______________________________________________________________________________
Principal Loan Date Maturity Loan No. Call Collateral
$1,000,000.00 04-03-1998 10-15-1998 8015480008 14
Account Officer Initials
801548 305
_____________________________________________________________
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
______________________________________________________________________________
Borrower: WEB PRESS CORPORATION AND Lender: Washington First
WEB LEADER INTERNATIONAL, INC. International Bank
22023 68TH AVENUE SOUTH 9709 Third Avenue NE
KENT, WA 98032 Suite 110
Seattle, WA 98115
______________________________________________________________________________
THIS COMMERCIAL SECURITY AGREEMENT is entered into between WEB PRESS
CORPORATION AND WEB LEADER INTERNATIONAL, INC. (referred to below as
"Grantor"); and Washington First International Bank (referred to below as
"Lender"). For valuable consideration, Grantor grants to Lender a security
interest in the Collateral to secure the Indebtedness and agrees that Lender
shall have the rights stated in this Agreement with respect to the Collateral,
in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
All inventory, chattel paper, accounts, equipment, general intangibles
and fixtures, together with the following specifically described
property: First security interest on all export-related inventory,
export-related accounts receivable and export contract rights now owned
and hereafter acquired and wherever located. In addition, a junior
priority interest for all inventory, chattel paper, accounts, equipment
and general intangibles now owned and hereafter acquired and wherever
located.
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising,
and wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property described
in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
Grantor. The word "Grantor" means WEB PRESS CORPORATION AND WEB LEADER
INTERNATIONAL, INC., its successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to Lender, as
well as all claims by Lender against Grantor, or any one or more of them,
whether existing now or later; whether they are voluntary or involuntary,
due or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
Lender. The word "Lender" means Washington First International Bank, its
successors and assigns.
Note. The word "Note" means the note or credit agreement dated APRIL
3,1998, in the principal amount of $1,000,000.00 from WEB PRESS CORPORATION
AND WEB LEADER INTERNATIONAL, INC. to Lender, together with all renewals
of, extensions of, modifications of, refinancings of, consolidations of and
substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right, title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account),
including all accounts held jointly with someone else and all accounts Grantor
may open in the future, excluding, however, all IRA and Keogh accounts, and
all trust accounts for which the grant of a security interest would be
prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all Indebtedness against any and all such
accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any
<PAGE>
04-03-1998 COMMERCIAL SECURITY AGREEMENT Page 2
(Continued)
documents necessary to perfect or to continue the security interest granted
in this Agreement. Lender may at any time, and without further
authorization from Grantor, file a carbon, photographic or other
reproduction of any financing statement or of this Agreement for use as a
financing statement. Grantor will reimburse Lender for all expenses for the
perfection and the continuation of the perfection of Lenders security
interest in the Collateral. Grantor promptly will notify Lender before any
change in Grantor's name including any change to the assumed business names
of Grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
Location of the Collateral. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Washington, without the prior written consent of
Lender.
Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
Collateral Schedules and Locations. As often as Lender shall require and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and equipment,
Grantor shall deliver to Lender, as often as Lender shall require, such
lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such Collateral.
Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for
<PAGE>
04-03-1998 COMMERCIAL SECURITY AGREEMENT Page 3
(Continued)
hazardous wastes and substances. Grantor hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Grantor becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all claims
and losses resulting from a breach of this provision of this Agreement.
This obligation to indemnify shall survive the payment of the Indebtedness
and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request or Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
canceled or diminished without at least ten (10) days' prior written notice
to Lender and not including any disclaimer of the insurer's liability for
failure to give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Grantor or any other person.
In connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. If Grantor at any time
fails to obtain or maintain any insurance as required under this Agreement,
Lender may (but shall not be obligated to) obtain such insurance as Lender
deems appropriate, including if it so chooses "single interest insurance,"
which will cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and
except as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to
possession and beneficial use shall not apply to any Collateral where
possession of the Collateral by Lender is required by law to perfect Lender's
security interest in such Collateral. Until otherwise notified by Lender,
Grantor may collect any of the Collateral consisting of accounts. At any time
and even though no Event of Default exists, Lender may exercise its rights to
collect the accounts and to notify account debtors to make payments directly
to Lender for application to the Indebtedness. If Lender at any time has
possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose as
Grantor shall request or as Lender in Lender's sole discretion, shall deem
appropriate under the circumstances, but failure to honor any request by
Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the Note
and be apportioned among and be payable with any installment payments to
become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also will
secure payment of these amounts. Such right shall be in addition to all other
rights and remedies to which Lender may be entitled upon the occurrence of an
Event of Default
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or
Borrower's or any Grantor's ability to repay the Loans or perform their
respective obligations under this Agreement or any of the Related
Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall
<PAGE>
04-03-1998 COMMERCIAL SECURITY AGREEMENT Page 4
(Continued)
not apply if there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within () days; or (b), if the
cure requires more than () days, immediately initiates steps which Lender
deems in Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Washington Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following
rights and remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the Indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a mailer of right,
(b) the receiver may be an employee of Lender and may serve without bond
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choices in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage
of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a Judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Grantor agrees
upon Lenders request to submit to the jurisdiction of the courts of King
County, the State of Washington. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lenders legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services Grantor also shall pay all court costs and such additional fees as
may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the
<PAGE>
04-03-1998 COMMERCIAL SECURITY AGREEMENT Page 5
(Continued)
provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's, rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
Waiver of Co-obligor's Rights. If more than one person is obligated for the
Indebtedness, Borrower irrevocably waives, disclaims and relinquishes all
claims against such other person which Borrower has or would otherwise have
by virtue of payment of the Indebtedness or any part thereof, specifically
including but not limited to all rights of indemnity, contribution or
exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
APRIL 3, 1998.
