United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K
April 12, 1999
March 31, 1999
(Date of Earliest Event Reported)
----------------
INDUSTRIAL RUBBER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other
jurisdiction of
incorporation or
organization)
333-46643
Commission file
number
41-1550505
(I.R.S. Employer
Identification No.)
3804 13th Avenue East
Hibbing, MN 55746
(Address of principal executive offices) (Zip Code)
(218) 263-8831
(Registrant's telephone number, including area code)
Not applicable
(Former, name, former address and former fiscal year,
if changes since last report)
Item 2. Acquisition or Disposition of Assets.
On March 31, 1999 Industrial Rubber (sometimes referred to as
the "Company") acquired substantially all of the assets of the
Irathane Systems Division ("Irathane Systems")of Illinois Tool
Works, Inc. ("ITW"). Irathane Systems produces liquid urethanes,
cast urethane moldings, and rubber and urethane linings for the
mineral processing, aggregate, paper and electric power industries.
The assets acquired included all of the machinery, equipment,
tools, molds, vehicles, furniture, supplies, leasehold
improvements, accounts receivable, inventories, and real estate of
the division. They also included prepaid expenses, and intangible
assets, including the Irathane trademark in the United States and
Canada, trade secrets, intellectual property, customer lists,
existing contracts, and similar assets. The real estate assets
purchased include the Irathane System facilities in Colorado
Springs, Colorado, and Sudbury, Ontario, Canada. The Company also
assumed Irathane Systems obligations under its lease of a
manufacturing facility in Hibbing, Minnesota.
Industrial Rubber intends to use the assets acquired to
continue the business conducted by Irathane Systems. In this
regard, and as a requirement of the agreement, all of Irathane's
current employees will be offered employment with Industrial Rubber
at the time of closing.
The purchase price of the assets was (subject to adjustments
as described below) $8,000,000. $308,000 of this was paid by the
assumption of liabilities, and the remaining $7,692,000 was paid in
cash. The sources of the cash funds to make the acquisition were
the remaining proceeds of Industrial Rubber Products, Inc.'s
Initial Public Offering completed in April of 1998 and bank
financing by U.S. Bank.
The allocation of the purchase price to the assets will not be
made until after the completion of the Industrial Rubber's post-
closing due diligence. However, it is anticipated that accounts
receivable will constitute approximately $1,300,000 of the assets
purchased, inventory will constitute approximately $1,250,000 of
the assets purchased and prepaid expenses will constitute
approximately $50,000 of the assets purchased. The remaining
balance of the purchase price will be allocated between physical
assets and intangibles.
In order to permit the closing of the transaction at the end
of the first quarter of 1999, the parties agreed that the customary
due diligence that would normally take place before closing in a
transaction such as this, will take place after closing. The
Purchase Agreement contains special provisions providing for
adjustments to be made to the purchase price based upon the post
closing due diligence as well as the more traditional adjustments
arising at the time of closing as a result of accounting
adjustments.
As part of the closing, the Industrial Rubber entered into a
Secrecy and Supply Agreement with ITW. Under the terms of the
Agreement the Company has agreed to sell exclusively to ITW all of
ITW's requirements of a truck suspension part currently being
developed by Irathane Systems. In return, ITW has agreed to
purchase these parts exclusively from the Company. The price to be
charged is the Company's variable manufacturing cost plus 20%. If
Industrial Rubber fails to perform its obligations under the
Secrecy and Supply Agreement it is required to return certain
confidential information to ITW and ITW is released from having to
purchase its future requirements from the Company.
Under the terms of the Purchase Agreement, ITW has agreed for
a period of five years not to compete in the business of Irathane
Systems as conducted at the time of closing. At closing the
Company and ITW entered into a Non-Competition Agreement which
further specified this obligation of ITW. Under the terms of both
the Purchase Agreement and the Non-Competition Agreement, ITW is
not prevented from acquiring a business a portion of whose
activities would compete with the business of Irathane Systems if
the competing portion of the business is less than ten percent of
the annual turnover of the acquired business and if ITW gives
Industrial Rubber the opportunity to acquire the competing business
at ITW's cost.
To finance a portion of the acquisition cost, as well as to
provide a revolving credit line for ongoing cash flow requirements,
Industrial Rubber entered into a Credit Agreement with U.S. Bank
National Association on March 30, 1999. The Term Loan portion of
the Credit Agreement provided a six month "bridge" term loan of
$7,000,000. The Revolving Loan portion of the Credit Agreement
provided a $2,000,000 line of credit tied to a borrowing base of
eligible inventories and eligible receivables. The interest rate
of the loans is Wall Street Journal prime for the Term Loan and
LIBOR Pricing Rate plus 2.25% for the Revolving Loan. Both Wall
Street Journal Prime and LIBOR Pricing Rate are defined in the
Credit Agreement. The Credit Agreement is secured by a uniform
commercial code security interest in substantially all the personal
property of the Company but is not secured by the Company's real
estate. At the time of closing the new financing, Industrial
Rubber paid off its then existing credit line with Norwest Bank
Minnesota North. The Credit Agreement contains numerous convents
and agreements relating to the Company's financial condition
including net worth, current ratio, and leverage ratio
requirements. The Credit Agreement restricts the payment of
dividends but permits the Company to continue its previously
announced stock repurchase plan.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
It is impractical to provide the require financial information
at the time of filing this report. The required financial
information will be filed by amendment to this Form 8-K not later
than June 14, 1999.
(b) Pro Forma Financial Information.
It is impractical to provide the required pro forma financial
information at the time of filing this report. The required pro
forma financial information will be filed by amendment to this Form
8-K not later than June 14, 1999.
(c) Exhibits
10(8) Purchase Agreement between Illinois Tool Works Inc.
and Industrial Rubber Products, Inc. dated March 25,
1999 (Filed as Exhibit 10(8) to Form 10-KSB dated March
29, 1999 File No. 333-46643)
10(9) Secrecy Supply Agreement between Illinois Tool
Works Inc. and Industrial Rubber Products, Inc. dated
March 31, 1999
10(10) Non-Competition Agreement between Illinois Tool
Works Inc. and Industrial Rubber Products, Inc. dated
March 31, 1999.
10(11) Credit Agreement between Industrial Rubber
Products, Inc. and U.S. Bank National Association dated
March 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INDUSTRIAL RUBBER PRODUCTS, INC.
3804 13th Avenue East
Hibbing, MN 55746
(Registrant)
Date: April 12, 1999 /s John M. Kokotovich
Chief Financial Officer
<PAGE>
EXHIBIT 10(9)
SECRECY AND SUPPLY AGREEMENT
This Agreement is made and entered into this ___ day of _____,
1999 by an between Illinois Tool Works Inc., a Delaware corporation
(hereinafter referred to as "ITW"), and Industrial Rubber Products,
Inc., a Minnesota corporation (hereinafter referred to as "IRP").
RECITALS
1. ITW and IRP have entered into a Purchase Agreement dated
March 25, 1999 (the "Purchase Agreement") pursuant to which IRP has
purchased from ITW substantially all of the assets of ITW Irathane
Systems ("Irathane"), a division of ITW.
2. After the Closing Date, as defined in the Purchase
Agreement, ITW intends to purchase from IRP, a truck suspension
part currently under development for use by the auto industry.
3. ITW has provided to IRP certain technical know-how and
patented processes in order to enable IRP to develop, a truck
suspension part which IRP sell exclusively to ITW, ITW will in turn
sell the truck suspension system to the automotive industry.
NOW THEREFORE, in consideration of the foregoing and for other
due and adequate consideration the sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. IRP agrees to sell and ITW agrees to buy a truck
suspension part which IRP is currently developing for exclusive
production and sale to ITW. The terms of which are governed by
paragraph 5 of this Agreement.
2. "ITW Confidential Information" shall mean all technical
and other information concerning the manufacturing, development and
formula of the suspension system, and information related thereto
as disclosed by ITW to IRP, in connection with the urathane
compound material being developed by Irathane, including the
formula that has been designated as "purls", except for any
information that is available publicly, as of the date of this
Agreement, or is otherwise in the possession of IRP or its
affiliates on the date hereof, or that becomes available publicly
after the ate of this Agreement through no fault of IRP. ITW
Confidential Information shall also include such financial
information, customer lists, and other information which is
disclosed by ITW to IRP to enable IRP to evaluate other business
opportunities with respect to ITW's business.
3. For a period of ten years from the date of this
Agreement, IRP shall not use ITW Confidential Information for any
purpose (except for the purposes of this Agreement) without written
approval from ITW. For the same period, IRP shall take due care so
as not to disclose ITW Confidential Information to any third party
(except any attorney having a fiduciary obligation to ITW) without
written approval from ITW, due care meaning the care taken by IRP
to protect its own confidential information of like character.
Nothing herein shall permit, or be construed as granting to IRP a
patent license to make, use or sell the Product to any one other
than ITW.
4. IRP acknowledges that money damages are not an adequate
remedy for a breach of this Agreement by IRP or its
representatives, and ITW shall be entitled to equitable relief,
including injunction and specific performance, as a remedy for such
a breach. IRP waives requirement for the securing or posting of a
bond in connection with such equitable relief and acknowledges that
equitable relief shall not be deemed to be the exclusive remedy for
a breach of this Agreement by IRP or its representatives but shall
be in addition to all other remedies available at law or equity to
ITW.
5. Once the Product is developed and ready for manufacture,
IRP shall (i) make available, free of cost, a reasonable number of
samples of the Products (including each variation thereof) for
ITW's inspection and approval, (ii) produce the Product in
quantities mutually agreed upon by IRP and ITW, (iii) sell the
Product to ITW at IRP's variable cost plus twenty percent (20%) and
(iv) continue to provide the Product to ITW for a period of ten
(10) years, and ITW shall purchase all of its requirements of the
Product from IRP for that same term.
