UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number 0-11038
BOATRACS, INC.
(Name of small business issuer in
its charter)
California 33-0644381
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
10675 Sorrento Valley Rd., Suite 200, San Diego, CA
92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 657-0100
Securities registered pursuant to Section 12(b) of the Act
COMMON STOCK
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
|X|Yes No
Check if there is no disclosure of delinquent filers in response to
Items 405 of Regulation S-B in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form
10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $10,173,320
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 16, 1999, was $14,430,821 *
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or
15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. |X|Yes No
The number of shares outstanding of Registrant's common stock was
18,852,508 as of March 16, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format (Check one): Yes |X|No
----------------
*Excludes the common stock held by executive officers, directors
and stockholders whose ownership exceeds 5% of the common stock
outstanding at March 16, 1999. Exclusion of such shares should not be
construed to indicat that any such person possess the power,
direct or indirect, to direct or
cause the direction of the management or policies of the Registrant or that
such person is controlled by or under common control with the Registrant.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
The Company has two main business units:
1. BOATRACS, Inc. ("BOATRACS") and
2. Enerdyne Technologies, Inc. ("ENERDYNE"), a wholly owned
subsidiary.
BOATRACS
BOATRACS' objectives include providing reliable and cost effective data
communications systems for commercial marine applications. To achieve this
objective, BOATRACS currently offers several satellite-based communications
and tracking systems (the "Boatracs System") and integrated software
solutions. In addition, BOATRACS or its wholly owned subsidiaries, BOATRACS
(Europe) B.V. and Oceantracs, Ltd., offer similar services in Europe and
Canada, respectively.
BOATRACS' customer base is the commercial marine industry, which includes
commercial fishermen, fuel transporters and the workboat industry of the
inland waterways and coastal areas. The industry has demanding service
requirements including mobility, positioning, durability, confidentiality and
integrity of communications signals for the management of information. Such
information includes vessel logs, supplies, wage information, and fuel and
engine monitoring. The integration of this information directly into office
computer systems is very important to the Company's customers. The Company's
software includes tools for both the vessel and the office enabling the
integration of this information. The Company also maintains a 24-hour network
center providing personal message relaying services to its customers with
fleets of vessels and to individual vessels.
In order to meet industry demands, in November 1997, BOATRACS purchased
certain assets of MED Associates, Inc. ("BOATRACS Gulfport") as a going
concern. BOATRACS Gulfport is a Mississippi based provider of software
applications and service solutions to the commercial maritime industry and
oil companies.
ENERDYNE
On July 7, 1998, the Company acquired ENERDYNE, which was a privately held
company located in Santee, California. ENERDYNE develops, builds and sells
digital video compression equipment for the aerospace, military, intelligent
transportation, government and commercial markets.
ENERDYNE was formed in 1983 and initially focused on the development of
proprietary solutions and protocol with the precision necessary to provide
motion joint photographers expert group ("MJPEG") based real-time video
compression technology for the United States military. ENERDYNE continues to
develop innovative solutions delivering real-time compressed video for use in
unique applications such as the downlink of multiple video signals from Space
Shuttle Columbia flights, video transmission solutions for remotely
controlled cranes, tanks and personnel carriers and unmanned airborne
vehicles ("UAV"). ENERDYNE products have broad applications for other video
surveillance markets. ENERDYNE has had success providing solutions for
applications in intelligent transportation systems (ITS) and has developed a
reputation for its traffic surveillance products.
ENERDYNE's proprietary technology is based on digitizing the real-time video
from the camera and transfer of the signal using its patented protocol
between its encoder and decoder hardware which is built in its own facility.
In its basic form the encoder takes an analog signal from a video source,
digitizes it, and then compresses it for transmission. ENERDYNE's products
use several compression methods including Joint Photographic Experts Group
("JPEG").
The advantages of digital data with video is that it is easily multiplexed,
can be encrypted and transmitted over many digital mediums. The transmission
quality is not affected by the number of repeaters. Compression of the
digital video allows a lower bandwidth utilization and therefore, can reduce
costs.
The Company derives revenue primarily from four sources:
BOATRACS:
1. Sales of satellite based communications equipment and software
and additional, complementary and/or modified equipment
created or procured by the Company for maritime application.
2. Data transmission and messaging charges.
3. Software license fees and charges for custom software development
solutions.
ENERDYNE:
4. Development and sales of video compression
products.
Background
The Company was incorporated in California in 1982 under the name First
National Corporation as a bank holding company. From 1982 to 1993, the
Company provided, through its wholly owned subsidiaries, business and
individual banking services and certain corporate trust services.
On November 9, 1993, First National Corporation filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of California (the "Bankruptcy
Court").
On January 12, 1995, the Company (formerly First National Corporation) merged
with BOATRACS, Inc. ("Old BOATRACS"), a California corporation formed in 1990
to be a distributor in the United States marine market of the OmniTRACS
satellite-based communications and tracking system manufactured by QUALCOMM
(the "Merger"). The Merger was approved by the Bankruptcy Court. First
National Corporation had no significant assets at the effective date of the
Merger.
Pursuant to the Merger, the Company, which was the surviving corporation,
changed its corporate name to "BOATRACS, Inc."; the outstanding shares of Old
BOATRACS were converted into the right to receive slightly less than 95% of
the shares of common stock to be issued by the surviving corporation; and
each of the outstanding shares of First National Corporation was converted
into the right to receive 1/7 of one share of the common stock of the
surviving corporation, with an aggregate of slightly more than 5% of the
shares of common stock issued by the Company to be issued to the shareholders
of First National Corporation prior to the Merger. As a result of the Merger,
the 63,018 issued and outstanding shares of Old BOATRACS were converted into
the right to receive 9,500,000 shares of the Company's common stock, and the
3,570,899 issued and outstanding shares of the common stock of First National
Corporation were converted into the right to receive approximately 510,000
shares of the Company's common stock. The Company became the successor to the
business of Old BOATRACS.
The BOATRACS Systems
The BOATRACS System was adapted and enhanced by the Company for marine
application predicated on the OMNITRACS System developed by QUALCOMM,
Incorporated. The BOATRACS System provides confidential two-way data
communications between a vessel or vessels at sea and a base station on land
through the use of a mobile communications terminal ("MCT"), a satellite
communications system and data delivery systems. The BOATRACS System also
allows for hourly position reporting and monitoring and, using supplementary
products, can provide engine performance and fuel consumption monitoring. As
of December 31, 1998, the Company had installed approximately 1700 systems on
marine vessels. The BOATRACS System is effective while a vessel is within the
satellite's "footprint," which extends approximately 200 to 400 miles
offshore most areas of the continental United States, Canada and parts of
Europe or world-wide if using other satellite providers. The BOATRACS System
is an interactive communications network linking a vessel to shore and from
shore-based personnel to vessels and from boat to boat in most cases.
Messaging and positioning information are forwarded from the vessel, via
Ku-band satellite, to the QUALCOMM Network Management Facility ("NMF") in San
Diego, California, or similar facilities in Europe, and then onto base
stations at the customers' offices or to the Company's 24-hour network center
("BNC") also in San Diego. Messages that go to the Company can be relayed by
fax or e-mail, or by an operator via phone or fax. The BOATRACS System is
capable of sending or receiving digital (text) messages or files to or from a
vessel. In San Diego, the BNC is linked via a dedicated telephone line for
data transfers via modem directly to QUALCOMM's NMF in San Diego, where
message transmissions to and from the vessels are formatted and processed.
The BNC also has a dedicated line to a local internet service provider for
internal internet use as well as value-added messaging services for vessels
and other satellite providers.
The BNC provides message relaying and stand-by backup services for fleets and
individual vessels using the system in the United States, Europe and Canada.
Computers communicate to the QUALCOMM NMF by modem to monitor customer
accounts on the system. Operators relay satellite messages between vessels
and their families or business associates on shore and from shore-based
personnel to vessels. Other custom services are also available. The BNC also
provides enhanced communication services to the customers, including the
relay of E-mail messaging, broadcast of weather, distribution of data
relating to customer's positioning and emergency back-up services.
The Company charges its customers for the transmission of each message and
for the transmission of each character within a message. There is also a
monthly connection fee for the MCT to be on-line and for hourly position
reports. The charges are subject to certain volume discounts. Additional
charges are assessed for certain services provided by the network centers.
On the Vessel
The MCT consists of three basic components: the Communications Unit, the
Keyboard/Display Unit and the Outdoor Unit and sells in a range of
approximately $5,000 to $6,000 dependent on features and volume discounts.
The design of the unit allows for both ease of installation and efficient use
of normally space. Software menus and simple wording on the Keyboard/Display
Unit facilitate easy use of the system to send and receive messages. Although
many of the Company's customers use only the basic MCT, optional products
that interface with the basic unit are also offered. Customers also have the
option of using personal computer and BOATRACS' WINDOWS BOATCOMM User
Interface Software ("WBUI") instead of the Keyboard/Display Unit. The WBUI
allows for the same features as the Keyboard Display Unit with the added
benefits of using a full screen and being able to send/receive computer files
of any type.
Many of the Company's customers also use marine application software programs
developed by BOATRACS' Gulfport division. Such application software enables
onboard users to enter business information into forms that are saved to a
local database and are transmitted to the shore station as files.