GRANTOR:
WEB PRESS CORPORATION AND WEB LEADER INTERNATIONAL, INC.
By: /s/ Gary B. Palmer
___________________________________________
Gary B. Palmer, President, WEB PRESS CORP.
By: /s/ Gary B. Palmer
__________________________________________________________
Gary B. Palmer, Chairman: WEB LEADER INTERNATIONAL, INC.
<PAGE>
COMMERCIAL PLEDGE AGREEMENT
______________________________________________________________________________
Principal Loan Date Maturity Loan No. Call Collateral
$1,000,000.00 04-03-1998 10-15-1998 8015480008 14
Account Officer Initials
801548 305
_____________________________________________________________
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
______________________________________________________________________________
Borrower: WEB PRESS CORPORATION AND Lender: Washington First
WEB LEADER INTERNATIONAL, INC. International Bank
22023 68TH AVENUE SOUTH 9709 Third Avenue NE
KENT, WA 98032 Suite 110
Seattle, WA 98115
______________________________________________________________________________
THIS COMMERCIAL PLEDGE AGREEMENT is entered into between WEB PRESS CORPORATION
AND WEB LEADER INTERNATIONAL, INC. (referred to below as "Grantor"); and
Washington First International Bank (referred to below as "Lender").
GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to
Lender a security interest in the Collateral to secure the Indebtedness and
agrees that Lender shall have the rights stated in this Agreement with respect
to the Collateral, in addition to all other rights which Lender may have by
law.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement:
Agreement. The word "Agreement" means this Commercial Pledge Agreement, as
this Commercial Pledge Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Commercial
Pledge Agreement from time to time.
Collateral. The word "Collateral" means the following specifically
described property, which Grantor has delivered or agrees to deliver (or
cause to be delivered) immediately to Lender, together with all income and
Proceeds as described below:
ASSIGNMENT OF PROCEEDS OF EXPORT LETTERS OF CREDIT ASSOCIATED WITH THE
TRANSACTIONS ON WHICH DISBURSEMENTS OF THIS LOAN ARE BASED AND MADE.
In addition, the word "Collateral includes all property of Grantor (however
owned), in the possession of Lender (or in the possession of a third party
subject to the control of Lender), whether now or hereafter existing and
whether tangible or intangible in character, including without limitation
each of the following:
(a) All property to which Lender acquires title or documents of title.
(b) All property assigned to Lender.
(c) All promissory notes, bills of exchange, stock certificates, bonds,
savings passbooks, time certificates of deposit, insurance policies, and
all other instruments and evidences of an obligation.
(d) All records relating to any of the property described in this
Collateral section, whether in the form of a writing, microfilm,
microfiche, or electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
Grantor. The word "Grantor" means WEB PRESS CORPORATION AND WEB LEADER
INTERNATIONAL, INC., its successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Income and Proceeds. The words "Income and Proceeds" mean all present and
future income, proceeds, earnings, increases, and substitutions from or for
the Collateral of every kind and nature, including without limitation all
payments, interest, profits, distributions, benefits, rights, options,
warrants, dividends, stock dividends, stock splits, stock rights,
regulatory dividends, distributions, subscriptions, monies, claims for
money due and to become due, proceeds of any insurance on the Collateral,
shares of stock of different par value or no par value issued in
substitution or exchange for shares included in the Collateral, and all
other property Grantor is entitled to receive on account of such
Collateral, including accounts, documents, instruments, chattel paper, and
general intangibles.
Indebtedness. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
Lender. The word "Lender" means Washington First International Bank, its
successors and assigns.
Note. The word "Note" means the note or credit agreement dated April 3,
1998, in the principal amount of $1,000,000.00 from WEB PRESS CORPORATION
AND WEB LEADER INTERNATIONAL, INC. to Lender, together with all renewals
of, extensions of, modifications of, refinancings of, consolidations of and
substitutions for the note or credit agreement.
Obligor. The word "Obligor" means and includes without limitation any and
all persons or entities obligated to pay money or to perform some other act
under the Collateral.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or some other
account), including without limitation all accounts held jointly with someone
else and all accounts Borrower may open in the future, excluding however all
IRA and Keogh accounts, and all trust accounts for which the grant of a
security interest would be prohibited by law. Borrower authorizes Lender, to
the extent permitted by applicable law, to charge or setoff all sums owing on
the Indebtedness against any and all such accounts.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL.