6. ITW and IRP agree that ITW will be devoting a substantial
amount of capital to develop and enhance the market for the
Products. Accordingly, the parties acknowledge that ITW would be
severely damaged if IRP were to fail to deliver the Product or in
the event of the termination of this Agreement through no fault of
ITW. If ITW believes a breach has occurred hereunder then ITW
shall promptly notify IRP and IRP shall have thirty (30) days to
correct such breach before being in default hereunder. In the
event of breach of this Agreement, IRP agrees to furnish ITW with
the "purls" formula within ten (10) days of notice from ITW that
IRP is in default. If IRP (i) fails to perform any of its
obligations under this Agreement, (ii) becomes insolvent, or (iii)
for any reason is unable or unwilling to continue performing its
obligations hereunder (an "Event of Default")IRP shall within ten
(10) days of notice from ITW of the occurrence of such Event of
Default, return the "purls" formula to ITW, and ITW shall have the
right to manufacture the Product or to engage a third party to
manufacture the Product on ITW's behalf; in such event ITW shall
have no further obligation to IRP under this Agreement. IRP agrees
that it shall be responsible for any damages reasonably suffered by
ITW resulting from a failure to timely deliver such information to
ITW and no other damages.
7. The ITW Confidential Information shall not be copied or
reproduced in any form or stored in a retrieval system or data base
by IRP without prior written consent of ITW. All copies shall
contain notices indicating ITW's proprietary rights and the
confidentiality thereof, which may appear on the Information
provided by ITW.
8. At the written request of ITW, IRP shall return forthwith
the ITW Confidential Information and all copies thereof in any form
whatsoever under the control of IRP to ITW, and shall delete the
Information from all retrieval systems and data bases or destroy
same as directed by ITW. IRP shall furnish to ITW a certificate by
an officer of IRP that such deletion or destruction has been
carried out.
9. Except as may be separately provided in a written
agreement signed by IRP and ITW, IRP shall have no other or further
obligation to ITW, ITW shall have no other or further obligation to
IRP, and neither party shall have any liability for any failure to
discuss, negotiate, or undertake the possible arrangement noted
above or any similar or different arrangement.
10. Notice. All notices to be given hereunder shall be given
in writing by certified or registered mail, return receipt
requested, addressed to the respective parties at following
addresses. Either party may change its address for purposes of
this Contract by giving the other written notice of such change in
the manner provided in this paragraph.
ITW: Illinois Tool Works Inc.
3600 West Lake Avenue
Glenview, IL 60025
Attention: Senior Vice President & Secretary
IRP Industrial Rubber Products
3804 East 13th Avenue
P.O. Box 782
Hibbing, Minnesota 55746
11. Assignability. Neither party may assign this Contract or
any part thereof to any third party either voluntarily or by
operation of law without prior written consent of the other, other
than to a wholly (directly or indirectly) owned affiliate. Any
attempted or purported assignment or transfer of this Contract by
either party without such consent shall be void.
12. Construction of Contract. This instrument constitutes
the entire contract between the parties and there are no
understandings, representations or warranties of any kind, express
or implied, not expressly set forth herein. A party's waiver of
any breach or failure to enforce any of the terms and conditions of
this Contract at any time shall not in any way affect, limit or
waive a parties right thereafter to enforce and compel strict
compliance with every term and condition hereof. This Contract
supersedes all prior agreement between the parties concerning the
subject matter hereof.
13. Disputes. Any dispute arising out of or in connection
with this Agreement, including any question regarding its
existence, validity or termination, shall be referred to and
finally resolved by arbitration under the Rules of the American
Arbitration Association, which Rules are deemed to be incorporated
by reference into this clause. The tribunal shall consist of three
arbitrators, two of them shall be nominated by the respective
parties. The place of arbitration shall be Chicago, Illinois.
14. Governing Law. This Contract and the obligations of the
parties hereto shall be governed and construed according to the
Uniform Commercial Code and the applicable law of the State of
Minnesota.
THE PARTIES have executed this Contract as of the date first
hereinabove written.
ILLINOIS TOOL WORKS INC.
By: s/ Richard J. Budweg
Its: General Manager, ITW PRC
INDUSTRIAL RUBBER PRODUCTS, INC.
By: s/ Daniel O. Burkes
Its: President
<PAGE>
EXHIBIT 10(10)
NON-COMPETITION AGREEMENT
This NON-COMPETITION AGREEMENT made and entered into as of
March 31, 1999 by and between Illinois Tool Works Inc., a Delaware
corporation ("ITW"), and Industrial Rubber Products, Inc., a
Minnesota corporation (hereinafter referred to as "IRP").
W I T N E S E T H:
WHEREAS, ITW, pursuant to a Purchase Agreement dated March 25,
1999 (the "Purchase Agreement"), has agreed to sell to IRP
substantially all the assets of its Irathane Systems Division, (the
"Division").
WHEREAS, in order for each party hereto to induce the other to
enter into the Purchase Agreement and to consummate the transac-
tions contemplated therein, ITW has agreed to enter into this Non-
Competition Agreement.
NOW, THEREFORE, for and in consideration of the promises and
mutual covenants and agreements herein contained, the parties agree
as follows:
1. Terms. Terms used herein which are defined in the
Purchase Agreement shall have the same meaning herein as therein.
2. Covenant Not to Compete. ITW agrees that it shall not,
for a period of five (5) years from and after the Closing Date, as
defined in the Purchase Agreement, carry on, engage in or control
any business which competes with the business of the Division as
conducted immediately prior to Closing in the jurisdictions where
the Business is carried on at Closing. The "business" of the
Division shall refer to the manufacturing and selling of cast
urathane parts and coatings for equipment and structural surfaces.
(the "Business"). Nothing in this Agreement or the Purchase
Agreement shall prevent ITW from acquiring and then being engaged
in or carrying on the whole or part of a business that includes
activities the carrying on of which would otherwise amount to a
breach of the undertaking contained in this Agreement or Section
4.1.4 of the Purchase Agreement if the annual turnover of such
activities does not amount to ten (10) percent or more of the
aggregate annual turnover of the business concerned. In the event
of a purchase of a business during the five (5) year time period
referred to above, ITW shall promptly notify IRP of said purchase.
Within thirty (30) days of said notification, IRP may elect to
purchase said business by written notice to ITW. The Purchase
Price for the business shall be the Purchase Price paid by ITW for
said business, together with all costs and expenses incurred in
connection with said purchase. To the extent the parties cannot
agree upon a Purchase Price within thirty (30) days of IRP's
election of its purchase right, then the Chicago office of a big
five public accounting firm selected by the parties shall be
employed as arbitrator hereunder to determine the Purchase Price
due and payable for the business. The arbitrating accountant's
determination with respect to any dispute shall be in writing and
shall be final and binding upon the parties hereto. This covenant
not-to-compete shall extend to each geographic area in which IRP
carries on the Business as of the date hereof.
The time period, geographical area and scope of the
restrictions on ITW's activities hereunder are divisible so that if
any provision of the preceding paragraph is held invalid or
unenforceable, such provision shall be automatically modified to
the extent necessary to render such provision valid and
enforceable.
4. Confidential Information. ITW agrees that it shall not,
at any time during the term of the agreement, directly or
indirectly, disclose to others any confidential information or
trade secrets relating to any of the existing or presently
contemplated products, technology, engineering, manufacturing
processes, sales methods, customer lists, customer usages and
requirements and other business information and data heretofore
utilized in the conduct of the Business, so long as IRP shall
consider such information to be confidential or a trade secret and
if not otherwise publicly available.
5. Injunctive Relief. ITW and IRP agree that, in addition
to any other relief which may be available in law or equity,
injunctive relief in any court of jurisdiction shall be a remedy to
which IRP shall be entitled for any breach of this Non-Competition
Agreement by ITW.
6. General. This Non-Competition Agreement shall be
governed in accordance with the laws of the State of Minnesota and
may not be modified, amended or supplemented in any respect except
by a subsequent written agreement entered into by and between ITW
and IRP.
This Non-Competition Agreement may be executed in counter-
parts, each of which shall be deemed an original and all of which
together shall constitute one and the same document.
ILLINOIS TOOL WORKS INC.
By: /s Richard J. Budweg
Title: General Manager, ITW PRC
INDUSTRIAL RUBBER PRODUCTS, INC.
By: /s Daniel O. Burkes
Title: President
<PAGE>
EXHIBIT 10(11)
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of March 30, 1999, is by
and between INDUSTRIAL RUBBER PRODUCTS, INC., a corporation
organized under the laws of the State of Minnesota (the
"Borrower"), and U.S. BANK NATIONAL ASSOCIATION, a national banking
association (the "Lender").
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement
the following terms shall have the following respective meanings:
"Advance": Any portion of the outstanding Revolving
Loan.
"Board": The Board of Governors of the Federal Reserve
System or any successor thereto.
"Borrowing Base": As defined in Section 2.5.
"Borrowing Base Certificate": As defined in Section
2.5.
"Business Day": Any day (other than a Saturday, Sunday
or legal holiday in the State of Minnesota) on which national
banks are permitted to be open at the location of the Lender.
"Closing Date": Any Business Day between the date of
this Agreement and March 31, 1999 selected by the Borrower for
the making of the Term Loan and the initial Advance on the
Revolving Loan hereunder; provided that all the conditions
precedent to the obligation of the Lender to make the Term Loan
and the initial Advance on the Revolving Loan, as set forth in
Article III, have been, or, on such Closing Date, will be,
satisfied. The Borrower shall give the Lender not less than one
Business Day's prior notice of the day selected as the Closing
Date.