In the Office
Generally, a customer with less than four units only uses the BNC. Typically,
a customer who has more than four BOATRACS System units elects to establish
an in-house base station. The base station provides the customer with an
in-house communications link and vessel-tracking capability. The base station
is comprised of a computer and either the Company's or third party
communications software containing a mapping function enabling a customer to
follow the progress of its fleet on a detailed computer map. Communications
are conducted via modem directly between the customer's base station and the
NMF maintained by QUALCOMM for satellite transmission to the customer's
vessels. Some customers also have custom marine application software, which
was developed by BOATRACS' Gulfport division. This application software
stores data files received from the vessels and enables management,
dispatchers, and others to retrieve reports to manage their fleet of vessels
and to provide data to their customers.
Based upon reports from customers, the Company believes that its marine
industry customers typically experience increased worker productivity, asset
utilization and dispatching efficiency while saving communications costs.
Many customers enter into a three to five-year contract with the Company,
establishing a fixed rate to be paid for messaging services used by the
customer during the contract term.
BOATRACS Gulfport Division
Effective November 1, 1997, the Company purchased certain assets of the
BOATRACS Gulfport for cash, and Common Stock. BOATRACS Gulfport is a
developer of external application software services to the marine industry
for use in connection with the BOATRACS System and other communication
systems. The external application software can enhance the customer's use of
operational data sent through the BOATRACS System. Additionally, their
proximity to existing and future Company customers in the work boat industry
facilitates more timely customer service solutions to those customers.
The BOATRACS' Gulfport division provides custom developed software
applications to offshore and some inland boat and barge companies. The
BOATRACS Gulfport division's services include systems design, development,
implementation, training and onboard installation. Their relationships with
key large customers often lead to serial consulting assignments whereby one
project leads to another. Some customers outsource a significant amount of
their information technology needs to the BOATRACS Gulfport division. The
ability of the BOATRACS Gulfport division to provide solutions for customers
has enhanced the ability of the Company to sell MCTs to vessel operators.
ENERDYNE
The Company acquired ENERDYNE on July 7, 1998 by means of a merger into a
wholly owned subsidiary of the Company. ENERDYNE sells video compression
equipment for aerospace, military and commercial applications. The
acquisition was funded through the issuance of the Company's common stock
warrants, notes payable and the payment of cash.
ENERDYNE develops and builds video products that enable the realization of
high performance digital video compression solutions. ENERDYNE's patented
technology provides the Company with an unique market position in video
encoders, decoders and multiplexing equipment used in airborne and ground
based digital video systems. Primary markets for these products include
Defense, Intelligent Transportation Systems, Surveillance and Aerospace. The
average selling price of the ENERDYNE products range from $1,950 to $23,500
depending on the model and options selected. A multiplexer combining audio,
data and alarms may be used in conjunction with some equipment. ENERDYNE has
focused, and the Company will continue to focus, on developing very high
quality products that have long life cycles and require minimal modification.
ENERDYNE designs, develops and manufactures its products at its location in
Santee, California. Products range from rack mounted industrial equipment to
miniaturized and ruggedized environmentally protected units. The products are
designed to contain interfaces with data channels, including wire, microwave
and fiber optic. ENERDYNE's customers include various United States and state
government agencies including the Navy, Air Force, Army and NASA, Department
of Transportation in various jurisdictions and the Department of Defense.
<PAGE>
Dependence upon Significant Customers
A material source of the BOATRACS division customers for its core
communications business is the commercial marine industry. Two customers,
Tidewater Inc. and Ingram Barge Company represented 24% and 10%,
respectively, of the Company's total sales in 1998. The loss of either one of
these customers could have a material adverse effect on the Company.
For the period since the Company acquired ENERDYNE in July 1998, ENERDYNE has
relied on two customers: L-3 Communications Systems and The Naval Warfare
Center which represented 19% and 16%, respectively, of ENERDYNE's revenues.
The major customers may change yearly as they are calculated on total
revenues including sales of communications systems, video transmission
products and other products. Purchases of communication systems and video
transmission products by a customer may not occur yearly and there can be no
assurance that such customers will make significant purchases of products in
the future. No relationship exists between the Company and any of the above
customers except normal business relationships. In addition, the BOATRACS
Gulfport division provides software solutions to communication customers of
the Company.
Agreements
Agreements with QUALCOMM
The Company has exclusive distribution rights for the OmniTRACS System in the
United States for marine application within defined coastal waters of the
United States of the Atlantic and Pacific Oceans under a License and
Distribution Agreement dated June 13, 1990, as amended from time to time (the
"Distribution Agreement") with QUALCOMM. The Distribution Agreement had an
initial term of five years with three options to extend for five years each
(provided that the Company is in full compliance with the terms of the
Distribution Agreement) for a total of twenty years through 2010. The first
option to extend has been exercised by the Company. The Distribution
Agreement calls for the negotiation in good faith of a new agreement upon the
expiration of the last option.
Under the Distribution Agreement, the Company has exclusive rights to provide
messaging services to end users of such products for marine application.
Under the Distribution Agreement, the Company is required to sell a certain
minimum number of MCTs in order to maintain the exclusivity of its
distribution rights. The minimum purchase requirements for each calendar year
are to be agreed upon between the Company and QUALCOMM subject to a minimum
of 300 MCTs for the calendar year ending December 31, 1997 and increasing by
10% each year thereafter. The minimum sales were met for the years ended
December 31, 1998, 1997 and 1996.
QUALCOMM is responsible for the manufacture and warranty repair of all of the
OmniTRACS units supplied by it subject to the terms of the Distribution
Agreement. Warranties for a specified period are passed on to the Company's
customers. Extended warranties may be purchased at an additional cost.
If the Company desires to sell its core maritime communications business,
QUALCOMM has a right of first refusal under the Distribution Agreement to
purchase the Company's maritime business on the terms of the sale to the
proposed transferee.
QUALCOMM's obligation to provide messaging services pursuant to the
Distribution Agreement was contingent upon, among other things, receiving a
permanent license from the Federal Communication Commission ("FCC") to
operate the OmniTRACS System for marine application. This license was granted
to QUALCOMM, effective January 3, 1997, which added marine capability to use
with the OmniTRACS system for up to 100,000 MCTs for a term of 10 years. In
addition, the International Telecommunications Union ("ITU") approved the
Ku-band frequency which OmniTRACS uses for mobile use including marine
applications.
During March, 1995, the Company issued 1,112,265 shares of Common Stock to
QUALCOMM for $737,000. The purchase price of the shares was paid by a
reduction in the price of certain products and services currently provided by
QUALCOMM to the Company and, upon satisfaction of certain conditions, the
conversion of a certain non-exclusive territory to an exclusive territory
under the License Agreement and the Distribution Agreement. The transaction
was recorded as a note receivable for Common Stock issued which was reduced
as discounts are earned. By June 30, 1998, a total of $737,000 in discounts
had been earned reducing the note receivable balance to zero.
Sub-Service Provider Agreement with ALCATEL QUALCOMM
In March, 1997, BOATRACS' wholly-owned subsidiary BOATRACS (Europe) B.V.
signed a five year Sub-Service Provider Agreement with ALCATEL QUALCOMM, a
French company, which is a joint venture company between the ALCATEL Group
and QUALCOMM. The agreement appoints BOATRACS (Europe) B.V. to be the
maritime distributor and to provide maritime satellite-based communications
and tracking of vessels to certain countries in Europe on a similar basis
upon which the Company operates in the United States.
Service Provider Agreement with Iceland Telecom
In July 1998, BOATRACS (Europe) B.V. entered into a Service Provider
Agreement with Iceland Telecom, an Icelandic company, which is the EUTELSAT
signatory for Iceland. The Agreement appoints BOATRACS (Europe) B.V. to be
the maritime service provider of the EUTELTRACS service for Iceland and its
territorial waters.
Agreements with British Telecom
In July, 1998, the Company entered into agreements with British Telecom to
become an Inmarsat provider.
<PAGE>
Regulation
Domestic Operations
BOATRACS' products are subject to various FCC regulations in the U.S. These
regulations require that the Company's communications products meet certain
radio frequency emission standards and not cause unallowable interference to
other services. QUALCOMM filed an application with the FCC for a standard
experimental license with a two-year term, which was granted effective August
18, 1995. In addition, QUALCOMM pursued a Petition for Rulemaking which it
filed with the FCC in 1992 to amend the Table of Frequency Allocations
permitting non-experimental use of the frequencies utilized by the OmniTRACS
system in the United States coastal waters. Effective January 3, 1997, this
license was granted to QUALCOMM, which added marine capability to use with
the OmniTRACS system for up to 100,000 MCTs for a term of 10 years. There can
be no assurance that QUALCOMM's current license will continue to be renewed.
International Operations
BOATRACS intends to continue its expansion into additional international
markets. In countries which QUALCOMM has an affiliated OmniTRACS service
provider, BOATRACS believes that such affiliate or BOATRACS will attempt to
secure the necessary regulatory approvals, licenses and/or permits and
renewals thereof for maritime applications from the local governmental
authorities for the affiliate or BOATRACS. In countries in which no QUALCOMM
affiliate is operating, BOATRACS will apply to the local governmental
authority for applicable approvals, licenses and/or permits and renewals
thereof. No assurance can be given that BOATRACS will be able to obtain the
required approvals, licenses and/or permits and renewals thereof. BOATRACS,
through BOATRACS (Europe) B.V. maintains a sales and customer support office
in Leiden, The Netherlands. Currently, BOATRACS has MCTs installed on vessels
in a number of countries in Europe.
Additional Products
ENERDYNE continues to develop new video compression and related products to
complement the Company's product lines. The products are sold to ENERDYNE's
customers under ENERDYNE respective proprietary names.