Grantor represents and warrants to Lender that:
Ownership. Grantor is the lawful owner of the Collateral free and clear of
all security interests, liens, encumbrances and claims of others except
<PAGE>
04-03-1998 COMMERCIAL PLEDGE AGREEMENT Page 2
(Continued)
as disclosed to and accepted by Lender in writing prior to execution of
this Agreement.
Right to Pledge. Grantor has the full right, power and authority to enter
into this Agreement and to pledge the Collateral.
Binding Effect. This Agreement is binding upon Grantor, as well as
Grantor's heirs, successors, representatives and assigns, and is legally
enforceable in accordance with its terms.
No Further Assignment. Grantor has not, and will not, sell, assign,
transfer, encumber or otherwise dispose of any of Grantor's rights in the
Collateral except as provided in this Agreement.
No Defaults. There are no defaults existing under the Collateral, and
there are no offsets or counterclaims to the same. Grantor will strictly
and promptly perform each of the terms, conditions, covenants and
agreements contained in the Collateral which are to be performed by
Grantor, if any.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO COLLATERAL. Lender may hold
the Collateral until all the Indebtedness has been paid and satisfied and
thereafter may deliver the Collateral to any Grantor. Lender shall have the
following rights in addition to all other rights it may have by law:
Maintenance and Protection of Collateral. Lender may, but shall not be
obligated to, take such steps as it deems necessary or desirable to
protect, maintain, insure, store, or care for the Collateral, including
payment of any liens or claims against the Collateral. Lender may charge
any cost incurred in so doing to Grantor.
Income and Proceeds from the Collateral. Lender may receive all Income and
Proceeds and add it to the Collateral. Grantor agrees to deliver to Lender
immediately upon receipt, in the exact form received and without
commingling with other property, all Income and Proceeds from the
Collateral which may be received by, paid, or delivered to Grantor or for
Grantor's account, whether as an addition to, in discharge of, in
substitution of, or in exchange for any of the Collateral.
Application of Cash. At Lender's option, Lender may apply any cash,
whether included in the Collateral or received as Income and Proceeds or
through liquidation, sale, or retirement, of the Collateral, to the
satisfaction of the Indebtedness or such portion thereof as Lender shall
choose, whether or not matured.
Transactions with Others. Lender may (a) extend time for payment or other
performance, (b) grant a renewal or change in terms or conditions, or (c)
compromise, compound or release any obligation, with any one or more
Obligors, endorsers, or Guarantors of the Indebtedness as Lender deems
advisable, without obtaining the prior written consent of Grantor, and no
such act or failure to act shall affect Lender's rights against Grantor or
the Collateral.
All Collateral Secures Indebtedness. All Collateral shall be security for
the Indebtedness, whether the Collateral is located at one or more offices
or branches of Lender and whether or not the office or branch where the
Indebtedness is created is aware of or relies upon the Collateral.
Collection of Collateral. Lender, at Lender's option may, but need not,
collect directly from the Obligors on any of the Collateral all Income and
Proceeds or other sum of money and other property due and to become due
under the Collateral, and Grantor authorizes and directs the Obligors, if
Lender exercises such option, to pay and deliver to Lender all Income and
Proceeds and other sums of money and other property payable by the terms of
the Collateral and to accept Lender's receipt for the payments.
Power of Attorney. Grantor irrevocably appoints Lender as Grantor's
attorney-in-fact, with full power of substitution, (a) to demand, collect,
receive, receipt for, sue and recover all Income and Proceeds and other sum
of money and other property which may now or hereafter become due, owing or
payable from the Obligors in accordance with the terms of the Collateral;
(b) to execute, sign and endorse any and all instruments, receipts, checks,
drafts and warrants issued in payment for the Collateral; (c) to settle or
compromise any and all claims arising under the Collateral, and in the
place and stead of Grantor, execute and deliver Grantor's release and
acquittance for Grantor; (d) to file any claim or claims or to take any
action or institute or take part in any proceedings, either in Lender's own
name or in the name of Grantor, or otherwise, which in the discretion of
Lender may seem to be necessary or advisable; and (e) to execute in
Grantor's name and to deliver the Obligors on Grantor's behalf, at the time
and in the manner specified by the Collateral, any necessary instruments or
documents.
Perfection of Security Interest. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or constituting
the Collateral. When applicable law provides more than one method of
perfection of Lender's security interest, Lender may choose the method(s)
to be used. Upon request of Lender, Grantor will sign and deliver any
writings necessary to perfect Lender's security interest. Grantor hereby
appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose
of executing any documents necessary to perfect or to continue the security
interest granted in this Agreement. This is a continuing Security
Agreement and will continue in effect even though all or any part of the
Indebtedness is paid in full and even though for a period of time Grantor
may not be indebted to Lender.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the Note
and be apportioned among and be payable with any installment payments to
become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also
will secure payment of these amounts. Such right shall be in addition to all
other rights and remedies to which Lender may be entitled upon the occurrence
of an Event of Default.