"Commitments": The Revolving Commitment and the Term
Loan Commitment.
"Default": Any event which, with the giving of notice
(whether such notice is required under Section 7.1, or under some
other provision of this Agreement, or otherwise) or lapse of
time, or both, would constitute an Event of Default.
"Eurodollar Business Day": A Business Day which is
also a day for trading by and between banks in United States
dollar deposits in the interbank Eurodollar market and a day on
which banks are open for business in New York City.
"Eurodollar Reserve Percentage": As of any day, that
percentage (expressed as a decimal) which is in effect on such
day, as prescribed by the Board for determining the maximum
reserve requirement (including any basic, supplemental or
emergency reserves) for a member Lender of the Federal Reserve
System, with deposits comparable in amount to those held by the
Lender, in respect of "Eurocurrency Liabilities" as such term is
defined in Regulation D of the Board. The rate of interest
applicable to any outstanding Advances shall be adjusted
automatically on and as of the effective date of any change in
the Eurodollar Reserve Percentage.
"Event of Default": Any event described in Section
7.1.
"GAAP": Generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances
as of any date of determination.
"Leverage Ratio": As defined in Section 6.10.
"LIBOR Pricing Rate": The LIBOR Pricing Rate means for
each month a rate per annum (rounded upward, if necessary,
to the nearest 1/16 of 1%) determined pursuant to the
following formula, which rate shall continue in effect until
the next succeeding month:
{ LIBO Rate }
LIBOR Pricing Rate = {-------------------------- }
{1.00 - Eurocurrency Reserve}
Percentage
In such formula, (i) Eurocurrency Reserve Percentage' means
the percentage (expressed as a decimal) for such month
prescribed by the Board of Governors of the Federal Reserve
System (or any successor) for determining reserve
requirements applicable to Eurocurrency liabilities'
pursuant to Regulation D or any other applicable regulation
of the Board of Governors which prescribes such reserve
requirements, and (ii) "LIBO RATE" means the offered rate
for deposits in United States Dollars (rounded upwards, if
necessary, to the nearest 1/16 of 1%) for an interest period
of one month which appears on the Reuters Screen LIBO Page
as of 11:00 a.m., London time on the first Business Day of
such month on which the London Interbank is open, or the
rate determined by the Lender based on such other published
service of general application as shall be selected by the
Lender for such purpose; provided, that in lieu of
determining the rate in the foregoing manner, the Lender may
determine the rate based on rates offered to the Lender for
deposits in United States Dollars (rounded upward, if
necessary, to the nearest 1/16 of 1%) in the interbank
eurodollar market at such time for an interest period of one
month. "Reuters Screen LIBO Page" means the display
designated as page "LIBO" on the Reuter Monitor Money Rates
Service (or such other page as may replace the LIBO Page on
that service for the purpose of displaying London interbank
offered rates of major banks for United States Dollar
deposits).
"Lien": With respect to any Person, any security
interest, mortgage, pledge, lien, charge, encumbrance, title
retention agreement or analogous instrument or device (including
the interest of each lessor under any capitalized lease), in, of
or on any assets or properties of such Person, now owned or
hereafter acquired, whether arising by agreement or operation of
law.
"Loan Documents": This Agreement, the Notes, and any
documents described in Section 3.1(a)(vii).
"Notes": The Revolving Note and the Term Note.
"Person": Any natural person, corporation,
partnership, limited partnership, joint venture, firm,
association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Regulatory Change": Any change after the date of this
Agreement in federal, state or foreign laws or regulations or the
adoption or making after such date of any interpretations,
directives or requests applying to a class of banks including the
Lender under any federal, state or foreign laws or regulations
(whether or not having the force of law) by any court or
governmental or monetary authority charged with the
interpretation or administration thereof.
"Revolving Commitment": The obligation of the Lender
to make Advances to the Borrower on the Revolving Loan in an
aggregate principal amount outstanding at any time not to exceed
the Revolving Commitment Amount upon the terms and subject to the
conditions and limitations of this Agreement.
"Revolving Commitment Amount": As defined in Section
2.1(a).
"Revolving Commitment Fees": As defined in Section
2.9.
"Revolving Loan": As defined in Section 2.1(a).
"Revolving Maturity Date": As defined in Section
2.1(a).
"Revolving Note": As defined in Section 2.3.
"Subsidiary": Any corporation or other entity of which
securities or other ownership interests having ordinary voting
power for the election of a majority of the board of directors or
other Persons performing similar functions are owned by the
Borrower either directly or through one or more Subsidiaries.
"Tangible Net Worth": As defined in Section 6.8.
"Term Loan": As defined in Section 2.1(b).
"Term Loan Commitment": The obligation of the Lender
to make a term loan to the Borrower in the Term Loan Commitment
Amount upon the terms and subject to the conditions and
limitations of this Agreement.
"Term Note": As defined in Section 2.3.
"Total Liabilities": At the time of any determination,
the amount, on a consolidated basis of all items of Indebtedness
of the Borrower and the Subsidiaries that would constitute
"liabilities" for balance sheet purposes in accordance with GAAP.
"Wall Street Journal Prime Rate": The "Prime Rate" as
published in The Wall Street Journal (currently defined as the
base rate on corporate loans posted by at least 75% of the
nation's 30 largest banks, but however the same may be from time
to time defined).
Section 1.2 Accounting Terms and Calculations. Except
as may be expressly provided to the contrary herein, all
accounting terms used herein shall be interpreted and all
accounting determinations hereunder shall be made in accordance
with GAAP.
Section 1.3 Other Definitional Terms, Terms of
Construction. The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision
of this Agreement. References to Sections, Exhibits, Schedules
and the like references are to Sections, Exhibits, Schedules and
the like of this Agreement unless otherwise expressly provided.
The words "include," "includes" and "including" shall be deemed
to be followed by the phrase "without limitation." Unless the
context in which used herein otherwise clearly requires, "or" has
the inclusive meaning represented by the phrase "and/or." All
incorporations by reference of covenants, terms, definitions or
other provisions from other agreements are incorporated into this
Agreement as if such provisions were fully set forth herein, and
include all necessary definitions and related provisions from
such other agreements. All covenants, terms, definitions and
other provisions from other agreements incorporated into this
Agreement by reference shall survive any termination of such
other agreements until the obligations of the Borrower under this
Agreement and the Notes are irrevocably paid in full and the
Revolving Commitment is terminated.
ARTICLE II
TERMS OF LENDING
Section 2.1 The Commitments. On the terms and subject
to the conditions hereof, the Lender agrees to make the following
lending facilities available to the Borrower:
2.1 (a) Revolving Credit. A revolving loan (the
"Revolving Loan") to the Borrower available as Advances at any
time and from time to time from the Closing Date to September 30,
1999 (the "Revolving Maturity Date"), during which period the
Borrower may borrow, repay and reborrow in accordance with the
provisions hereof, provided, that the unpaid principal amount of
revolving Advances shall not at any time exceed $2,000,000 (the
"Revolving Commitment Amount"); and provided, further, that no
revolving Advance will be made if, after giving effect thereto,
the unpaid principal amount of the Revolving Note would exceed
the Borrowing Base.
2.1 (b) Term Loan. A term loan (the "Term Loan") from
the Lender to the Borrower on the Closing Date in the amount of
$7,000,000 (the "Term Loan Commitment Amount").
Notwithstanding any provision hereof, this Agreement and the
Revolving Commitment shall terminate and the Lender shall have no
obligation hereunder if the Term Loan hereunder has not been made
by March 31, 1999, provided, however, that the obligations of the
Borrower under Section 8.2 shall survive any such termination.
Section 2.2 Procedure for Advances and the Term Loan.
Any request by the Borrower for an Advance on the Revolving Loan
shall be in writing or by telephone and must be given so as to be
received by the Lender not later than 10:00 (Hibbing, Minnesota
time) of the date of the requested Advance. Each request for an
Advance shall be irrevocable and shall be deemed a representation
by the Borrower that on the requested Advance date and after
giving effect to such Advance the applicable conditions specified
in Article III have been and will continue be satisfied. Each
request for an Advance shall specify (i) the requested Advance
date (which must be a Eurodollar Business Day), and (ii) the
amount of such Advance which shall be in a minimum amount of
$100,000 or, if more, an integral multiple thereof. Unless the
Lender determines that any applicable condition specified in
Article III has not been satisfied, the Lender will make
available to the Borrower at the Lender's principal office in
Hibbing, Minnesota in immediately available funds not later than
3:00 PM (Hibbing time) on the requested Advance date the amount
of the requested Advance.
Section 2.3 The Notes. The Advances on the Revolving
Loan shall be evidenced by a single promissory note of the
Borrower (the "Revolving Note"), substantially in the form of
Exhibit 2.3 (a) hereto, in the amount of the Revolving Commitment
Amount originally in effect. The Term Loan shall be evidenced by
a promissory note (the "Term Note"), substantially in the form of
Exhibit 2.3 (b) hereto, in an amount equal to the Term Loan
Commitment Amount. The Lender shall enter in its ledgers and
records the payments made on the Term Loan and the amount of each
Advance made and the payments made thereon, and the Lender is
authorized by the Borrower to enter on a schedule attached to the
Notes a record of such Advances and payments.
Section 2.4 Interest Rates, Interest Payments and
Default Interest. Interest shall accrue and be payable on the
Advances as follows:
2.4 (a) Each Advance shall bear interest on the
unpaid principal amount thereof at a rate per annum equal to the
sum of (i) the LIBOR Pricing Rate, plus (ii) 2.25%.