The Company is seeking strategic alliances with companies that have proven
products or service in markets requiring video. In addition, the Company uses
its commercially reasonable best efforts to stay abreast of new products and
services that can complement its existing product and service offerings and
seeks to build additional strategic relationships with companies that are
developing new solutions for the respective businesses including: (i)
interfaces and marine related products that require communications between a
vessel and the shore and (ii) new video compression relationships. The
Company continues to explore ways to economically enhance these relationships
by acquiring either sales and distribution rights to, or direct ownership of,
the products developed. The Company believes that these efforts have the
potential to result in significant growth in increased sales of products and
messaging volume.
In March, 1998, the BOATRACS division amended the reseller arrangement with
Orbital Communications Corporation ("ORBCOMM"), which is developing a
Low-Earth Orbit system ("LEO"), pursuant to which the Company will distribute
ORBCOMM's LEO services on a non exclusive basis to the worldwide marine
market when such services become commercially available. The LEO system, if
it proves successful, will complement the Company's present services. ORBCOMM
estimates the system will be completely operational during 1999.
The Company is also an Inmarsat provider. As an Inmarsat provider and Agent
of Inmarsat services, the Company will be able to provide global coverage to
customers. See - "Risks of Offering New Services."
Research and Development
During 1998 and 1997 the Company spent $243,000 and $199,000 respectively on
the research and development of software to complement the BOATRACS System
and ENERDYNE systems. These costs were not passed on to the Company's
customers.
Market Expansion
The Company believes that there is a sizable market in the United States and
abroad for its products and has developed strategies to expand into selected
markets by providing innovative solutions to customer needs. There can be no
assurance that any of the Company's market expansion efforts will be
successful.
ENERDYNE's products specifically address four segments of the video
compression market: Defense, Intelligent Transportation Systems (ITS),
Surveillance and Aerospace. ENERDYNE plans to explore new markets that are
large and expanding and develop new products for market expansion.
The Company believes that there are increased opportunities for ENERDYNE's
products in the intelligent transportation systems market ("ITS"). Uses of
video compression products include highway surveillance/monitoring, wide area
detection, ramp monitoring, toll evasion verification, emergency medical
services and toll booth security. The Company is informed and believes that
the United States government has appropriated $218 billion via the
Transportation Equity Act over the next five years, a portion of which will
be dedicated to ITS. There also appears to be opportunities overseas for the
ENERDYNE technology. It is anticipated that market expansion will be in
government, military and private industries working with transportation
management systems. The potential end user will be a federal, state or local
governmental agency responsible for traffic management in their jurisdiction.
There can be no assurance that the Company's beliefs are accurate.
Sales and Distribution
BOATRACS
Since its inception, the Company has employed an internal direct sales force
and has engaged sales representatives to place the Company's products with
marine electronics dealers, which sell to the end user. In addition, the
Company is continually seeking relationships with third-party distributors,
which can provide sales and service support for its products. The Company
believes that such arrangements have the potential to result in sales in
areas where it is not cost-effective to have a full-time salesperson. In the
New England and Atlantic fishing markets the Company has agreements with ten
dealers.
ENERDYNE
ENERDYNE typically sells its product directly to customers through direct
sales and marketing employees. In addition the Company uses manufactures
representatives and also sells to system integrators who then package these
products with others to achieve a universal solution for a customer.
Competition
BOATRACS
The mobile communications industry is highly competitive. The industry
includes major domestic and international companies, many of which have
financial, technical, marketing, sales, distribution and other resources
substantially greater than those of the Company. The Company competes in its
market on the basis of product quality, reliability, price, customer support
and product features. BOATRACS believes that it is currently generally
competitive with respect to each of these factors. However, BOATRACS
competitors are aggressively pricing their products and will likely continue
to do so in the future. In addition, competitors are offering new value-added
products and services similar to those developed or being developed by the
Company or QUALCOMM. Emergence of new competitors, particularly those
offering lower cost products, enhancements, additional features and Low-Earth
Orbit (LEO) satellite communications systems, may impact margins and
intensify competition in new markets. Two LEO systems offer voice; IRIDIUM
which is now commercially available and GLOBALSTAR which is scheduled to be
available in the near future. Due to their long-term unproven capabilities,
the Company cannot predict how their products and services will compete
directly against the BOATRACS existing products and services. The Company is
exploring ways to compete and/or offer these new generation of products and
services. However, the new competition could have a material impact upon the
BOATRACS business.
The following is an overview of certain products and services that compete
with BOATRACS' communications products and services:
Alternative Satellite Service Providers. Several competing entities provide
satellite-based mobile voice and data systems in marine markets. INMARSAT, an
international consortium, provides maritime voice, facsimile and data
services nearly worldwide using capacity on a combination of owned and leased
satellites. American Mobile Satellite Corporation currently offers data
communications and vessel tracking using its newly launched L-band satellite,
and a voice-based system. ARGOS provides one-way (ship to shore)
communications and position reporting in many parts of the world. When ARGOS
operates on the Japanese ADEOS2 satellite it will offer two-way
communication. INMARSAT is approved to provide Global Marine Distress Safety
System ("GMDSS") notices and communications. GMDSS requires shipping vessels
of a certain nature and size that operates certain routes to have a GMDSS
approved communications system by February, 1999. The BOATRACS System cannot
become GMDSS approved because the BOATRACS System's coverage is not global.
The Company is at a disadvantage without such approval.
Radio. Although radios are required for most vessels, many small businesses
rely exclusively on radios for their communication needs throughout the
marine industry. Radio can be used to communicate with a marine operator, who
can in turn place a long distance telephone call for the radio user.
Typically, the cost of the marine operator together with the long distance
telephone charges can be significant. Radio is not dependable in inclement
weather, lacks confidentiality, and does not always provide a clear signal.
H F Radio. At least one competitor, Globe Wireless, Inc., now operates a
network of H F radio stations that allow for email capabilities and transfer
of data files. Globe Wireless, Inc., states that its system operates "much
like a digital cellular network except it is worldwide". Globe Wireless, Inc.
competes directly with the Company. They have also advertised the ability to
deliver software system solutions for its customers. The Company is uncertain
whether H F radio is as dependable as satellite communications.
Cellular phone. Cellular phone provides clear, easy to use communication to
many boats including pleasure boats and commercial shipping, workboat and
towing operators. Although a cellular system provides a clear hook-up and a
reliable service, it is currently relatively more expensive. The cellular
range is also limited because the networks of cell sites were placed in
locations most suitable for automobiles and not for vessels. This means that
coverage on the water is limited. Cellular phones are usually out of range
ten miles from the coast; however, in the United States, Waterway
Communications Systems, Inc. ("Watercomm") provides cellular radio phone
service for vessels operating on inland waterways. Watercomm phones utilize
radio towers placed along the major U.S. rivers to send and receive voice and
data transmissions. Watercomm users incur a connection charge as well as a
per-minute usage charge, based on where the vessel is operating. In Europe,
GSM, the European cellular phone service, offers extensive coverage and plans
to provide coverage to nearly all of Europe's population. GSM cellular phone
service also provides a user the convenience of using a single phone in many
different countries; however, there are significant roaming charges when
roaming in a non-home country.
ENERDYNE
Video Compression Products. ENERDYNE competes with a number of companies in
its current markets each of which provides one or more products offered by
the Company and some of which have access to greater financial resources. The
following are significant competitors to the ENERDYNE products and services:
L-3 Communications Corp. - L-3 Communications Corp was formed in 1997 by
Lockheed Martin, Lehman Brothers Capital Partners 111 and ex-Loral
Corporation management. The Conic Division of this company provides numerous
components and products for the military and aerospace markets including
video compression/expansion systems and encryption/decryption modules. L-3
Communications is also a major customer of ENERDYNE, purchasing video
compression products and integrating them with L-3 Communication products for
sale in the defense and aerospace industries.
Aydin Corporation - Aydin Corporation produces a line of data acquisition
products including airborne and ground systems for gathering, processing,
formatting, and transmitting information related to satellites, spacecraft,
aircraft and missiles. Their products include a line of rugged airborne and
ground station telemetry products capable of capturing and transmitting
digital video.
Delta Information Systems ("Delta") - Delta produces a number of video
related products including encoders and decoders. Certain Delta products are
purchased by Aydin Corporation and integrated into the systems of Aydin
Corporation and are sold to the Department of Defense.
Tektronix, Inc. - Tektronix Inc. is a global electronics company that
offers numerous products to the computer, aerospace and
communications industry. It produces video transmission products
for the conferencing, surveillance, intelligent highway/traffic markets
including video encoders and decoders.
Canadian Marconi Company ("CMC") - CMC produces electronics products for the
avionics, communications, transportation and specialized electronics
industries including video capture, transmission and display product which
are marketed to government agencies for surveillance and highway monitoring.
Odetics - Odetics is a supplier of communications equipment for television
broadcast, video security, telecommunications and intelligent transportation
system market. Through its subsidiary, Odetics, ITS, the Vantage Video
Detection System, a single camera product is sold providing cost effective
video detection for a variety of temporary or permanent one-camera
applications. The Vantage Plus is a multicamera intersection control with
modular design enabling 1-6 camera applications. Both systems offer accurate
vehicle detection during all weather and lighting conditions using motion
stabilization techniques for top performance even in high wind conditions.
They also send surveillance quality video images to remote viewing locations
over existing communication path enabling users to view live traffic
operations.