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable
care in the physical preservation and custody of the Collateral in Lender's
possession, but shall have no other obligation to protect the Collateral or
its value. In particular, but without limitation, Lender shall have no
responsibility for (a) any depreciation in value of the Collateral or for the
collection or protection of any Income and Proceeds from the Collateral, (b)
preservation of rights against parties to the Collateral or against third
persons, (c) ascertaining any maturities, calls, conversions, exchanges,
offers, tenders, or similar matters relating to any of the Collateral, or (d)
informing Grantor about any of the above, whether or not Lender has or is
deemed to have knowledge of such matters. Except as provided above, Lender
shall have no liability for depreciation or deterioration of the Collateral.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or
<PAGE>
04-03-1998 COMMERCIAL PLEDGE AGREEMENT Page 3
(Continued)
Borrower's or any Grantor's ability to repay the Loans or perform their
respective obligations under this Agreement or any of the Related
Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within () days; or (b), if the
cure requires more than () days, immediately initiates steps which Lender
deems in Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender may exercise any one or more of the
following rights and remedies:
Accelerate Indebtedness. Declare all Indebtedness, including any
prepayment penalty which Grantor would be required to pay, immediately due
and payable, without notice of any kind to Grantor.
Collect the Collateral. Collect any of the collateral and at Lender's
option and to the extent permitted by applicable law, retain possession of
the Collateral while suing on the indebtedness.
Sell the Collateral. Sell the Collateral, at Lender's discretion, as a
unit or in parcels, at one or more public or private sales. Unless the
Collateral is perishable or threatens to decline speedily in value or is of
a type customarily sold on a recognized market, Lender shall give or mail
to Grantor, or any of them, notice at least ten (10) days in advance of the
time and place of any public sale, or of the date after which any private
sale may be made. Grantor agrees that any requirement of reasonable notice
is satisfied if Lender mails notice by ordinary mail addressed to Grantor,
or any of them, at the last address Grantor has given Lender in writing.
If a public sale is held, there shall be sufficient compliance with all
requirements of notice to the public by a single publication in any
newspaper of general circulation in the county where the Collateral is
located, setting forth the time and place of sale and a brief description
of the property to be sold. Lender may be a purchaser at any public sale.
Register Securities. Register any securities included in the Collateral in
Lender's name and exercise any rights normally incident to the ownership of
securities.
Sell Securities. Sell any securities included in the Collateral in a
manner consistent with the applicable federal and state securities laws,
notwithstanding any other provision of this or any other agreement. If,
because of restrictions under such laws, Lender is or believes it is unable
to sell the securities in an open market transaction, Grantor agrees that
Lender shall have no obligation to delay sale until the securities can be
registered, and may make a private sale to one or more persons or to a
restricted group of persons, even though such sale may result in a price
that is less favorable than might be obtained in an open market
transaction, and such a sale shall be considered commercially reasonable.
If any securities held as Collateral are "restricted securities: as defined
in the Rules of the Securities and Exchange Commission (such as Regulation
D or Rule 144) or state securities departments under state "Blue Sky" laws,
or if Grantor is an affiliate of the issuer of the securities, Grantor
agrees that neither Grantor nor any member of Grantor's family will sell or
dispose of any securities of such issuer without obtaining Lender's prior
written consent.
Foreclosure. Maintain a judicial suite for foreclosure and sale of the
Collateral.
Transfer Title. Effect transfer of title upon sale of all or part of the
Collateral. For this purpose, Grantor irrevocably appoints Lender as its
attorney-in-fact to execute endorsements, assignments and instruments in
the name of Grantor and each of them (if more than one) as shall be
necessary or reasonable.
Other Rights and Remedies. Have and exercise any or all of the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, at law, in equity, or otherwise.
Application of Proceeds. Apply any cash which is part of the Collateral,
or which is received from the collection or sale of the Collateral, to
reimbursement of any expenses, including any costs for registration of
securities, commissions incurred in connection with a sale, attorney fees
as provided below, and court costs, whether or not there is a lawsuit and
including any fees on appeal, incurred by Lender in connection with the
collection and sale of such Collateral and to the payment of the
Indebtedness of Grantor to Lender, with any excess funds to be paid to
Grantor as the interests of Grantor may appear. Grantor agrees, to the
extent permitted by law, to pay any deficiency after application of the
proceeds of the Collateral to the Indebtedness.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or by any other writing, shall be cumulative
and may be exercised singularly or concurrently. Election by Lender to
pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
<PAGE>
04-03-1998 COMMERCIAL PLEDGE AGREEMENT Page 4
(Continued)
matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Grantor agrees
upon Lenders request to submit to the jurisdiction of the courts of King
County, the State of Washington. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lenders legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services Grantor also shall pay all court costs and such additional fees as
may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's, rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
APRIL 3, 1998.
GRANTOR:
WEB PRESS CORPORATION AND WEB LEADER INTERNATIONAL, INC.