2.4 (b) Upon the happening of any Event of
Default, each Advance shall, at the option of the Lender, bear
interest until paid in full at a rate per annum equal to the sum
of the rate applicable to such Advance plus 1.5%.
2.4 (c) Interest shall be payable (i) on the first
day of each month; (ii) upon any permitted prepayment (on the
amount prepaid); and (iii) with respect to all Advances on the
Revolving Maturity Date; provided that interest under clause (b)
shall be payable on demand.
2.4 (d) Interest on the Term Note is at the rate
and payable at The Wall Street Journal Prime Rate. Upon the
happening of an Event of Default, the Term Note, shall at the
option of the Lender, bear interest until paid in full at a rate
per annum equal to the sum of the rate otherwise applicable to
the Term Note plus 1.5%.
Section 2.5 Borrowing Base and Mandatory Prepayment.
The Borrowing Base shall be equal to the sum of (1) 50% of the
lower of cost (determined on a first-in, first-out basis) or
market value of Eligible Inventory, plus (2) 80% of the face
value of Eligible Receivables. "Eligible Inventory" and
"Eligible Receivables" are defined on Schedule 1 hereto. The
Borrower shall deliver borrowing base certificates in the form
attached hereto (a "Borrowing Base Certificate") to the Lender
(i) dated as of the last day of each month, by the 15th day of
the next month and (ii) dated as of the date the Lender requests
such a certificate within 10 days of the Lender's request for the
certificate. Each such certificate shall state the amount of
Eligible Inventory, Eligible Receivables and the Borrowing Base
as of the end of the previous month or the date of the Lender's
request, as appropriate. Any limitations on advances or required
prepayments relating to the Borrowing Base shall be based on the
latest borrowing base certificate the Borrower shall have
delivered to the Lender. If the principal balance of the
Revolving Note at any time exceeds the Borrowing Base, the
Borrower shall immediately prepay the Revolving Note by the
amount of that excess.
Section 2.6 Repayment and Prepayment.
2.6 (a) Repayment of the Revolving Note. Principal
of the Revolving Note shall be payable in full on the
Revolving Maturity Date.
2.6 (b) Repayment of the Term Note. Principal
of the Term Note is payable as provided in the Term
Note.
Section 2.7 Optional Prepayments. The Borrower may
prepay Advances, in whole or in part, at any time, without
premium or penalty. Any such prepayment must be accompanied by
accrued and unpaid interest on the amount prepaid. Each partial
prepayment shall be in a minimum amount of $100,000. Amounts
paid (unless following an acceleration or upon termination of the
Commitment in whole) or prepaid on Advances on the Revolving Loan
under this Section may be reborrowed upon the terms and subject
to the conditions and limitations elsewhere in this Agreement.
Section 2.8 Optional Reduction of Revolving Commitment
Amount or Termination of Commitment. The Borrower may, at any
time, upon not less than two Business Days prior written notice
to the Lender, reduce the Revolving Commitment Amount, with any
such reduction in a minimum amount of $100,000; provided,
however, the Borrower may not at any time reduce the Revolving
Commitment Amount below the then unpaid principal balance of the
Revolving Note. The Borrower may, at any time, upon not less
than two Business Days prior written notice to the Lender,
terminate the Revolving Commitment in its entirety. Upon
termination of the Revolving Commitment pursuant to this Section,
the Borrower shall pay to the Lender all unpaid obligations of
the Borrower to the Lender hereunder.
Section 2.9 Revolving Commitment Fee. In the event
that the interest paid to the Lender from the Closing Date until
the Revolving Maturity Date does not exceed $2,500, the Borrower
shall pay to the Lender fees (the "Revolving Commitment Fees") in
an amount determined by applying a rate of 0.25% per annum to the
average daily unused Revolving Commitment Amount for the period
from the date of this Agreement to the Revolving Maturity Date.
Such Revolving Commitment Fees are payable in arrears quarterly
on the last day of each quarter and on the Revolving Maturity
Date.
Section 2.10 Computation. Revolving Commitment Fees
and interest on the Notes shall be computed on the basis of
actual days elapsed and a year of 360 days.
Section 2.11 Capital Adequacy. In the event that any
Regulatory Change reduces or shall have the effect of reducing
the rate of return on the Lender's capital or the capital of its
parent corporation (by an amount the Lender deems material) as a
consequence of the Commitments and/or the Advances to a level
below that which the Lender or its parent corporation could have
achieved but for such Regulatory Change (taking into account the
Lender's policies and the policies of its parent corporation with
respect to capital adequacy), then the Borrower shall, within
five days after written notice and demand from the Lender, pay to
the Lender additional amounts sufficient to compensate the Lender
or its parent corporation for such reduction. Any determination
by the Lender under this Section and any certificate as to the
amount of such reduction given to the Borrower by the Lender
shall be final, conclusive and binding for all purposes, absent
error.
Section 2.12 Use of Proceeds. The proceeds of the
initial Revolving Advance shall be used first for general
business purposes. Any remaining balance of the initial
Revolving Advance and the proceeds of any subsequent Revolving
Advance shall be used for the Borrower's general business
purposes in a manner not in conflict with any of the Borrower's
covenants in this Agreement. The proceeds of the Term Loan shall
be used for the acquisition of the assets of Irathene System
Incorporated.
Section 2.13 Interest Rate Not Ascertainable, Etc.
If, on or prior to the date for determining LIBOR Pricing Rate,
the Lender determines (which determination shall be conclusive
and binding, absent error) that:
(a) deposits in dollars (in the applicable amount) are
not being made available to the Lender in the relevant
market, or
(b) the LIBOR Pricing Rate will not adequately and
fairly reflect the cost to the Lender of funding or
maintaining Advances,
the Lender shall forthwith give notice to the Borrower of such
determination, whereupon the obligation of the Lender to make or
continue any Advances shall be suspended until the Lender
notifies the Borrower that the circumstances giving rise to such
suspension no longer exist. While any such suspension continues,
all further Advances by the Lender shall be made at a rate equal
to the Wall Street Journal Prime Rate minus .25%.
Section 2.14 Increased Cost. If any Regulatory
Change:
(a) shall subject the Lender to any tax, duty or other
charge with respect to its Advances, the Notes, its
obligation to make Advances or shall change the basis of
taxation of payment to the Lender of the principal of or
interest on Advances or any other amounts due under this
Agreement in respect of Advances or its obligation to make
Advances (except for changes in the rate of tax on the
overall net income of the Lender imposed by the jurisdiction
in which the Lender's principal office is located); or
(b) shall impose, modify or deem applicable any
reserve, special deposit, capital requirement or similar
requirement (including, without limitation, any such
requirement imposed by the Board, but excluding any such
requirement to the extent included in calculating the
applicable LIBOR Pricing Rate) against assets of, deposits
with or for the account of, or credit extended by, the
Lender;
(c) shall impose, modify or deem applicable any
reserve, special deposit, capital requirement or similar
requirement (including, without limitation, any such
requirement imposed by the Board, but excluding any such
requirement to the extent included in calculating the
applicable LIBOR Pricing Rate) against assets of, deposits
with or for the account of, or credit extended by, the
Lender or shall impose on the Lender or on the interbank
market any other condition affecting its Advances, the Note
or its obligation to make Advances;
and the result of any of the foregoing is to increase the cost to
the Lender of making or maintaining any Advance, or to reduce the
amount of any sum received or receivable by the Lender under this
Agreement or under the Revolving Note, then, within 30 days after
demand by the Lender, the Borrower shall pay to the Lender such
additional amount or amounts as will compensate the Lender for
such increased cost or reduction. The Lender will promptly
notify the Borrower of any event of which it has knowledge,
occurring after the date hereof, which will entitle the Lender to
compensation pursuant to this Section. A certificate of the
Lender claiming compensation under this Section, setting forth
the additional amount or amounts to be paid to it hereunder and
stating in reasonable detail the basis for the charge and the
method of computation, shall be conclusive in the absence of
error. In determining such amount, the Lender may use any
reasonable averaging and attribution methods. Failure on the
part of the Lender to demand compensation for any increased costs
or reduction in amounts received or receivable shall not
constitute a waiver of the Lender's rights to subsequently
demand compensation for any increased costs or reduction in
amounts received or receivable.
Section 2.15 Illegality. If any Regulatory Change
shall make it unlawful or impossible for the Lender to make,
maintain or fund any Advances, the Lender shall notify the
Borrower, whereupon the obligation of the Lender to make or
continue any Advances shall be suspended until the Lender
notifies the Borrower that the circumstances giving rise to such
suspension no longer exist. If the Lender determines that it may
not lawfully continue to maintain any Advances, all of the
affected Advances shall be automatically become interest at the
Wall Street Journal Prime Rate minus .25% as of the date of the
Lender's notice, and upon such conversion the Borrower shall
indemnify the Lender in accordance with the following Section.
Section 2.16 Funding Losses. The Borrower shall
compensate the Lender, upon its written request, for all losses,
expenses and liabilities (including any interest paid by the
Lender to lenders of funds borrowed by it to make or carry
Advances to the extent not recovered by the Lender in connection
with the re-employment of such funds and including loss of
anticipated profits) which the Lender may sustain if for any
reason, other than a default by the Lender, a funding of a
Advance does not occur on the date specified therefor in the
Borrower's request or notice as to such Advance under Section 2.2
or 2.5. The Lender's request for compensation shall set forth
the basis for the amount requested and shall be final, conclusive
and binding, absent error.