Fiber Options - Fiber options develops manufactures and markets fiber optic
systems for transmitting video, audio and data used for surveillance,
broadcast and professional video, industrial controls and transportation.
Racal Data Group - Racal Data Group develops, manufactures and services
communication network solutions. They provide secure and managed access to
multimedia information networks and enables the customers to transition to
Integrated Services Digital Network ("ISDN"), Frame Relay, and Asynchronous
Transfer Mode ("ATM").
Adpro of Australia - Adpro of Australia's division Vision Systems markets a
range of video based products for the security and surveillance market. Their
products include:
Remote video transmission product - allowing more site to be secured
and managed from a central monitoring station via the telephone
network. High performance video intrusion detection - these are
detectors that connect to a standard video camera and alert an operator
when an intrusion is occurring.
Video framestore - these capture a series of images around the time of
the alarm.
Passive infrared detection - these are long ranging passive infrared
detectors for outdoor environments.
Proprietary Information
The Company relies on a combination of copyrights, trade secrets, trademarks
and proprietary information to maintain and enhance its competitive position.
According to reports filed with the Commission, QUALCOMM has been granted
United States patents and has patent applications pending in the United
States with respect to the OmniTRACS System. QUALCOMM has also reported that
it actively pursues patent protection in other countries of interest, which
protection may or may not cover OmniTRACS products.
ENERDYNE currently holds one patent in the United States, Patent Number
5633686 for an Adaptive Digital Video System. The patent covers a system in
which a decoder at a receiving station for a digitally encoded signal is able
to automatically adapt to varying formats and operating modes. The method is
independent of the particular video format or compression scheme employed,
and functions with any transmission medium and bandwidth. The patent was
filed on September 14, 1994 and issued on May 27, 1997. ENERDYNE currently
has two trademarks: ADVS(R) (Adaptive Video Standard) and Passlink(TM).
Employees
At December 31, 1998, the Company and its subsidiaries had 60 full-time and 7
part-time employees.
RISK FACTORS
The Company wishes to caution readers that the following risk factors, among
others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual results in the
future to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
The foundation of the Company's maritime communications business is the
License and Distribution Agreement between QUALCOMM and the Company pursuant
to which BOATRACS has exclusive distribution rights in the United States for
marine application of the OmniTRACS system of satellite-based communications
and tracking systems manufactured by QUALCOMM. QUALCOMM is the sole supplier
of the core communications equipment sold by BOATRACS and provides certain
services that are essential to the BOATRACS business. If QUALCOMM decides to
discontinue its satellite communications business or the manufacture of such
equipment, the Company would be unable to continue its core communications
business. While BOATRACS has an agreement with QUALCOMM for the products and
services provided by it, QUALCOMM has the right to terminate this Agreement
under certain circumstances. In addition, any manufacturing delay or
difficulty in procuring components experienced by QUALCOMM resulting in a
shortage of available OmniTRACS units could have a material adverse impact on
the BOATRACS' business and financial results. Under the License and
Distribution Agreement, QUALCOMM retains all ownership rights to the
OmniTRACS software and all updates, upgrades, improvements or modifications
thereto, whether made by QUALCOMM or BOATRACS. Additionally, BOATRACS is
dependent upon QUALCOMM's OmniTRACS system, which currently operates on
leased Ku-band satellite transponders in the areas where BOATRACS is active.
BOATRACS has been informed that in the United States QUALCOMM's satellite
transponder lease and the position reporting satellite transponder lease run
through the year 2001. QUALCOMM has informed to the Company that it believes
any additional required transponder capacity will be available on acceptable
terms. However, there can be no assurance that the satellite transponders
leased by QUALCOMM will continue to function or that future transponder
capacity will be available on acceptable terms when needed. Any failure by
QUALCOMM to maintain adequate satellite capacity would have a material
adverse effect on the Company's business and financial results.
BOATRACS does not have direct contracts with satellite providers. In Europe,
BOATRACS relies on its service supplier, ALCATEL QUALCOMM, which in turn has
a relationship with EUTELSAT, the satellite provider. In Canada, BOATRACS
relies on its service provider, CANCOM Mobile, which has relationships with
Canadian satellite providers. In the United States, BOATRACS relies on its
service provider, QUALCOMM who in turn has a relationship with satellite
providers in the United States. The Company is not privy to the details of
their service providers' contracts with satellite providers. There can be no
assurance that the transponders used in Europe, Canada and the United States
will continue to function or that future transponder capacity will be
available on acceptable terms as needed. Any failure by the providers to
maintain adequate satellite capacity would have a material adverse effect on
BOATRACS' business and financial results.
The messaging service provided by BOATRACS involves data transfers via
standard telephone lines. BOATRACS operations rely upon the availability of
stable telephone connections between BOATRACS and QUALCOMM's Network
Management Facility and between BOATRACS, its customers, the Internet and
QUALCOMM's Network Management Facility. See "Business -- The OmniTRACS and
BOATRACS Systems." Any system failure or natural disaster that resulted in an
interruption of stable telephone service would have a material adverse effect
on the Company's business and financial results.
According to reports filed with the Commission, QUALCOMM has been granted
United States patents and has patent applications pending in the United
States with respect to its OmniTRACS system, which is distributed by BOATRACS
for marine applications. QUALCOMM has also reported that it actively pursues
patent protection in other countries of interest, which protection may or may
not cover OmniTRACS products. There can be no assurance that the pending
patent applications will be granted, that QUALCOMM's patents or copyrights
will provide adequate protection, or that competitors will not independently
develop or patent technologies that are substantially equivalent or superior
to the OmniTRACS System. From time to time, certain companies may assert
exclusive patent, copyright and other intellectual property rights to
technologies, which are important to the industry or to the products
distributed by BOATRACS. If QUALCOMM is unable to license protected
technology used in its products, or if the OmniTRACS product were found to
infringe on protected technology, QUALCOMM could be prohibited from marketing
such products. In such circumstances, BOATRACS would be unable to continue
its operations.
ENERDYNE holds a patent in the United States for its Adaptive Digital Video
System. Should ENERDYNE's competitors develop or patent technologies that are
substantially equivalent or superior to ENERDYNE's patent, ENERDYNE's
position in the market could be compromised.
The integration of the BOATRACS and ENERDYNE's operations will require
substantial capital funding and the dedication of management resources that
may temporarily detract attention from the day-to-day operations of the
combined company. The combination of the two companies will also require
coordination of their research and development and sales and marketing
efforts. The difficulties of combining the two companies may be increased by
the necessity of coordinating geographically separated organizations,
integrating personnel with disparate business backgrounds and combining two
different corporate cultures. The process of combining the two organizations
may cause an interruption of, or a loss of momentum in, the activities of
either or both of the companies' businesses, which could have an adverse
effect on the revenue and operating results of the combined company, at least
in the near term. There can be no assurance that the combined entity will be
able to retain its key technical and management personnel or that the
combined entity will realize any of the anticipated benefits of the merger.
Failure to effectively accomplish the integration of the two companies'
operations could have an adverse effect on the combined company's results of
operations and financial condition.
ENERDYNE has relied heavily on the transportation and governmental markets
for its revenues. Military and other governmental spending cuts could impact
profits. ENERDYNE relies on continuing technological innovation, including
innovations which are internally generated and technology developed by third
parties. Competing technologies could impact revenues and profit margins as
well as provide incentive for more competition. Devoting resources to
internally generated technological innovation would require devotion of
engineering, sales and marketing resources which might result in a shift in
focus from existing product lines and markets. Technological innovation may
also lead to obsolescence of components used in ENERDYNE's products or create
compatibility problems with existing units.
BOATRACS has many customers in the oil industry in the United States.
Currently, the oil industry is depressed and oil prices are very low. There
is no assurance that BOATRACS customers in this industry will be able to
withstand the recession in the industry. Customers may be forced to terminate
messaging and software services with BOATRACS and the BOATRACS Gulfport
division which could have a material adverse effect on BOATRACS' business and
financial results.
The Company may be required to raise additional capital to fund the
operations and growth of its combined companies. The Company cannot, at this
time, determine the amount of capital, which will be required, or the sources
of that capital. The issuance of common stock and warrants and options to
purchase common stock will result in dilution to existing shareholders.
In countries in which BOATRACS contracts with QUALCOMM's local OmniTRACS
service provider, BOATRACS believes that such service provider or BOATRACS
will be responsible for securing the necessary regulatory approvals, licenses
and permits and/or renewals thereof for maritime operations from the local
governments and authorities. BOATRACS and such local service providers may be
less prominent in such international markets than local competitors and may
have less opportunity to influence regulatory and standards policies. In
countries in which BOATRACS contracts with distributors of other
communications systems, BOATRACS may apply to the local governments for
applicable approvals. No assurance can be given that BOATRACS will be able to
obtain the required approvals, licenses and permits and/or renewals thereof.
Changes in the regulation of QUALCOMM's OmniTRACS system, or the inability to
obtain foreign regulatory approvals, licenses and permits and/or renewals
thereof, could have a material adverse effect on BOATRACS operating results
and its ability to expand its business in the future.
The mobile communications industry is highly competitive. See "Competition".
ENERDYNE competes with a number of companies in its current market, each of
which provides one or more products offered by ENERDYNE and some of which
have access to greater financial resources. ENERDYNE faces increased domestic
competition, and as technological innovation becomes more available foreign
and domestic competition is increasing. There is no assurance that ENERDYNE
will continue to be competitive in its existing and prospective markets. See
"Business -- Competition."