By: /s/ Gary B. Palmer
___________________________________________
Gary B. Palmer, President, WEB PRESS CORP.
By: /s/ Gary B. Palmer
__________________________________________________________
Gary B. Palmer, Chairman: WEB LEADER INTERNATIONAL, INC.
<PAGE>
<PAGE>
Exhibit (10b)
ANNEX B
EXPORT-IMPORT BANK OF THE UNITED STATES
WORKING CAPITAL GUARANTEE PROGRAM
BORROWER AGREEMENT
THIS BORROWER AGREEMENT (this "Agreement") is made and entered into
by the entity identified as the Borrower on the signature page hereof
(the "Borrower") and is acknowledged by the institution identified as
the Lender on the signature page hereof (the "Lender").
RECITALS
A. The Lender shall make a loan (the "Loan") to the Borrower for
the purpose of providing the Borrower with pre-export working capital to
finance the manufacture, production or purchase and subsequent export
sale of the Items (as hereinafter defined).
B. The Loan shall be in a principal amount (the "Loan Amount") not
to exceed at any time outstanding the amount specified in Section (5)
(A) of the Loan Authorization Agreement between the Lender and the
Export-Import Bank of the United States ("Eximbank") which is attached
hereto as Annex A1 or Annex A2 and incorporated herein as a part of this
Agreement. If the Loan is being made pursuant to the Lender's Delegated
Authority from Eximbank, all references herein to the Loan Authorization
Agreement shall be deemed to be to the Loan Authorization Notice
provided to Eximbank and the Borrower by the Lender.
C. The Loan shall be evidenced by a valid and enforceable
promissory note payable by the Borrower to the order of the Lender (the
"Note") and shall be made pursuant to a written agreement related solely
thereto between the Borrower and the Lender (the "Loan Agreement").
D. A condition precedent to the making of the Loan by the Lender is
that Eximbank guarantee the payment of ninety percent (90%) of the Loan
Amount and all interest accrued thereon, subject to the terms and
conditions of a master guarantee agreement (the "Master Guarantee
Agreement") between Eximbank and the Lender.
E. In consideration for and as a condition precedent to the
Lender's making the Loan and Eximbank's entering into-the Master
Guarantee Agreement, the Borrower shall execute this Agreement for the
benefit of the Lender and Eximbank.
NOW, THEREFORE, the Borrower hereby agrees as follows:
<PAGE>
2
ARTICLE I
DEFINITIONS
"Accounts Receivable" shall mean those trade accounts from the sale
of the Items due and payable to the Borrower in the United States and
any notes, drafts, letters of credit or insurance proceeds supporting
payment thereof.
"Availability Date" shall mean the last date on which the Lender
may make a disbursement as set forth in Section (10) of the Loan
Authorization Agreement or, if such date is not a Business Day, the next
Business Day thereafter.
"Borrowing Base" shall mean the Collateral Value as discounted by
the applicable Disbursement Rate(s).
"Borrowing Base Certificate" shall mean the certificate in form
provided by the Lender and executed by the Borrower setting forth the
Borrowing Base supporting one or more Disbursements.
"Business Day" shall mean any day on which the Federal Reserve Bank
of New York is open for business.
"Buyer" shall mean an entity which has entered into one or more
Export Orders with the Borrower.
"Closing Date" shall mean the date on which the Loan Documents are
executed by the Borrower.
"Collateral" shall mean the property of the Borrower in which the
Borrower has granted to the Lender a valid and enforceable security
interest as security for the payment of all principal and interest due
under the Loan, and which is identified in Section (6) of the Loan
Authorization Agreement, including all proceeds (cash and non-cash)
thereof.
"Collateral Value" shall mean at any given time the value of all
Collateral against which Disbursements may be made as set forth in
Section (5)(C) of the Loan Authorization Agreement, valued according to
GAAP.
"Country Limitation Schedule" shall mean the most recent schedule
published by Eximbank and provided to the Borrower by the Lender which
sets forth on a country by country basis whether and under what
conditions Eximbank will provide coverage for the financing of export
transactions to countries listed therein.
Debarment Regulations shall have the meaning set forth in Section
2.16.
<PAGE>
3
"Disbursed Amount" shall mean the aggregate outstanding amount of
the Disbursements.
"Disbursement" shall mean an advance of the Loan from the Lender to
the Borrower under the Loan Agreement.
"Disbursement Rate" shall mean the rate specified in Section (5)(C)
of the Loan Authorization Agreement for each category of Collateral.
"Dollars" or "$" shall mean the lawful money of the United States
of America.
"Export Order" shall mean a written export order or contract for
the purchase by the Buyer from the Borrower of any of the Items.
"GAAP" shall mean the generally accepted accounting principles
issued by the American Institute of Certified Public Accountants.
"Guarantor" shall mean each person or entity, if any, identified in
Section (3) of the Loan Authorization Agreement who shall guarantee
(jointly and severally if more than one) the Borrower's obligation to
repay all amounts outstanding under the Note.
"Inventory" shall mean the raw materials, work-in-process and
finished goods purchased or manufactured by the Borrower for resale and
located in the United States.