Section 2.17 Discretion of Lender as to Manner of
Funding. The Lender shall be entitled to fund and maintain its
funding of Advances in any manner it may elect, it being
understood, however, that for the purposes of this Agreement all
determinations hereunder (including, but not limited to,
determinations under Section 2.16) shall be made as if the Lender
had actually funded and maintained each Advance.
Section 2.18 Break-up Fee. In the event that the
Lender offers permanent financing to the Borrower on similar
terms as those contained in this Agreement and the Borrower
refinances any part of the Term Loan or the Revolving Loan with a
Person other than the Lender, the Borrower shall pay the Lender a
break up fee in the amount of $50,000 upon such refinancing.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions of Initial Revolving Advance
and Term Loan. The obligation of the Lender to make the initial
Advance on the Revolving Loan and the Term Loan hereunder shall
be subject to the prior or simultaneous fulfillment of each of
the following conditions:
3.1 (a) Documents. The Lender shall have
received
the following:
(i) The Notes executed by a duly authorized
officer (or officers) of the Borrower and dated the
Closing Date.
(ii) A copy of the corporate resolutions of the
Borrower authorizing the execution, delivery and
performance of this Agreement and the Notes and
containing an incumbency certificate showing the names
and titles, and bearing the signatures of, the officers
of the Borrower authorized to execute this Agreement
and the Notes, certified as of the Closing Date by the
Secretary or an Assistant Secretary of the Borrower.
(iii) A copy of the Articles of Incorporation of
the Borrower with all amendments thereto, certified by
the appropriate governmental official of the
jurisdiction of its incorporation as of a date not more
than 10 days prior to the Closing Date.
(iv) A certificate of good standing for the
Borrower in the jurisdiction of its incorporation,
certified by the appropriate governmental official as
of a date not more than 10 days prior to the Closing
Date.
(v) A copy of the bylaws of the Borrower,
certified as of the Closing Date by the Secretary or an
Assistant Secretary of the Borrower.
(vi) The opinion of counsel to the Borrower
covering such matters as the Lender may request.
(vii) A Security Agreement in form and substance
satisfactory to the Lender and duly executed by the
Borrower.
(viii) The initial Borrowing Base Certificate
required under Section 2.5.
(ix) The guaranty of Daniel O. Burkes in form and
substance satisfactory to the Lender.
(x) A guaranty from each subsidiary of the
Borrower in form and substance satisfactory to the
Lender.
(xi) A security agreement in form and substance
satisfactory to the Lender duly executed by each of the
subsidiaries of the Borrower.
(xii) A copy of the resolutions of each of the
subsidiaries authorizing the execution and delivery of
a guaranty and security agreement and containing an
incumbency certificate showing the names and titles and
bearing the signatures of, the officers of the
subsidiaries authorized to execute the guaranty and
security agreement, certified as of the Closing Date by
the Secretary or an Assistant Secretary of each
subsidiary.
(xiii) A certificate of good standing for each of
the subsidiaries in the jurisdiction of their
incorporation, certified by the appropriate
governmental officials as of a date not more than 10
days prior to the Closing Date.
(xiv) A copy of the bylaws of each subsidiary,
certified as of the Closing Date by the Secretary or
Assistant Secretary of each subsidiary.
(xv) A copy of the Articles of Incorporation of
each subsidiary with all amendments thereto, certified
by the appropriate governmental official of the
jurisdiction of its incorporation as of a date not more
than 10 days prior to the Closing Date.
(xvi) Satisfactory review of the Purchase
Agreement and Warranty Agreement with Irathene Systems
Incorporated.
(xvii) Satisfactory review of assets to be
purchased from Irathene Systems, Incorporated.
(xviii) Satisfactory review of acquisition
financial statements.
(xix) Satisfactory completion of collateral
audit.
(xx) Satisfactory environmental and "Year 2000"
due diligence.
(xxi) Copy of employment agreement with Daniel O.
Burkes.
(xxii) Payment of a commitment fee in the amount
of $35,000.
(xxiii) An assignment of life insurance, in form
and substance acceptable to the Lender, on the life of
Daniel O. Burkes in an amount of at least $3,000,000,
on or before April 30, 1999.
(xxiv) A letter of undertaking regarding the
assignment of life insurance in form and substance
acceptable to the Lender.
(xxv) Any other documents or conditions reasonably
requested by the Lender.
3.1 (b) Other Matters. All organizational
and legal proceedings relating to the Borrower and all
instruments and agreements in connection with the
transactions contemplated by this Agreement shall be
satisfactory in scope, form and substance to the Lender
and its counsel, and the Lender shall have received all
information and copies of all documents, including
records of corporate proceedings, which it may
reasonably have requested in connection therewith, such
documents where appropriate to be certified by proper
Borrower or governmental authorities.
3.1 (c) Fees and Expenses. The Lender shall have
received all fees and other amounts due and payable by the
Borrower on or prior to the Closing Date, including the
reasonable fees and expenses of counsel to the Lender payable
pursuant to Section 8.2.
3.1 (d) Perfection. The Security Agreement (or
financing statements with respect thereto) shall have been
appropriately filed to the satisfaction of the Lender and the
priority and perfection of the Lien created thereby shall have
been established to the satisfaction of the Lender.
Section 3.2 Conditions Precedent to all Advances. The
Lender shall not have any obligation to make the Term Loan or any
Advance on the Revolving Loan (including Advances after the
initial Advance) hereunder unless all representations and
warranties of the Borrower made in this Agreement remain true and
correct and no Default or Event of Default exists.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender:
Section 4.1 Organization, Standing, Etc. The Borrower
is a corporation duly incorporated and validly existing and in
good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority
to carry on its business as now conducted, to enter into this
Agreement and to issue the Notes and to perform its obligations
hereunder and thereunder. This Agreement and the Notes have been
duly authorized by all necessary corporate action and when
executed and delivered will be the legal and binding obligations
of the Borrower. The execution and delivery of this Agreement
and the Notes will not violate the Borrower's Articles of
Incorporation or bylaws or any law applicable to the Borrower.
No governmental consent or exemption is required in connection
with the Borrower's execution and delivery of this Agreement and
the Notes.
Section 4.2 Financial Statements and No Material
Adverse Change. The Borrower's audited financial statements as
at December 31, 1998 and its unaudited financial statements as at
January 31, 1999, as heretofore furnished to the Lender, have
been prepared in accordance with GAAP. The Borrower has no
material obligation or liability not disclosed in such financial
statements, and there has been no material adverse change in the
condition of the Borrower since the dates of such financial
statements.
Section 4.3 Litigation. There are no actions, suits
or proceedings pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower which, if determined
adversely to the Borrower, would have, a material adverse effect
on the condition of the Borrower. The Borrower is not in
violation of any law or regulation (including environmental laws
and regulations and laws relating to employee benefit plans)
where such violation could reasonably be expected to impose a
material liability on the Borrower.
Section 4.4 Taxes. The Borrower has filed all
federal, state and local tax returns required to be filed and has
paid or made provision for the payment of all taxes due and
payable pursuant to such returns and pursuant to any assessments
made against it or any of its property (other than taxes, fees or
charges the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with
respect to which reserves in accordance with GAAP have been
provided on the books of the Borrower).
Section 4.5 Subsidiaries. The Borrower has the
Subsidiaries listed on Schedule 2 hereto.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Revolving Commitment shall have expired or
been terminated and the Notes and all of the Borrower's other
obligations to the Lender under this Agreement shall have been
paid in full, unless the Lender shall otherwise consent in
writing:
Section 5.1 Financial Statements and Reports. The
Borrower will furnish to the Lender:
5.1 (a) As soon as available and in any event
within 120 days after the end of each fiscal year of the
Borrower, consolidated financial statements of the Borrower
consisting of at least statements of income, cash flow and
changes in stockholders' equity, and a balance sheet as at the
end of such year, setting forth in each case in comparative form
corresponding figures from the previous annual audit, certified
without qualification by or other independent certified public
accountants of recognized national standing selected by the
Borrower and acceptable to the Lender.
5.1 (b) As soon as available and in any event
within 25 days after the end of each month, unaudited
consolidated financial statements for the Borrower for such month
and for the period from the beginning of such fiscal year to the
end of such month, substantially similar to the annual audited
statements.
5.1 (c) As soon as practicable and in any event
within 25 days after the end of each fiscal quarter, a compliance
certificate in the form of Exhibit 5.1(c) hereto signed by the
Chief Financial Officer of the Borrower demonstrating in
reasonable detail compliance (or noncompliance, as the case may
be) with these Sections: 6.8, 6.9 and 6.10, as at the end of such
quarter and stating that as at the end of such fiscal quarter
there did not exist any Default or Event of Default or, if such
Default or Event of Default existed, specifying the nature and
period of existence thereof and what action the Borrower proposes
to take with respect thereto.
5.1 (d) Immediately upon any officer of the
Borrower becoming aware of any Default or Event of Default, a
notice describing the nature thereof and what action the Borrower
proposes to take with respect thereto.
5.1 (e) As soon as available and in any event
within 120 days of year end updated personal financial statements
and copies of the Federal and State tax return of Daniel O.
Burkes.
5.1(f) As soon as available and in any event
within 120 days after the end of each fiscal year of the Borrower
financial projections for each of the next three fiscal years.
5.1(g) From time to time, such other information
regarding the business, operation and financial condition of the
Borrower as the Lender may reasonably request.
Section 5.2 Corporate Existence. The Borrower will
maintain its corporate existence in good standing under the laws
of its jurisdiction of incorporation and its qualification to
transact business in each jurisdiction where failure so to
qualify would permanently preclude the Borrower from enforcing
its rights with respect to any material asset or would expose the
Borrower to any material liability.