The sales cycle of BOATRACS and ENERDYNE is not even throughout the year. The
sales process takes a considerable amount of time for both companies to close
a sale. ENERDYNE's customers are often governmental departments and the sales
cycle is often slow to complete. In addition, the sales staff may spend
considerable time on sales leads which do not come to fruition.
The Company is currently expanding its operations abroad. The Company has
limited experience in managing foreign operations. International expansion
efforts are likely to strain the Company's management, financial and other
resources. Any failure of the Company to expand in an efficient manner or to
manage its dispersed organization could have a material adverse impact on the
Company's business and financial results. Other risks that will be faced by
the Company in its international business include costly regulatory
requirements; unexpected changes in regulatory requirements; application of
foreign law; fluctuations in currency exchange rates (which could materially
and adversely affect the Company's results of operation and, in addition, may
have an adverse effect on demand for the Company's products abroad); tariffs
or other barriers; difficulties in staffing and managing foreign operations;
political and economic instability; difficulties in accounts receivable
collection; extended payment terms; and potentially negative tax
consequences. Additionally, ENERDYNE's products and technology could be
subject to restrictions on sales to certain foreign countries by the United
States Government. These factors could have an adverse impact on the
Company's business and financial results in the future or require the Company
to modify its current business practices.
The Company recently became an INMARSAT provider. Even as an INMARSAT
provider, the Company will continue to compete against other INMARSAT
providers. The Company has limited experience in reselling INMARSAT services.
Such expansion of service and product offerings could strain the resources
and possibly deteriorate the Company's reputation with customers, and could
have a material adverse impact on the Company's core communications business.
See "Business -- Market Expansion."
The Company's products are subject to various FCC regulations in the U.S.
These regulations require that the Company's products meet certain radio
frequency emission standards and not cause unallowable interference to other
services. QUALCOMM filed an application with the FCC for a standard
experimental license with a two-year term, which was granted effective August
18, 1995. In addition, QUALCOMM pursued a Petition for Rulemaking, which it
filed, with the FCC in 1992 to amend the Table of Frequency Allocations
permitting non-experimental use of the frequencies utilized by the OmniTRACS
system in the United States coastal waters. Effective January 3, 1997, this
license was granted to QUALCOMM, which added marine capability to use with
the OmniTRACS system for up to 100,000 mobile communication terminals for a
term of 10 years. There can be no assurance that QUALCOMM's current license
will continue to be renewed. In the event of non-renewal or revocation of
QUALCOMM's license by the FCC, the License and Distribution Agreement between
QUALCOMM and the Company may be terminated and the Company may be unable to
continue its United States operations.
Pursuant to the License and Distribution Agreement between QUALCOMM and
BOATRACS, if the Company desires to sell its business, QUALCOMM has a right
of first refusal to purchase the Company's business on the terms of the sale
to the proposed transferee. QUALCOMM's right of first refusal could adversely
affect the ability of the Company to sell its business to a third party
purchaser.
The Company is subject to a number of other risks, including: loss of senior
management; dependence on large customers concentrated in the commercial
marine industry; loss of fishing resources which are in decline in many areas
of the world; the risks associated with international expansion, including
local regulatory requirements, no prior experience in managing foreign
operations, and fluctuations in currency exchange rates; operating
restrictions imposed by contractual relationships with foreign firms; risks
associated with business expansion and the acquisition of additional
businesses; competition with companies that have greater financial, technical
and marketing resources than the Company; fluctuations in the Company's
quarterly operating results; and lack of liquidity for the Company's common
stock, which could result in significant price fluctuations in response to
operating results and other factors. In addition, the Company is subject to
foreign regulations, export restrictions and limitations on foreign sales to
certain countries.
Year 2000 Issues. In the operation of its business, the Company uses
commercial computer software primarily purchased from or provided by
independent software vendors. After an analysis of the Company's exposure to
the impact of "year 2000 issues" (i.e. issues that may arise resulting from
computer programs that use only the last two, rather than all four, digits of
the year), the Company believes that such commercial software is already
substantially year 2000 compliant, and that completion of year 2000
compliance should not have a material impact on the Company's business,
operations or financial condition; however, the Company is still assessing
the impact of this year 2000 issue.
The Company has performed an internal analysis and is in the process of
finalizing a specific written plan to address the year 2000 issues for both
internally developed products and products developed and manufactured by
Qualcomm. Qualcomm has assured the Company that all the products supplied to
the Company during the course of the relationship and going forward will be
upgraded to ensure compliance with Year 2000 standards. This assurance will
be at no charge to the Company or customers but the Company may be required
to exchange certain chip sets of its customers at minimal cost.
For internally developed products, the upgrade process is in final phase of
testing and will be completed by the end of the current fiscal year.
Development costs associated with the upgrade have been included in
operations as incurred. The Company has spent a total of $15,000 on the
conversion and the potential future cost to complete the conversion is
estimated at $25,000 in total which will also be included in operations as
incurred.
The Company is not in a position to evaluate the extent (if any) to which any
year 2000 issues that may affect the economy generally or any suppliers or
others with whom the Company does business in particular would also affect
the Company. Failure of one or more of the supplier's computer products to be
year 2000 compliant would have a material effect on the Company's business.
ITEM 2. DESCRIPTION OF PROPERTY
The corporate office leases its facilities in San Diego, California, under a
four and a half-year, non-cancelable operating lease, which expires December
2002. The Company relocated to this facility in July, 1998. The Company's
leases have rent escalation terms based on the Consumer Price Index, which
will affect future minimum lease payments. The Company also leases a 9,800
square foot building in Santee, California for ENERDYNE which expires in
July, 1999, and a 2,507 square foot facility in Gulfport, Mississippi, which
expires in January, 2000. Boatracs (Europe) B.V., operates a facility in
Leiden, The Netherlands pursuant to a lease expiring in December 2001. Total
rent expense was $217,157, $57,894 and $51,900 for the years ended December
31, 1998, 1997 and 1996 respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any current or pending legal proceedings to which
the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock began trading in the over-the-counter market in
March 1995 and is quoted on the OTC Bulletin Board under the symbol "BTRK".
The following table sets fiscal 1998 and 1997 high and low bid quotations for
the common stock as provided by the National Association of Securities
Dealers, Inc.:
High Bid Low Bid
Quarter Ended
December 31, 1998 ......................... $ 3.13 $ 1.75
September 30, 1998 ......................... $ 4.81 $ 2.63
June 30, 1998 .............................. $ 4.94 $ 3.25
March 31, 1998 ............................. $ 4.00 $ 2.06
December 31, 1997 .......................... $ 2.75 $ 1.00
September 30, 1997 ......................... $ 1.56 $ 0.94
June 30, 1997 .............................. $ 1.50 $ 0.50
March 31, 1997 ............................. $ 1.81 $ 1.00
On March 15, l999, the closing price of the common stock, as reported on the
OTC Bulletin Board, was $2.63. As of March 15, 1999, the Company had
approximately 310 holders of record of its common stock. In addition,
approximately 4.2 million shares are held in street name accounts. The
Company has not paid any dividends since the Merger and does not currently
intend to declare any dividends.
The quotations set forth above represent inter-dealer prices without retail
mark-up, markdown or commission, and may not necessarily represent actual
transactions. The existence of quotations for the Common Stock should not be
deemed to imply that there is an established public trading market for the
Company's common stock.
In June 1998, the Company issued a warrant to purchase 25,000 shares of
common stock at $4.44 per share to Sol Price in connection with a purchase of
a promissory note from a director and an officer of the Company. The
securities were issued in reliance on the exemption set forth in 4(2) of the
Securities Act of 1933.
Effective July 1998, the Company agreed to issue 5,000 shares of common stock
valued at $4.75 per share in connection with the acquisition of Oceantracs,
Inc. The securities were issued in reliance on the exemption set forth in
4(2) of the Securities Act of 1933.
In July 1998, the Company acquired ENERDYNE for $22.6 million in a
combination of cash, stock and notes. A total of 3,000,000 shares were
issued, 2,930,700 of which to the former shareholders of ENERDYNE and the
remainder to the financial advisors. In addition the former owners and
financial advisors received a total of 1,000,000 warrants to purchase common
stock at a price of $2.00. The securities were issued in reliance on the
exemption set forth in 4(2) of the Securities Act of 1933.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company has two main business units:
1. BOATRACS, Inc. ("BOATRACS"), and
2. Enerdyne Technologies, Inc. ("ENERDYNE"), a wholly owned
subsidiary.
BOATRACS
Effective November 1, 1997, the Company acquired certain assets of BOATRACS
Gulfport for $500,000 cash and 300,000 shares of Common Stock valued at $1.40
per share. The acquisition agreement was amended in December, 1998 resulting
in a reduction of notes payable to $30,000 from $250,000 and the common stock
issued to 240,000 shares from 300,000. The assets and liabilities of BOATRACS
Gulfport are reflected on the consolidated balance sheets as of December 31,
1998 and December 31, 1997. The results of BOATRACS Gulfport's operations
from the date of the acquisition to December 31, 1997 were not significant.
Goodwill in the amount of $845,000 was originally recorded in the acquisition
and adjusted to $541,000 and is amortized over ten years.