"Items" shall mean the finished goods or services which are
intended for export, as specified in Section (4)(A) of the Loan
Authorization Agreement.
"Letter of Credit" shall mean an irrevocable letter of credit
subject to UCP 500, payable in the United States or at the issuing bank
and issued for the benefit of the Borrower on behalf of a Buyer in
connection with the purchase of the Items.
"Loan Documents" shall mean the Note, the Loan Agreement, this
Agreement and any other instrument, agreement or document previously,
simultaneously or hereafter executed by the Borrower or any Guarantors
evidencing, securing, guaranteeing or in connection with the Loan.
Principals shall have the meaning set forth in Section 2.16.
"Revolving Loan" shall mean a Loan under which amounts disbursed
and repaid may be disbursed on a continuous basis during the term of the
Loan.
"Transaction Specific Loan" shall mean a Loan under which amounts
disbursed and repaid may not be disbursed again.
"U.S." or "United States" shall mean the United States of America
and its territorial
<PAGE>
4
possessions.
"U.S. Content" shall mean with respect to any Item all the labor,
materials and services which are of U.S. origin or manufacture, and
which are incorporated into an Item in the United States.
ARTICLE II
OBLIGATIONS OF THE BORROWER
Until payment in full of the Loan, the Borrower agrees to the
following:
Section 2.1 Use of Disbursements. The Borrower shall use
Disbursements only for the purpose of enabling the Borrower to finance
the cost of manufacturing, producing, purchasing or selling the Items.
The Borrower may not use Disbursements for the purpose of: (a) servicing
any of the Borrower' s pre-existing or future indebtedness unrelated to
the Loan; (b) acquiring fixed assets or capital goods for use in the
Borrower's business; (c) acquiring, equipping or renting commercial
space outside of the United States; (d) paying the salaries of non-U.S.
citizens or non-U.S. permanent residents who are located in offices
outside the United States; or (e) serving as a retainage or warranty
bond.
In addition, Disbursements may not be used to finance the
manufacture, purchase or sale of any of the following:
(a) Items to be sold to a Buyer located in a country in which
Eximbank is legally prohibited from doing business as designated in the
Country Limitation Schedule;
(b) that part of the cost of the Items which is not U.S. Content
unless such part is not greater than fifty percent (50%) of the cost of
the Items and is incorporated into the Items in the United States;
(c) defense articles or defense services; or
(d) without Eximbank's prior written consent, any Items to be used
in the construction, alteration, operation or maintenance of nuclear
power, enrichment, reprocessing, research or heavy water production
facilities.
Section 2.2 Borrowing Base Certificates and Export Orders. In order
to receive a Disbursement under the Loan, the Borrower shall deliver to
the Lender a Borrowing Base Certificate current withhin the past five
(5) Business Days and a copy of the Export Order(s) (or, for Revolving
Loans, if permitted by the Lender, a written summary of the Export
Orders) against which the Borrower is requesting a Disbursement. If the
Lender permits summaries of Export Orders, the Borrower shall also
deliver promptly to the Lender copies of any Export Orders
<PAGE>
5
requested by the Lender. Additionally, the Borrower shall deliver to the
Lender at least once every thirty (30) calendar days a Borrowing Base
Certificate current within the past five (5) Business Days, which
requirement may be satisfied by submission of a Borrowing Base
Certificate when requesting a Disbursement.
Section 2.3 Exclusions from the -Borrowing Base. In determining the
amount of a requested Disbursement, the Borrower shall exclude from the
Borrowing Base the following:
(a) any Inventory which is not located in the United States;
(b) any demonstration Inventory or Inventory sold on
consignment;
(c) any Inventory consisting of proprietary software;
(d) any Inventory which is damaged, obsolete, returned,
defective, recalled or unfit for further processing;
(e) any Inventory which has been previously exported from the
United States;
(f) any Inventory which constitutes defense articles or
defense services or any Accounts Receivable generated by sales of such
Inventory;
(g) any Inventory which is to be incorporated into Items
destined for shipment to, and any Account Receivable in the name of a
Buyer located in, a country in which Eximbank is legally prohibited from
doing business as designated in the Country Limitation Schedule;
(h) any Inventory which is to be incorporated into Items
destined for shipment to, and any Account Receivable in the name of a
Buyer located in, a country in which Eximbank coverage is not available
for commercial reasons as designated in the Country Limitation Schedule,
unless and only to the extent that such Items are to be sold to such
country on terms of a Letter of Credit confirmed by a bank acceptable to
Eximbank;
(i) any Inventory which is to be incorporated into Items whose
sale would result in an ineligible Account Receivable;
(j) any Account Receivable with a term in excess of net one
hundred eighty (180)days;
(k) any Account Receivable which is more than sixty (60)
calendar days past the original due date, unless it is insured through
Eximbank export credit insurance for comprehensive commercial and
political risk, or through Eximbank approved private insurers for
comparable coverage, in which case ninety (90) calendar days shall
apply;
<PAGE>
6
(l) any intra-company Account Receivable or any Account
Receivable from a subsidiary of the Borrower, from a person or entity
with a controlling interest in the Borrower or from an entity which
shares common controlling ownership with the Borrower;
(m) any Account Receivable evidenced by a Letter of Credit,
until the date of shipment of the Items covered by the subject Letter of
Credit;
(n) any Account Receivable which the Lender or Eximbank, in
its reasonable judgment, deems uncollectible for any reason;
(o) any Account Receivable payable in a currency other than
Dollars, except as may be approved in writing by Eximbank;
(p) any Account Receivable from a military Buyer, except as
may be approved in writing by Eximbank; and
(q) any Account Receivable due and collectible outside the
United States, except as my be approved in writing by Eximbank,
Section 2.4 Schedules, Reports and Other Statements. The Borrower
shall submit to the Lender in writing each month (a) an Inventory
schedule for the preceding month and (b) an Accounts Receivable aging
report for the preceding month detailing the terms of the amounts due
from each Buyer. The Borrower shall also furnish to the Lender promptly
upon request such information, reports, contracts, invoices and other
data concerning the Collateral as the Lender may from time to time
specify.