Section 5.3 Insurance. The Borrower will maintain
with financially sound and reputable insurance companies such
insurance as may be required by law and such other insurance in
such amounts and against such hazards as is customary in the case
of reputable corporations engaged in the same or similar business
and similarly situated.
Section 5.4 Payment of Taxes and Claims. The Borrower
will file all tax returns and reports which are required by law
to be filed by it and will pay before they become delinquent, all
taxes, assessments and governmental charges and levies imposed
upon it or its property and all claims or demands of any kind
(including those of suppliers, mechanics, carriers, warehousemen,
landlords and other like Persons) which, if unpaid, might result
in the creation of a Lien upon its property.
Section 5.5 Inspection. The Borrower will permit any
Person designated by the Lender to visit and inspect any of the
properties, books and financial records of the Borrower, to
examine and to make copies of the books of accounts and other
financial records of the Borrower, and to discuss the affairs,
finances and accounts of the Borrower with its officers at such
reasonable times and intervals as the Lender may designate. The
Borrower shall also allow the Lender and its agents to conduct
periodic collateral audits of the Borrower's accounts and
inventory at such intervals as the Lender may choose, and the
Borrower shall pay the Lender's costs of such audits.
Section 5.6 Maintenance of Properties. The Borrower
will maintain its properties in good condition, repair and
working order, and supplied with all necessary equipment, and
make all necessary repairs, renewals, replacements, betterments
and improvements thereto, all as may be necessary so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times.
Section 5.7 Books and Records. The Borrower will keep
adequate and proper records and books of account in which full
and correct entries will be made of its dealings, business and
affairs.
Section 5.8 Compliance. The Borrower will comply in
all material respects with all laws, rules and regulations to
which it may be subject.
Section 5.9 Notice of Litigation. The Borrower will
give prompt written notice to the Lender of the commencement of
any action, suit or proceeding affecting the Borrower.
Section 5.10 Plans. The Borrower will maintain any
employee benefit plans in compliance with all material
requirements of applicable laws and regulations.
Section 5.11 Reaffirmation of Guaranties. When so
requested by the Lender from time to time, the Borrower will
promptly cause any Persons who have guaranteed the obligations of
the Borrower hereunder or any part thereof to execute and deliver
to the Lender reaffirmations of their respective guaranties in
such form as the Lender may require.
Section 5.12 Year 2000. Borrower has reviewed and
assessed its business operations and computer systems and
applications to address the "year 2000 problem" (that is, that
computer applications and equipment used by Borrower, directly or
indirectly through third parties, may be unable to properly
perform date-sensitive functions before, during and after January
1, 2000). Borrower reasonably believes that the year 2000
problem will not result in a material adverse change in
Borrower's business condition (financial or otherwise),
operations, properties or prospects or ability to repay Lender.
Borrower is in the process of implementing a plan to remediate
year 2000 problems and will complete implementation of such plan
with respect to any material year 2000 problems, and testing
thereof, by September 30, 1999. Borrower agrees that this
representation will be true and correct on and shall be deemed
made by Borrower on each date Borrower requests any advance under
this Agreement or Note or delivers any information to Lender.
Borrower will promptly deliver to Lender such information
relating to this representation and covenant as Lender requests
from time to time.
Section 5.13 Depository Accounts. Borrower agrees to
maintain all of its main depository accounts with the Lender.
Borrower's subsidiary may continue to maintain its depository
accounts in Utah.
ARTICLE VI
NEGATIVE COVENANTS
Until the Revolving Commitment shall have expired or
been terminated and the Notes and all of the Borrower's other
obligations to the Lender under this Agreement shall have been
paid in full, unless the Lender shall otherwise consent in
writing:
Section 6.1 Merger. The Borrower will not merge or
consolidate or enter into any analogous reorganization or
transaction with any Person or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution) or permit any
Subsidiary to do any of the foregoing; provided, however, any
Subsidiary may be merged with or liquidated into the Borrower or
any wholly-owned Subsidiary (if the Borrower or such wholly-owned
Subsidiary is the surviving corporation)
Section 6.2 Sale of Assets. The Borrower will not,
and will not permit any Subsidiary to, sell, transfer, lease or
otherwise convey all or any substantial part of its assets except
for sales and leases of inventory in the ordinary course of
business and except the Borrower may sell up obsolete or unused
Equipment in aggregate amount not to exceed $50,000.
Section 6.3 Dividends. The Borrower will not pay any
dividends or otherwise make any distributions on, or redemptions
of, any of its outstanding stock, except the Borrower may redeem
not more than 40,000 shares of its outstanding common stock.
Section 6.4 Investments. The Borrower will not, and
will not permit any Subsidiary to, make any loans, advances or
extensions of credit to any other Person (except for trade and
customer accounts receivable for inventory sold or services
rendered in the ordinary course of business and payable in
accordance with customary trade terms) or purchase or acquire any
stock or other debt or equity securities of or any interest in
any other Person or any integral part of any business or the
assets comprising such business or part thereof, except for:
6.4 (a) Investments in readily marketable direct
obligations issued or unconditionally guaranteed by the United
States government or any agency thereof and supported by the full
faith and credit of the United States.
6.4 (b) Certificates of deposit or bankers'
acceptances issued by any commercial Bank organized under the
laws of the United States or any State thereof which has (i)
combined capital and surplus of at least $100,000,000, and (ii) a
credit rating with respect to its unsecured indebtedness from a
nationally recognized rating service that is satisfactory to the
Lender.
6.4 (c) Commercial paper given the highest rating
by a nationally recognized rating service.
6.4 (d) Repurchase agreements relating to
securities of the kind described in subsection (a) of this
Section.
6.4 (e) Other readily marketable investments in
debt securities which are reasonably acceptable to the Lender.
6.4 (f) Travel advances to officers, directors and
employees in the ordinary course of business.
Any investments under clauses (a), (b), (c) or (d) above must
mature within one year of the acquisition thereof by the
Borrower.
Section 6.5 Indebtedness. The Borrower will not, and
will not permit any Subsidiary to, borrow any money or issue any
bonds, debentures or other debt securities or otherwise become
obligated on any interest-bearing indebtedness except for the
Term Loan and Advances under this Agreement.
Section 6.6 Liens. The Borrower will not, and will not
permit any Subsidiary to, create, incur, assume or suffer to
exist any Lien, or enter into any arrangement for the acquisition
of any property through conditional sale, lease-purchase or other
title retention agreements except:
6.6 (a) Liens granted to the Lender.
6.6 (b) Liens existing on the date of this
Agreement and disclosed on Exhibit 6.6 hereto.
6.6 (c) Deposits or pledges to secure payment of
workers' compensation, unemployment insurance, old age pensions
or other social security obligations arising in the ordinary
course of business of the Borrower.
6.6 (d) Liens for taxes, fees, assessments and
governmental charges not delinquent.
6.6 (e) Liens of carriers, warehousemen, mechanics
and materialmen, and other like Liens arising in the ordinary
course of business, for sums not due.
6.6 (f) Liens incurred or deposits or pledges made
or given in connection with, or to secure payment of, indemnity,
performance or other similar bonds.
6.6 (g) Encumbrances in the nature of zoning
restrictions, easements and rights or restrictions of record on
the use of real property and landlord's Liens under leases on the
premises rented, which do not materially detract from the value
of such property or impair the use thereof in the business of the
Borrower.
Section 6.7 Contingent Obligations. The Borrower will
not, and will not permit any Subsidiary to, guarantee or
otherwise become liable on the indebtedness of any other Person.
Section 6.8 Tangible Net Worth. The Borrower will not
permit its Tangible Net Worth (the excess of its assets,
excluding intangible assets, over its liabilities, on a
consolidated basis) at any time to be less than $5,500,000.
Section 6.9 Current Ratio. The Borrower will not
permit the ratio of its consolidated current assets to its
consolidated current liabilities to be less than 1.5 to 1 at any
time.
Section 6.10 Leverage Ratio. The Borrower will not
permit its Leverage Ratio (the ratio of its Total Liabilities to
its Tangible Net Worth) to be more than 1.75 to 1 at any time.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default. The occurrence of any
one or more of the following events shall constitute an Event of
Default:
7.1 (a) The Borrower shall fail to make when due,
whether by acceleration or otherwise, any payment of principal of
or interest on the Notes or any other obligations of the Borrower
to the Lender pursuant to this Agreement.
7.1 (b) Any representation or warranty made by or
on behalf of the Borrower in this Agreement or by or on behalf of
the Borrower in any certificate, statement, report or document
herewith or hereafter furnished to the Lender pursuant to this
Agreement shall prove to have been false or misleading in any
material respect on the date as of which the facts set forth are
stated or certified.
7.1 (c) The Borrower shall fail to comply with
Sections 5.2 or 5.3 or any Section of Article VI.
7.1 (d) The Borrower shall fail to comply with any
other agreement, covenant, condition, provision or term contained
in this Agreement and such failure to comply shall continue for
(i) 15 calendar days if the default occurs under Sections 6.8,
6.9 or 6.10 and (ii) 30 calendar days if the default occurs
(other than those hereinabove set forth in this Section 7.1)
after whichever of the following dates is the earliest: (i) the
date the Borrower gives notice of such failure to the Lender,
(ii) the date the Borrower should have given notice of such
failure to the Lender pursuant to Section 5.1, or (iii) the date
the Lender gives notice of such failure to the Borrower.