Effective July 1, 1998, the Company acquired all of the outstanding shares in
OceanTrac Inc., a Canadian corporation ("OceanTrac"). The acquisition was
effected by the exercise of the Company's rights under a Joint Venture
Agreement entered into among the Company, OceanTrac and OceanTrac Systems
Limited, a Nova Scotia corporation ("Systems") during 1996. In addition, the
Company purchased all of the assets of Systems for consideration of 5,000
shares of the Company's Common Stock. The acquisition of OceanTrac and
Systems resulted in recording of intangibles in the amount of approximately
$388,000 which will be amortized by the Company over ten years. OceanTrac
will continue to act as the Company's appointed distributor of the OmniTRACS
system and related Company products.
ENERDYNE
On July 7, 1998, the Company acquired ENERDYNE by means of a merger with a
wholly owned subsidiary of the Company. ENERDYNE is a provider of versatile,
high performance digital video compression products to the government and
commercial markets. ENERDYNE, formed in 1983, is located in Santee,
California. The acquisition price of $22.6 million was paid for by a
combination of cash, Common Stock and notes payable. Patents in
the amount of $18 million and goodwill in the amount of $10.5 million were
recorded and each will be amortized over sixteen years. The two shareholders
of ENERDYNE signed employment contracts with the Company for one and two
years, respectively, and one shareholder was elected to the Board of
Directors in September 1998.
A First Amendment to the Agreement and Plan of Reorganization, in connection
with the Enerdyne acquisition was executed effective July 7, 1998. The
Amendment increased the number of compensatory option shares and exercise
price subject to a specific paydown on the acquisition notes payable to the
selling shareholders. On December 29, 1998 bank financing was obtained to
effect the compensatory contingency per the Amendment and the options were
revised to 663,500 at an exercise price of $2.65 in accordance with the
calculations and provisions in the Amendment.
The acquisitions of BOATRACS Gulfport, ENERDYNE and OceanTrac represent the
Company's continuing efforts to diversify its operations. The Company intends
to continue to evaluate other acquisition opportunities.
The Company earns revenue primarily from four sources: (a) sales of satellite
based communications equipment and software and additional, complementary
and/or modified equipment created or procured by BOATRACS for marine
application; (b) data transmission and messaging charges; (c) software
license fees and charges for custom software development solutions and (d)
development and sales of video compression products.
The Company recognizes revenues from the sale of communication systems at the
time the equipment is shipped to the customer. The Company recognizes revenue
from messaging at the time the transmission is made by the customer. The
Company recognizes software license and development revenues as incurred. The
Company recognizes revenues from the sale of video compression units which do
not entail significant customer modification upon shipment to customers, and
on the percentage of completion method for products requiring significant
customer modification or the development of new technology.
Results of Operations
The following table sets forth for the periods indicated the relative
percentages that certain income and expense items bear to total revenues:
Year Ended December 31,
----------------------------
1998 1997 1996
% % %
Revenues
Communications systems ................ 39.7 46.4 40.0
Data transmission and messaging ....... 38.1 53.6 60.0
Video compression ..................... 22.2 0 0
Total ............................ 100.0 100.0 100.0
Operating expenses:
Communications systems ................ 24.2 30.2 25.1
Data transmission and messaging ....... 18.6 27.3 31.5
Video compression ..................... 7.2
Selling, general and administrative
expenses ............................. 46.7 48.1 71.2
Income (loss) from operations ......... 3.3 (5.6) (27.8)
Other income (expense) ................ (3.6) .7 1.6
Income tax benefit .................... 4.1
Net income (loss) ..................... 3.8 (4.9) (26.2)
<PAGE>
Years ended December 31, 1998 and 1997
Total revenues for the twelve months ended December 31, 1998 were
$10,173,320, an increase of $4,969,404 or 95.5% as compared to total revenues
of $5,203,916 for the prior year ended December 31, 1997.
Communications systems revenues which consist of revenues from the sale of
BOATRACS systems, related software and revenues of BOATRACS Gulfport were
$4,033,264 or 39.7% of total revenues, an increase of $1,620,251 or 67.2%
compared to $2,413,013 or 46.4% of total revenues for the year ended December
31,1997. The increase in communication systems revenues compared to the same
period in the prior year, primarily reflects increased sales of communication
units to vessels in the United States in the amount of $1,075,196 or 86.5%.
Software revenues from BOATRACS Gulfport, which was purchased effective
November, 1997, increased by $1,026,606, compared to the revenues for two
months of the prior year. The increase was partially offset by a decrease in
communication sales in Europe and Canada in the amount of $468,705 or 66%
during 1998. Data transmission and messaging revenues were $3,881,244 or
38.2% of total revenues, an increase of $1,090,341 or 39.1% compared to
$2,790,903 or 53.6% of total revenues in the prior year. The increase in
revenues reflects an overall increase in data transmission and messaging
services provided by BOATRACS as a result of growth in the number of BOATRACS
systems installed on vessels. Video compression revenues, which are revenues
from ENERDYNE, which the company acquired in July, 1998, were $2,258,812 or
22.2% of total revenues.
Communication systems expenses were $2,460,359 or 61.0% of communications
systems revenues for the year ended December 31, 1998, an increase of
$888,055 or 56.5% compared to $1,572,304 which represented 65.2% of
communications systems revenues in the prior year. The dollar increase in
expenses primarily reflects the increase in sales of BOATRACS systems and
software expenses of BOATRACS Gulfport. Gross margin for communication
systems increased 4% to 39% from 35% in the prior year. The increase in the
margin is primarily due to a decrease in the cost of units from the
manufacturer during the second half of the year. Included in the margin is
the BOATRACS Gulfport margin for software of 22% during 1998. Data
transmission and messaging expenses were $1,892,893 or 49% of data
transmission and messaging revenues for the year ended December 31, 1998, an
increase of $474,432 or 33.5% compared to $1,418,461 or 51% of data
transmission and messaging revenues for the prior year. The dollar increase
in costs reflects increased data transmission and messaging services rendered
due to increased BOATRACS systems installed on vessels. The data transmission
and messaging margin was relatively unchanged at 51% in 1998 compared to 49%
in 1997. The Company received a reduction on costs from the service provider
during the second half of 1998. This reduction was partially offset by lower
messaging margins in Canada and Europe.
Selling, general and administrative expenses for the year ended December 31,
1998 were $4,755,523 or 46.8% of total revenues, an increase of $2,250,333 or
89.8% compared to $2,505,190 or 48.1% of total revenues in the prior year.
The increased dollar amount is primarily attributable to increases in
operating expenses in connection with three acquisitions, which the Company
has entered into since November 1, 1997. Accounting and legal expenses
increased by a total of $163,406 primarily due to additional Securities and
Exchange Commission filings in connection with the acquisition of ENERDYNE
and BOATRACS Gulfport during 1998. Salary expense increased to $2,012,371
from $858,917, an increase of $1,153,454 or 134% primarily as a result of
additional employees due to acquisitions. Office rent was $217,157 compared
to $57,894 in the prior year, an increase of $159,263 or 275% due to
additional offices and a new BOATRACS corporate office which the Company
relocated to in July, 1998. Insurance expense was $141,482 compared to total
insurance expense of $100,425 in the prior year, an increase of $41,057 or
41% primarily due to the additional subsidiaries. Amortization expense for
the year ended December 31, 1998 was $966,429 due to the amortization of
goodwill recorded as a result of the acquisition of BOATRACS Gulfport,
ENERDYNE and Oceantrac, also amortization of a patent acquired in the
acquisition of ENERDYNE. Depreciation expense was $216,967 compared to
$62,768 in the prior year, an increase of $154,199 or 246% due to the
acquisition of the subsidiaries assets and new assets acquired in connection
with the corporate office relocation. The increase in expenses were offset by
a reduction in consulting expense in the amount of $105,015 or 30% and an
decrease in shareholder relations in the amount of $72,024 or 67%.
Earnings before interest, taxes, depreciation and amortization for the year
ended December 31, 1998 were $1,518,334 compared to a negative $229,271 for
the same period of the prior year.
Interest income of $47,423 for the year ended December 31, 1998 relates to
interest earned on cash balances. This represents an increase of $8,211 or
21% compared to interest income of $39,212 in the prior year. Interest
expense was $413,335 for the year ended December 31, 1998, an increase of
$411,275 compared to the prior year. Interest expense in 1998 relates to
interest paid or accrued on notes payable issued in connection with the
purchase of Enerdyne.
The income tax benefit recorded in the amount of $422,210 for the year ended
December 31, 1998 represents the amortization of a temporary tax difference
on the life of the Enerdyne patent.
Years ended December 31, 1997 and 1996
Total revenues for the year ended December 31, 1997 were $5,203,916, an
increase of $1,745,852 or 50% as compared to total revenues of $3,458,064 for
the year ended December 31, 1996.
Communications systems revenues, which consists principally of revenues from
the sale of BOATRACS equipment and related software, were $2,413,013 or 46%
of total revenues, an increase of $1,028,309 or 74% over the prior year. This
growth in communications systems revenues is attributable primarily to an
increase in sales of equipment to new customers in Europe and Canada and
increased software sales in the United States. Communication system revenues
also includes two months revenue of a software applications provider which
the Company purchased effective November, 1997.
Data transmission and messaging revenues, which consist of fees for messaging
services provided to BOATRACS units installed on vessels, were $2,790,903 or
54% of total revenues, an increase of $717,543 or 35% compared to $2,073,360
or 60% of total revenues in the prior year. The increase in data transmission
and messaging revenues primarily reflects an overall increase in messaging
services provided by the company as a result of growth in the number of units
installed on vessels in prior periods and increased usage by some customers.