Section 2.5 Additional Security or Payment. The Borrower shall at
all times ensure that the Borrowing Base exceeds the Disbursed Amount.
If informed by the Lender or if the Borrower otherwise has actual
knowledge that the Borrowing Base is at any time less than the Disbursed
Amount, the Borrower shall, within five (5) Business Days, either (a)
furnish additional security to the Lender, in form and amount
satisfactory to the Lender and Eximbank, or (b) pay to the Lender an
amount equal to the difference between the Disbursed Amount and the
Borrowing Base.
Section 2.6 Continued Security Interest. The Borrower shall notify
the Lender in writing within five (5) Business Days if (a) the Borrower
changes its name or identity in any manner, (b) the Borrower changes the
location of its principal place of business, (c) the nature of any of
the Collateral is changed or any of the Collateral is transferred to
another location or (d) any of the books or records related to the
Collateral are transferred to another location. The Borrower shall
execute such additional financing statements or other documents as the
Lender may reasonably request in order to maintain its perfected
security interest in the Collateral.
Section 2.7 Inspection of Collateral. The Borrower shall permit the
representatives of the Lender and Eximbank to make at any time during
normal business hours reasonable inspections
<PAGE>
7
of the Collateral and of the Borrower's facilities, activities, and
books and records, and shall cause its officers and employees to give
full cooperation and assistance in connection therewith.
Section 2.8 Notice of Debtor's Relief; Dissolution and Litigation.
The Borrower shall notify the Lender in writing within five (5) Business
Days of the occurrence of any of the following:
(a) a proceeding in bankruptcy or an action for debtor's
relief is filed by, against, or on behalf of the Borrower;
(b) the Borrower fails to obtain the dismissal or termination
within thirty (30) calendar days of the commencement of any proceeding
or action referred to in (a) above;
(c) the Borrower begins any procedure for its dissolution or
liquidation, or a procedure therefore has been commenced against it; or
(d) any material litigation is filed against the Borrower.
Section 2.9 Insurance. The Borrower shall maintain insurance
coverage in the manner and to the extent customary in businesses of
similar character.
Section 2.10 Merger or Consolidation. Without the prior written
consent of Eximbank and the Lender, the Borrower shall not (a) merge or
consolidate with any other entity, (b) sell, lease, transfer or
otherwise dispose of any substantial part of its assets, or any part of
its assets which are essential to the conduct of its business or
operations, (c) make any material change in its organizational structure
or identity, or (d) enter into any agreement to do any of the foregoing.
Section 2.11 Reborrowing and Repayment Terms. (a) If the Loan is a
Revolving Loan, provided that the Borrower is not in default under any
of the Loan Documents, the Borrower may borrow, repay and reborrow
amounts under the Loan until the close of business on the Availability
Date. Unless the Revolving Loan is renewed or extended by the Lender,
the Borrower shall pay in full the outstanding Loan Amount and all
accrued and unpaid interest thereon no later than the first Business Day
after the Availability Date.
(b) If the Loan is a Transaction Specific Loan, the Borrower shall,
within two (2) Business Days of the receipt thereof, pay to the Lender
(for application against the outstanding Loan Amount and accrued and
unpaid interest thereon) all checks, drafts, cash and other remittances
it may receive in payment or on account of the Accounts Receivable or
any other Collateral, in precisely the form received (except for the
endorsement of the Borrower where necessary). Pending such deposit, the
Borrower shall not commingle any such items of payment with any of its
other funds or property, but will hold them separate and apart.
Section 2.12 Cross Default. The Borrower shall be deemed in default
under the Loan if
<PAGE>
8
the Borrower fails to pay when due any amount payable to the Lender
under any loan to the Borrower not guaranteed by Eximbank.
Section 2.13 Financial Statements. The Borrower shall provide
quarterly financial statements to the Lender no later than forty-five
(45) days after the end of each quarter. This is in addition to any
other financial statements that may be required by the Lender under the
Loan Agreement.