7.1 (e) The Borrower or any Subsidiary shall
become insolvent or shall generally not pay its debts as they
mature or shall apply for, shall consent to, or shall acquiesce
in the appointment of a custodian, trustee or receiver of the
Borrower or such Subsidiary or for a substantial part of the
property thereof or, in the absence of such application, consent
or acquiescence, a custodian, trustee or receiver shall be
appointed for the Borrower or such Subsidiary or for a
substantial part of the property thereof and shall not be
discharged within 45 days, or the Borrower shall make an
assignment for the benefit of creditors.
7.1 (f) Any bankruptcy, reorganization, debt
arrangement or other proceedings under any bankruptcy or
insolvency law shall be instituted by or against the Borrower or
any Subsidiary and, if instituted against the Borrower or any
Subsidiary, shall have been consented to or acquiesced in by the
Borrower or such Subsidiary or shall remain undismissed for 60
days, or an order for relief shall have been entered against the
Borrower or such Subsidiary.
7.1 (g) Any dissolution or liquidation proceeding
shall be instituted by or against the Borrower or any Subsidiary
and, if instituted against the Borrower or such Subsidiary, shall
be consented to or acquiesced in by the Borrower or such
Subsidiary or shall remain for 45 days undismissed.
7.1 (h) A judgment or judgments for the payment of
money in excess of the sum of $50,000 in the aggregate shall be
rendered against the Borrower or any Subsidiary and either (i)
the judgment creditor executes on such judgment or (ii) such
judgment remains unpaid or undischarged for more than 60 days
from the date of entry thereof or such longer period during which
execution of such judgment shall be stayed during an appeal from
such judgment.
7.1 (i) The maturity of any material indebtedness
of the Borrower or any Subsidiary (other than indebtedness under
this Agreement) shall be accelerated, or the Borrower or any
Subsidiary shall fail to pay any such material indebtedness when
due (after the lapse of any applicable grace period) or any event
shall occur or condition shall exist and shall continue for more
than the period of grace, if any, applicable thereto and shall
have the effect of causing, or permitting the holder of any such
indebtedness to cause, such material indebtedness to become due
prior to its stated maturity or to realize upon any collateral
given as security therefor. For purposes of this Section,
indebtedness of the Borrower shall be deemed "material" if it
exceeds $50,000 as to any item of indebtedness or in the
aggregate for all items of indebtedness with respect to which any
of the events described in this Section has occurred.
7.1(j) Any execution or attachment shall be issued
whereby any substantial part of the property of the Borrower or
any Subsidiary shall be taken or attempted to be taken and the
same shall not have been vacated or stayed within 30 days after
the issuance thereof.
7.1 (k) Any guarantor of any of the obligations
of the Borrower under this Agreement shall seek to revoke its,
his or her guaranty or any such guaranty shall become
unenforceable for any reason.
7.1 (l) Any default shall occur under any other
Loan Document.
Section 7.2 Remedies. If (a) any Event of Default
described in Sections 7.1 (e), (f) or (g) shall occur with
respect to the Borrower, the Revolving Commitment shall
automatically terminate and the Notes and all other obligations
of the Borrower to the Lender under this Agreement shall
automatically become immediately due and payable, or (b) any
other Event of Default shall occur and be continuing, then the
Lender may (i) declare the Revolving Commitment terminated,
whereupon the Commitment shall terminate, and (ii) declare the
Notes and all other obligations of the Borrower to the Lender
under this Agreement to be forthwith due and payable, whereupon
the same shall immediately become due and payable, in each case
without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived, anything in this
Agreement or in the Notes to the contrary notwithstanding. Upon
the occurrence of any of the events described in clauses (a) or
(b) of the preceding sentence the Lender may exercise all rights
and remedies under this Agreement, the Notes and any related
agreements and under any applicable law.
Section 7.3 Offset. In addition to the remedies set
forth in Section 7.2, upon the occurrence of any Event of Default
and thereafter while the same be continuing, the Borrower hereby
irrevocably authorizes the Lender to set off all sums owing by
the Borrower to the Lender against all deposits and credits of
the Borrower with, and any and all claims of the Borrower
against, the Lender.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Modifications. Notwithstanding any
provisions to the contrary herein, any term of this Agreement may
be amended with the written consent of the Borrower; provided
that no amendment, modification or waiver of any provision of
this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall
be in writing and signed by the Lender, and then such amendment,
modifications, waiver or consent shall be effective only in the
specific instance and for the purpose for which given.
Section 8.2 Costs and Expenses. Whether or not the
transactions contemplated hereby are consummated, the Borrower
agrees to reimburse the Lender upon demand for all reasonable
out-of-pocket expenses paid or incurred by the Lender (including
filing and recording costs and fees and expenses of Dorsey &
Whitney LLP, counsel to the Lender) in connection with the
negotiation, preparation, approval, review, execution, delivery,
amendment, modification, interpretation, collection and
enforcement of this Agreement and the Notes. The obligations of
the Borrower under this Section shall survive any termination of
this Agreement.
Section 8.3 Waivers, etc. No failure on the part of
the Lender or the holder of either Note to exercise and no delay
in exercising any power or right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof or
the exercise of any other power or right. The rights and
remedies of the Lender hereunder are cumulative and not exclusive
of any right or remedy the Lender otherwise has.
Section 8.4 Notices. Except when telephonic notice is
expressly authorized by this Agreement, any notice or other
communication to any party in connection with this Agreement
shall be in writing and shall be sent by manual delivery,
telegram, telex, facsimile transmission, overnight courier or
United States mail (postage prepaid) addressed to such party at
the address specified on the signature page hereof, or at such
other address as such party shall have specified to the other
party hereto in writing. All periods of notice shall be measured
from the date of delivery thereof if manually delivered, from the
date of sending thereof if sent by telegram, telex or facsimile
transmission, from the first Business Day after the date of
sending if sent by overnight courier, or from four days after the
date of mailing if mailed; provided, however, that any notice to
the Lender under Article II hereof shall be deemed to have been
given only when received by the Lender.
Section 8.5 Successors and Assigns; Disposition of
Loans. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns, except that the Borrower may not assign its rights or
delegate its obligations hereunder without the prior written
consent of the Lender. The Lender may at any time sell, assign,
transfer, grant participating in, or otherwise dispose of any
portion of the Revolving Commitment and the Term Loan and/or
Advances to banks or other financial institutions. The Lender
may disclose any information regarding the Borrower in the
Lender's possession to any prospective buyer or participant.
Section 8.6 Governing Law and Construction. THE
VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT AND
THE NOTES SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS.
Section 8.7 Consent to Jurisdiction. AT THE OPTION OF
THE LENDER, THIS AGREEMENT AND THE NOTES MAY BE ENFORCED IN ANY
FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HIBBING,
MINNESOTA; AND THE BORROWER CONSENTS TO THE JURISDICTION AND
VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY
TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDER AT ITS OPTION
SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
Section 8.8 Waiver of Jury Trial. EACH OF THE
BORROWER AND THE LENDER IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT, THE NOTE AND ANY OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
Section 8.9 Captions. The captions or headings herein
and any table of contents hereto are for convenience only and in
no way define, limit or describe the scope or intent of any
provision of this Agreement.
Section 8.10 Entire Agreement. This Agreement and the
other Loan Documents embody the entire agreement and
understanding between the Borrower and the Lender with respect to
the subject matter hereof and thereof. This Agreement supersedes
all prior agreements and understandings relating to the subject
matter hereof.
Section 8.11 Counterparts. This Agreement may be
executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument, and either
of the parties hereto may execute this Agreement by signing any
such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
INDUSTRIAL RUBBER PRODUCTS, INC.
By /s Daniel O. Burkes
Print Name Daniel O. Burkes
Title President
Borrower's Address:
3804 East 13th Street
Hibbing, MN 55746
U.S. BANK NATIONAL ASSOCIATION
By /s Mark C. Peterson
Print Name Mark C. Peterson
Title Vice President
Lender's Address:
U.S. Bank National Association
P.O Box 39
Hibbing, Minnesota 55746
Fax (218) 263-3308
<PAGE>
EXHIBIT 2.3 (a) TO
CREDIT AGREEMENT
REVOLVING NOTE
$2,000,000 March 30, 1999
Hibbing, Minnesota
FOR VALUE RECEIVED, INDUSTRIAL RUBBER PRODUCTS, INC., a
corporation organized under the laws of the State of Minnesota,
hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the "Lender") at its main office in Hibbing,
Minnesota, in lawful money of the United States of America in
immediately available funds on the Maturity Date (as such term
and each other capitalized term used herein are defined in the
Credit Agreement hereinafter referred to) the principal amount of
TWO MILLION DOLLARS AND NO CENTS ($2,000,000) or, if less, the
aggregate unpaid principal amount of all Revolving Advances made
by the Lender under the Credit Agreement, and to pay interest
(computed on the basis of actual days elapsed and a year of 360
days) in like funds on the unpaid principal amount hereof from
time to time outstanding at the rates and times set forth in the
Credit Agreement.
This note is the Revolving Note referred to in the
Credit Agreement dated as of March 30, 1999 (as the same may be
hereafter from time to time amended, restated or modified, the
"Credit Agreement") between the undersigned and the Lender. This
note is secured, it is subject to certain permissive and
mandatory prepayments and its maturity is subject to
acceleration, in each case upon the terms provided in said Credit
Agreement.
In the event of default hereunder, the undersigned
agrees to pay all costs and expenses of collection, including
reasonable attorneys' fees. The undersigned waives demand,
presentment, notice of nonpayment, protest, notice of protest and
notice of dishonor.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
MINNESOTA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.
INDUSTRIAL RUBBER PRODUCTS, INC.