Communications systems expenses were $1,572,304 or 65% of communications
systems Revenues for 1996, an increase of $702,358 or 81%, compared to
$869,946 which represented 63% of communications systems revenues in 1996.
The dollar increase in expenses primarily reflects increased equipment sales
in Europe and Canada and related software. The increase in communications
systems expenses as a percentage of communications systems revenues is
primarily due to the inclusion of two months of expenses of the recently
purchased software applications provider. Without these expenses the
percentage would be unchanged from the prior year. Data transmission and
messaging expenses were $1,418,461 or 51% of data transmission and messaging
revenues in 1997, an increase of $328,742 or 30%, compared to $1,089,719
which represented 53% of data transmission and messaging revenues in the
prior year. The dollar increase in costs reflects increased data transmission
and messaging services rendered due to increased equipment sales and related
usage. The decrease in data transmission messaging costs as a percentage of
data transmission messaging revenues is due to increased margin on messaging
services due to the continuing increase in revenues over the relatively fixed
costs of providing this service, and increasing sales to fleet customers with
greater utilization of the system.
Selling, general and administrative expenses were $2,505,190 or 48% of total
revenues for 1997, an increase of $44,172 or 2%, compared to $2,461,018 or
71% of total revenues in the prior year. The increased dollar amount is
primarily attributable to various increased expenses including salary and
related expenses, outside consultants, advertising and shareholder relations
and certain prepaid consultant costs offset by a decrease in legal, computer
consultants, telephone and European expenses. In 1997, the selling, general
and administrative expenses include two months of expenses of the recently
purchased software provider. In addition, selling, general and administrative
expenses include two months amortization of goodwill on the purchase of
BOATRACS Gulfport in the amount of $14,083. The Company anticipates that the
dollar amount of selling, general and administrative expenses will increase
in the future to accommodate the Company's growth.
Interest expense in 1997 was $2,060 or .04% of total revenues, a decrease of
$876 or 30% compared to $2,936 which was .08% of total revenues in the prior
year. Interest income was $39,212 or .7% of total revenues a decrease of
$20,905 or 35% compared to $60,117 or 2% in the prior year due to lower
investment balances during 1997.
As a result of the factors described above, net loss was $254,887 for
1997 compared to $905,438 for 1996, a decreased loss of $650,551 or 72%.
Liquidity and Capital Resources
The Company's cash balance at December 31, 1998 was $416,361, an increase of
$23,649, or 6% over the December 31, 1997 cash balance of $392,712. At
December 31, 1998, working capital was a negative $182,858, a decrease of
$160,882 from the working capital of $21,976 at December 31, 1997. Cash of
$101,639 was used in operating activities, cash of $1,846,694 was used in
investing activities, and cash of $1,971,982 was provided by financing
activities during 1998.
The Company's liquidity was affected by $2 million paid for the acquisition
of ENERDYNE, partially financed by the collection of a $2 million receivable
for stock issued during the year ended December 31, 1998 to a Company
director and officer. As partial consideration for the acquisition of
ENERDYNE, the Company issued $10,000,000 of notes payable of which $8,000,000
were due and payable in July, 1999 carrying an interest rate of 8.5%. The
other note in the amount of $2,000,000 is a subordinated promissory note with
specified minimum annual payments and any remaining amounts payable June 31,
2002 and bearing interest at 8.5%.
On December 29, 1998, the Company signed a promissory note with a bank in the
amount of $4,250,000 and used the proceeds to pay down the $8,000,000 note.
The interest rate on the promissory note is 7.75% and will be paid over five
years in monthly payments of $70,833 each.
Accounts receivable net of an allowance for uncollectible amounts increased
$1,383,394 to $2,320,404 at year-end from $937,010 at December 31, 1997 due
primarily to the acquisitions made during 1998. In addition, there were
significant increases in inventories in the amount of $450,645 and prepaid
expenses in the amount of $151,944 due to the acquisitions made during 1998.
Property, net of accumulated depreciation, was $738,337 at December 31, 1998,
an increase of $514,474 due primarily to the acquisitions completed during
1998 and the relocation of the corporate office. Notes receivable were
eliminated during 1998 from a balance of $310,463 at December 31, 1997 due to
the acquisition of Oceantracs, Ltd. Goodwill, net of amortization, increased
by $10,361,216 due to the acquisition of ENERDYNE in the amount of
$10,342,000 and the acquisition of Oceantracs, Ltd. In addition, goodwill
recorded in 1997 was reduced by $304,000 in December 1998, in connection with
the acquisition of BOATRACS Gulfport.
Accounts payable were $1,068,347 at December 31, 1998, a decrease of $87,764
or 8% compared to a balance of $1,156,111 in the prior year primarily due to
a reclassification of certain accruals to accrued expenses . Accrued expenses
increased by $821,831 or 338% to $1,064,993 due primarily to additional
payroll accruals, additional accruals due to the newly acquired subsidiaries
and reclassifications between accounts payable and accrued expenses.
Acquisition costs payable was reduced by $250,000 due to a payment being made
in the amount of $30,000 and remainder of the balance being reclassified
reducing goodwill. Short-term portion of notes payable in the amount of
$1,730,399 relates to the promissory note to a bank entered into in December
1998 and notes owing to the previous owners of ENERDYNE.
Any future funding requirements will be satisfied through potential public
and private financing. The known resources of liquidity of the Company,
coupled with the projections for revenue, are expected to cover the Company's
cash needs until at least the end of 1999.
The Company anticipates making capital expenditures in excess of $200,000
during 1999. To date the Company has financed its working capital needs
through private loans, the issuance of stock and cash generated from
operations. Expansion of the Company's business may require a commitment of
substantial funds. To the extent that the net proceeds of recent private
financing activities and internally generated funds are insufficient to fund
the Company's operating requirements, it may be necessary for the Company to
seek additional funding, either through collaborative arrangements or through
public or private financing. There can be no assurance that additional
financing will be available on acceptable terms or at all. If additional
funds are raised by issuing equity securities, dilution to the existing
shareholders may result. If adequate funds are not available, the Company's
business would be adversely affected.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
The Company's consolidated financial statements as of December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998,
and the report of Deloitte and Touche LLP, independent accountants, are
included in this report on pages F-1 through F-15.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a)
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Part III, Items 9, 10, 11 and 12 is hereby
incorporated by reference to the Company's definitive Proxy Statement to be
mailed to shareholders in April, 1999.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of, or incorporated
by reference into this Annual Report on Form 10-KSB.
(1) Financial Statements: The following consolidated financial
statements and Independent Auditors'Report is included in this
report beginning on page F-1.
Page
Independent Auditors' Report................ F-1
Consolidated Balance Sheets as of December 31, F-3
1998 and 1997.
Consolidated Statements of Operations for the
years ended December 31, 1998, 1997 and 1996 F-4
Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996 F-5
Statements of Consolidated Cash Flows for the
years ended December 31, 1998, 1997 and 1996. F-6
Notes to consolidated financial statements F-7-F-15
(2) Financial Statements Schedules: See Exhibit 11.
(b) REPORTS ON FORM 8-K.
The Company did not file any Form 8-K's in the fourth
quarter of 1998.
(c) EXHIBITS.
The following exhibits are filed as part of, or incorporated by reference
into, this Annual Report on Form 10-KSB.
<PAGE>
EXHIBIT INDEX
Exhibits Description
2 Plan of Reorganization by Merger (1)
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Amended and Restated Bylaws (1)
3.3 Amendment of the Bylaws, Article III, Section 2 (7)
4.1 Form of the Company's Common Stock Certificate (2)
10.1* License and Distribution Agreement dated June 13, 1990,
by and between QUALCOMM and the Company, as amended (3)
10.2* License Agreement dated March 31, 1995, between the
Company and QUALCOMM (2)
10.3 Employment Agreement--Michael Silverman (2)
10.7 Addendum to Stock Issuance/Employment Agreement
between the Company and Annette Friskopp dated July 1, 1995 (4)
10.8* Agreement entered into between BOATRACS, Inc. and
Oceantrac Systems Limited and Oceantrac Incorporated, effective
September 1996 (6)
10.9 BOATRACS, Inc. Amended 1996 Stock Option Plan (8)
10.10 Restricted Stock Purchase Agreement between Boatracs, Inc. and
Jon Gilbert dated October 15, 1997 (9)
10.11 Pledge Agreement between Boatracs, Inc. and Jon Gilbert dated
October 15, 1997 (9)
10.12 Promissory Note between Boatracs, Inc. and Jon Gilbert dated
October 15, 1997 (9)
10.13 Employment Agreement between Boatracs, Inc. and Charles Drobny,
Jr. effective November 1, 1997. (10)
10.14 Agreement and Plan of Reorganization dated July 7, 1998
by and between Boatracs, Inc., Enerdyne Technologies, Inc.,
Boatracs Acquisition, Inc., Scott T. Boden and Irene Shinsato(11)
10.15 Employment Agreement dated July 7, 1998 between Scott T. Boden
and Enerdyne Technologies, Inc. (11)
10.16 Option Agreement dated July 7, 1998 between Scott T. Boden
and Boatracs, Inc. (13)
10.17 Employment Agreement dated July 7, 1998 between Irene Shinsato
and Enerdyne Technologies, Inc. (11)
10.18 Option Agreement dated July 7, 1998 between Irene Shinsato and
Boatracs, Inc. (13)
10.19 Financial Statements of Enerdyne Technologies, Inc. (12)
10.20 First Amendment to Agreement and Plan of Reorganization between
Boatracs, Inc, Boatracs Acquisition, Inc., Enerdyne
Technologies, Inc., Scott T, Boden, Irene Shinsato, Jon Gilbert
and Michael Silverman (13)
10.21 Financial Statements of Med Associates, Inc. (14)
10.22 Loan Agreement effective December 29, 1998 between Boatracs,
Inc. and Enerdyne (Borrower) and First National Bank (Lender)(15)
10.23 Promissory Note in the amount of $4,250,000 dated December 29,
1998, between Boatracs, Inc.: ET.