Section 2.14 Taxes, Judgments and Liens. The Borrower shall remain
current on all of its federal, state and local tax obligations. In
addition, the Borrower shall notify the Lender in the event (i) any
judgment is rendered against the Borrower, or (ii) any lien is filed
against any of the assets of the Borrower.
Section 2.15 Munitions List. If any of the Items are articles,
services, or related technical data that are listed on the United States
Munitions list (part 121 of title 22 of the Code of Federal
Regulations), the Borrower shall send a written notice promptly to the
Lender describing the Item(s) and the corresponding invoice amount.
Section 2.16 Suspension and Debarment, etc. On the date of this
Agreement neither the Borrower nor its Principals (as defined below) are
(A) debarred, suspended, proposed for debarment with a final
determination still pending, declared ineligible or voluntarily excluded
{as such terms are defined under any of the Debarment Regulations
referred to below) from participating in procurement or nonprocurement
transactions with any United States federal government department or
agency pursuant to any of the Debarment Regulations (as defined below)
or (B) indicted, convicted or had a civil judgment rendered against the
Borrower or any of its Principals for any of the offenses listed in any
of the Debarment Regulations. Unless authorized by Eximbank, the
Borrower will not knowingly enter into any transactions in connection
with the Item with any person who is debarred, suspended, declared
ineligible or voluntarily excluded from participation in procurement or
nonprocurement transactions with any United States federal government
department or agency pursuant to any of the Debarment Regulations. The
Borrower will provide immediate written notice to the Lender if at any
time it learns that the certification set forth in this Section 2.16 was
erroneous when made or has become erroneous by reason of changed
circumstances. For the purposes hereof, (1) "Principals" shall mean any
officer, director, owner, partner, key employee, or other person with
primary management or supervisory responsibilities with respect to the
Borrower, or any other person (whether or not an employee) who has
critical influence on or substantive control over the transaction
covered by this Agreement and (2) the Debarment Regulations shall mean
{x) the Governmentwide Debarment and Suspension (Nonprocurement)
regulations (Common Rule), 53 Fed. Reg. 19204 (May 26, 1988), (y)
Subpart 9.4 (Debarment, Suspension, and Ineligibility) of the Federal
Acquisition Regulations, 48 C.F.R. 9.400-9.409 and {z) the revised
Governmentwide Debarment and Suspension (Nonprocurement) regulations
(Common Rule), 60 Fed. Reg. 33037 (June 26, 1995).
Section 2.17 Special Conditions. The Borrower shall comply with all
Special Conditions, if any, referenced in Section (11) of the Loan
Authorization Agreement or the Loan Authorization Notice.
<PAGE>
9
ARTICLE III
RIGHTS AND REMEDIES
Section 3.1 Indemnification. Upon Eximbank's payment of a claim to
the Lender in connection with the Loan pursuant to the Master Guarantee
Agreement, Eximbank shall assume all rights and remedies of the Lender
under the Loan Documents and may enforce any such rights or remedies
against the Borrower, the Collateral and any Guarantors. Additionally,
the Borrower shall hold Eximbank and the Lender harmless from and
indemnify them against any and all liabilities, damages, claims, costs
and losses incurred or suffered by either of them resulting from (a) any
materially incorrect certification or statement knowingly made by the
Borrower or its agent to Eximbank or the Lender in connection with the
Loan, this Agreement or any of the other Loan Documents or (b) any
material breach by the Borrower of the terms and conditions of this
Agreement or any of the other Loan Documents. The Borrower also
acknowledges that any statement, certification or representation made by
the Borrower in connection with the Loan is subject to the penalties
provided in Article 18 U.S.C. Section 1001.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York, United
States of America.
Section 4.2 Notification. All notifications required by this
Agreement shall be given in the manner provided in the Loan Agreement.
Section 4.3 Partial Invalidity. If at any time any of the
provisions of this Agreement becomes illegal, invalid or unenforceable
in any respect under the law of any jurisdiction, neither the legality,
the validity nor the enforceability of the remaining provisions hereof
shall in any way be affected or impaired.
<PAGE>
10
IN WITNESS WHEEOF, the Borrower has caused this Agreement to be
duly executed as of the 3rd, day of APRIL, 1998.
WEB PRESS CORPORATION/WEB LEADER INTERNATIONAL, INC.
____________________________________________________
(Name of Borrower)
By \s\GARY PALMER
______________
Name GARY PALMER
Title PRESIDENT & CHAIRMAN
____________________
ACKNOWLEDGED:
WASHINGTON FIRST INTERNATIONAL BANK
___________________________________
(Name of Lender)
By \s\MICHAEL C.C. LUM
___________________
Name MICHAEL C.C. LUM
Title VICE PRESIDENT
______________
Guaranteed Loan No. AP073281XX
__________
ANNEXES:
A1 - Loan Authorization Agreement or
A2 - Loan Authorization Notice
(Revised April 1, 1996)
<PAGE>