By
Title
<PAGE>
EXHIBIT 2.3 (b) TO
CREDIT AGREEMENT
TERM NOTE
$7,000,000 March 30, 1999
Hibbing, Minnesota
FOR VALUE RECEIVED, INDUSTRIAL RUBBER PRODUCTS, INC., a
corporation organized under the laws of the State of Minnesota,
hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the "Lender") at its main office in Hibbing,
Minnesota, in lawful money of the United States of America in
immediately available funds on September 30, 1999, the principal
amount of SEVEN MILLION DOLLAR AND NO CENTS ($7,000,000), and to
pay interest (computed on the basis of actual days elapsed and a
year of 360 days) in like funds on the unpaid principal amount
hereof from time to time outstanding at the rate and times set
forth in the Credit Agreement.
This note is the Term Note referred to in the Credit
Agreement dated as of March 30, 1999 (as the same may hereafter
be from time to time amended, restated or otherwise modified, the
"Credit Agreement") between the undersigned and the Lender. This
note is secured and its maturity is subject to acceleration, in
each case upon the terms provided in said Credit Agreement.
In the event of default hereunder, the undersigned
agrees to pay all costs and expenses of collection, including
reasonable attorneys' fees. The undersigned waives demand,
presentment, notice of nonpayment, protest, notice of protest and
notice of dishonor.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
MINNESOTA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.
INDUSTRIAL RUBBER PRODUCTS, INC.
By
Title
<PAGE>
SCHEDULE 1 TO
CREDIT AGREEMENT
BORROWING BASE DEFINITIONS
"Affiliate": When used with reference to any Person,
(a) each Person that, directly or indirectly, controls, is
controlled by or is under common control with, the Person
referred to, (b) each Person which beneficially owns or holds,
directly or indirectly, five percent or more of any class of
voting stock of the Person referred to (or if the Person referred
to is not a corporation, five percent or more of the equity
interest), (c) each Person, five percent of more of the voting
stock (or if such Person is not a corporation, five percent or
more of the equity interest) of which is beneficially owned or
held, directly or indirectly, by the Person referred to, and (d)
each of such Person's officers, directors, joint venturers and
partners. The term control (including the terms "controlled by"
and "under common control with") means the possession, directly,
of the power to direct or cause the direction of the management
and policies of the Person in question.
"Eligible Inventory" means Inventory of the Borrower
which meets the following requirements: (a) it is owned by the
Borrower, is subject to a first priority perfected security
interest in favor of the Lender, and is not subject to any
assignment, claim or Lien other than (i) a Lien in favor of the
Lender and (ii) Liens consented to by the Lender in writing; (b)
it consists of raw materials or finished products (not including
work in process and supplies; (c) if held for sale or lease, it
is (except as the Lender may otherwise consent in writing) new
and unused; (d) except as the Lender may otherwise consent, it is
not stored with a bailee, warehouseman or similar party; if so
stored with the Lender's consent, such bailee, warehouseman or
similar party has issued and delivered to the Lender, in form and
substance acceptable to the Lender, such documents and agreements
as the Lender may require, including, without limitation,
warehouse receipts therefor in the Lender's name; (e) the Lender
has determined, in its sole and absolute discretion, that it is
not unacceptable due to age, type, category, quality and/or
quantity; (f) it is not held by the Borrower on consignment and
is not subject to any other repurchase or return agreement; (g)
it is not held by a customer of the Borrower or any other Person
on consignment; (h) it complies with all standards imposed by any
governmental agency having regulatory authority over such goods
and/or their use, manufacture or sale; and (i) the warranties,
representations and covenants contained in any security agreement
or other agreement of the Borrower with or given to the Lender
relating directly or indirectly to the Borrower's Inventory are
applicable to it without exception.
"Eligible Receivables" means the Receivables owned by
the Borrower which are subject to a first priority perfected
security interest in favor of the Lender and not subject to any
assignment, claim or Lien other than the Lien in favor of the
Lender and other Liens consented to by the Lender in writing, but
excluding (a) Receivables which are not earned; (b) Receivables
which are unpaid more than ninety (90) days after the original
invoice date; (c) Receivables owed by debtors 10% or more of
whose Receivables owed are otherwise ineligible; (d) Receivables
representing progress billings, or retainages, or for work
covered by any payment or performance bond; (e) Receivables owed
by any of the Borrower's Affiliates; (f) Receivables owed by
debtors not located in the United States or Canada, unless
supported by a letter of credit issued by a U.S. bank in favor of
the Borrower which has been delivered to the Lender;
(g) Receivables as to which any warranty or representation
contained in any security agreement or other agreement of the
Borrower with or given to the Lender with respect to any such
Receivable is untrue in any material respect; (h) Receivables as
to which the account debtor has disputed liability, or made any
claim with respect to any other Receivable due from such account
debtor to the Borrower to the extent of the amount disputed by
such account debtor; (i) Receivables with respect to which the
account debtor is also a creditor of Borrower, but only to the
extent of the amount owed by Borrower to such account debtor;
(j) Receivables as to which the account debtor has filed a
petition for bankruptcy or any other petition for relief under
the Bankruptcy Code, assigned any assets for the benefit of
creditors, or if any petition or other application for relief
under the Bankruptcy Code has been filed against the account
debtor, or if the account debtor has failed, suspended business,
become insolvent, or has had or suffered a receiver or a trustee
to be appointed for all or a significant portion of its assets or
affairs; (k) Receivables owed by any government or government
agency; (l) Receivables evidenced by a promissory note or other
instrument; and (m) Receivables as to which the Lender believes
that collection of any such Receivable is insecure or that any
such Receivable may reasonably not be paid by reason of the
account debtor's financial inability to pay. Eligible
Receivables shall not include Receivables due from large
pipelining contracts (the "Pipelining Receivables") that the
Borrower may enter. In the event the Borrower enters such a
contract, the eligibility of the Pipelining Receivables shall be
determined at a time by the Borrower and the Lender and upon the
terms and conditions agreed to by the Borrower and the Lender,
provided, however, that nothing herein shall require the Lender
to consider a Pipelining Receivable an Eligible Receivable.
"Inventory" means any and all of the Borrower's goods,
including, without limitation, goods in transit, wherever located
which are or may at any time be leased by the Borrower to a
lessee, held for sale or lease, furnished under any contract of
service or held as raw materials, work in process, or supplies or
materials used or consumed in the Borrower's business, or which
are held for use in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, and
all goods, the sale or other disposition of which has given rise
to a Receivable, which are returned to and/or repossessed and/or
stopped in transit by the Borrower or the Lender, or at any time
hereafter in the possession or under the control of the Borrower
or the Lender, or any agent or bailee of either thereof, and all
documents of title or other documents representing the same.
"Receivables" means each and every right to payment of
Borrower, whether such right to payment arises out of a sale or
lease of goods by Borrower, or other disposition of goods or
other property of Borrower, out of a rendering of services by
Borrower, out of a loan by Borrower, out of damage to or loss of
goods in the possession of a railroad or other carrier or any
other bailee, out of overpayment of taxes or other liabilities of
Borrower, or which otherwise arises under any contract or
agreement, or from any other cause, whether such right to payment
now exists or hereafter arises and whether such right to payment
is or is not yet earned by performance and howsoever such right
to payment may be evidenced, together with all other rights and
interest (including all liens and security interests) which
Borrower may at any time have by law or agreement against any
account debtor (as defined in the Minnesota Uniform Commercial
Code) or other obligor obligated to make any such payment or
against any of the property of such account debtor or other
obligor; specifically (but without limitation), the term includes
all present and future instruments, documents, chattel papers,
accounts and contract rights of Borrower.
<PAGE>
BORROWING BASE CERTIFICATE
Industrial Rubber Products, Inc.
Borrowing Base Certificate for the period ended
,
This Borrowing Base Certificate is delivered in accordance
with the Credit Agreement dated as of March 30, 1999 between U.S.
Bank National Association (the "Lender") and Industrial Rubber
Products, Inc. ("the Borrower"). Capitalized terms used herein
which are defined in the Credit Agreement shall have the meanings
set forth for such terms therein. All amounts are as of the date
shown above except as otherwise stated herein.
I certify that the following amounts were correctly
determined according to the Credit Agreement:
Total Receivables $
(A)
Receivables 90 + Days $
Other Ineligible $
Total Ineligible $
(B)
Eligible Receivables (A) - (B) $
(C)
Receivables Base (80% of (C)) $
(D)
Total value of inventory at lesser
of wholesale cost or replacement cost: $
(E)
Ineligible inventory $
Total cost of inventory deemed ineligible by the Lender:
$ (F)
Total Eligible Inventory (E) minus (F): $
(G)
50% of (G) $
(H)
Total Borrowing Base: (D) plus (H) $
(I)
Outstanding Advances $
(J)
Availability (I) - (J) $
(K)
I hereby certify that all payroll and unemployment taxes are
current as of this date.
For the purpose of inducing the Lender to extend credit to
the Borrower pursuant to the Credit Agreement, the Borrower
hereby certifies that the foregoing information is true and
correct in all respects. The Borrower further certifies that all
amounts outstanding under the Revolving Note were properly
authorized for the benefit of the Borrower and constitute
obligations of the Borrower in accordance with the terms of the
Credit Agreement. The Borrower further certifies that no
circumstances or conditions exist at the date of the Borrowing
Base Certificate which constitute an Event of Default.
INDUSTRIAL RUBBER PRODUCTS, INC.
By
Title:
Date:
<PAGE>
SCHEDULE 2 TO
CREDIT AGREEMENT
BORROWER'S SUBSIDIARIES
Industrial Rubber Products - Utah, Inc. d/b/a TJ Products
Borrower is in the process of establishing a subsidiary in
Ontario Canada for the purpose of conducting the Canadian
operations to be conducted as a result of its planned
acquisition.