AL. (Borrower) and First National Bank (Lender) (15)
10.24 Promissory Note in the amount of $750,000 dated December 29,
1998 between Boatracs, Inc.: ET. AL.
(Borrower) and First National Bank (Lender) (15)
10.25 Commercial Pledge and Security Agreement between Boatracs,
Inc.:ET. AL. (Borrower), Boatracs, Inc.
(Grantor) and First National Bank (Lender) (15)
10.26 Commercial Security Agreement between Boatracs, Inc.: ET. AL.
(Borrower), Enerdyne Technologies,
Inc. (Grantor) and First National Bank (Lender) (15)
10.27 Commercial Security Agreement between Boatracs, Inc.: ET.AL.
(Borrower), Boatracs, Inc. (Grantor)and First National Bank
(Lender) (15)
10.28 Commercial Security Agreement between Boatracs, Inc.: ET. AL.
(Borrower), Boatracs (Europe) B.V. and Oceantracs Incorporated
(Grantor) and First National Bank (Lender) (15)
10.29 Collateral Assignment, Patent Mortgage and Security Agreement as
of December 29, 1998 between Enerdyne Technologies, Inc., a
California corporation (Grantor) and First National Bank, a
national banking association (Grantee) (15)
11 Statement regarding computation of net loss per share
filed herewith)
21 Subsidiaries of the Registrant (filed herewith)
23.1 Independent Auditors consent (filed herewith)
---------------------------
(1) Incorporated by reference to the exhibit of the same number to the
Company's Current Report on Form 8-K dated January 12, 1995.
(2) Incorporated by reference to the exhibit of the same number to the
Company's Form S-1, SEC File No. 33-91284, filed with the SEC on
May 4, 1995.
(3) Incorporated by reference to the exhibit of the same number to the
Company's Amendment No.3 to Form S-1, SEC File No.33-91284,filed
with the SEC on July 6, 1995.
(4) Incorporated by reference to the exhibit of the same number to the
Company's Form S-1, SEC file No. 33-98810 filed with the SEC on
October 31, 1995.
(5) Incorporated by reference to the exhibit of the same number to the
Company's Form 10-K filed with the SEC March 1996.
(6) Incorporated by reference to the exhibit of the same number to the
Company's Form 10-QSB filed with the SEC November 1996.
(7) Incorporated by reference to the Company's Form 10-QSB filed
with the SEC in May, 1996.
(8) Incorporated by reference to the Company's Form S-8 filed with
the SEC on June 20, 1997.
(9) Incorporate by reference to the company's Form 10-QSB filed with
the SEC on 11/14/97.
(10) Incorporated by reference to the Company's Form 8-KA filed
with the SEC on March 31, 1998. (11) Incorporated by
reference to the Company's Form 8-K filed with the SEC on July
21, 1998. (12) Incorporated by reference to the Company's Form
8-K/A, Amendment No. 1, filed wit the SEC on August 14, 1998.
(13) Incorporated by reference to the Company's Form 8-K/A, Amendment
No. 2, filed with the SEC on November 18, 1998.
(14) Incorporated by reference to the Company's Form 8-K/1, Amendment
No. 1, filed with the SEC on March 31, 1998.
(15) Filed herewith
*Confidential treatment requested
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 27, 1999
BOATRACS, INC.
By: /s/ Michael Silverman
Michael Silverman
Chairman of the Board
Power of Attorney
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Michael Silverman and Jon Gilbert, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments to this
Report, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
that all said attorneys-in-fact and agents, or any of them or their or his
substitute or substituted, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
Registrant in the capacities and on the dates indicated.
/s/ Michael Silverman Chairman of the Board, March 27, 1999
Michael Silverman and Director, acting Chief
Financial Officer
/s/ Jon S. Gilbert President, Chief Executive
Jon S. Gilbert Officer and Director March 27, 1999
and Director
/s/ Giles Bateman Director March 27, 1999
Giles Bateman
/s/ Luis Maizel Director March 27, 1999
Luis Maizel
/s/ Mitchell G. Lynn Director March 27, 1999
Mitchell Lynn
/s/ Scott T. Boden Director March 27, 1999
Scott Boden
<PAGE>
DELOITTE & TOUCHE, LLP LETTERHEAD
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Boatracs, Inc.:
We have audited the accompanying consolidated balance sheets of Boatracs, Inc.
(the "Company") as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE,LLP
/S/ DELOITTE & TOUCHE, LLP
February 26, 1999
<PAGE>
BOATRACS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
ASSETS ..................................... 1998 1997
CURRENT ASSETS:
Cash ..................................... $ 416,361 $ 392,712
Accounts receivable - net ................ 2,320,404 937,010
Inventories .............................. 684,737 234,092
Prepaid expenses and other assets ........ 259,379 107,435
------------ ------------
Total current assets ............ 3,680,881 1,671,249
PROPERTY - net ............................. 738,337 223,863
PATENT - net ............................... 17,459,135
GOODWILL - net ............................. 11,192,133 830,917
NOTES RECEIVABLE ........................... 310,463
------------ ------------
TOTAL ...................................... $ 33,070,486 $ 3,036,492
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................... $ 1,068,347 $ 1,156,111
Accrued expenses ......................... 1,064,993 243,162
Acquisition cost payable ................. 250,000
Current portion of notes payable ......... 1,730,399
------------ ------------
Total current liabilities ....... 3,863,739 1,649,273
NOTES PAYABLE .............................. 8,094,778
DEFERRED TAX LIABILITY ..................... 6,639,584
COMMITMENTS (Notes 5 and 10)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value;
1,000,000 shares authorized,
no shares issued
Common stock, no par value;
100,000,000 shares authorized,
18,834,032 and 15,806,977 shares
issued and outstanding
in 1998 and 1997, respectively ........... 17,527,483 6,949,244
Notes receivable for common
stock issued ............................. (2,117,836)
Accumulated deficit ...................... (3,055,098) (3,444,189)
------------ ------------
Total stockholders' equity ...... 14,472,385 1,387,219
------------ ------------
TOTAL ...................................... $ 33,070,486 $ 3,036,492
============ ============
See notes to consolidated financial statements.
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
1998 1997 1996
REVENUES:
Communications systems ....... $ 4,033,264 $ 2,413,013 $ 1,384,704
Data transmission and
messaging ................... 3,881,244 2,790,903 2,073,360
Video compression ............ 2,258,812
------------ ------------ ------------
Total revenues ...... 10,173,320 5,203,916 3,458,064
------------ ------------ ------------
COSTS AND EXPENSES:
Communications systems ....... 2,460,359 1,572,304 869,946
Data transmission and
messaging ................... 1,892,893 1,418,461 1,089,719
Video compression ............ 731,752
Selling, general and
administrative ............... 4,755,523 2,505,190 2,461,018
------------ ------------ ------------
Total costs and expenses ..... 9,840,527 5,495,955 4,420,683
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS .. 332,793 (292,039) (962,619)
INTEREST INCOME ................ 47,423 39,212 60,117
INTEREST EXPENSE ............... (413,335) (2,060) (2,936)
------------ ------------ ------------
LOSS BEFORE TAXES .............. (33,119) (254,887) (905,438)
INCOME TAX BENEFIT ............. 422,210
------------ ------------ ------------
NET INCOME (LOSS) .............. $ 389,091 $ (254,887)$ (905,438)
============ ============ ============
BASIC EARNINGS PER COMMON SHARE $ 0.02 $ (0.02) $ (0.07)
DILUTED EARNINGS PER COMMON $ 0.02 n/a n/a
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 17,333,426 13,535,433 12,597,471
Dilutive effect of:
Employee stock options 737,557 n/a n/a
Warrants 286,651 n/a n/a
Weighted average common shares
outstanding, assuming dilution 18,357,634 n/a n/a
See notes to consolidated financial statements
<TABLE>
<CAPTION>
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
Note
Common Stock Receivable Total
Accumulated for Common Stockholders'
Shares Amount Deficit Stock Equity
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 ......... 12,577,710 $ 4,186,325 $ (2,283,864) $ (604,979) $ 1,297,482
Common stock issued in
connection with
services rendered ............. 24,600 24,600 24,600
Payments received on note
receivable ... 183,557 183,557
Net loss ....................... (905,438) (905,438)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 ....... 12,602,310 4,210,925 (3,189,302) (421,422) (600,201)
Common stock issued through
exercise of stock options ..... 4,667 4,792 4,792
Common stock issued through
Restricte Stock Purchase
Agreement .............. 2,900,000 2,320,000 (1,930,915) 389,085
Common stock issued in
connection
with acquisition .............. 300,000 420,000 420,000
Payments received on note
receivable ... 234,501 234,501
Issuance costs in connection
with common
stock issued .................. (6,473) (6,473)
Net loss ....................... (254,887) (254,887)
------------ ------------ ------------ ------------ ------------
BALANCE DECEMBER 31, 1997 ........ 15,806,977 6,949,244 (3,444,189) (2,117,836) 1,387,219
Common stock issued through
exercise of
stock options and warrants .... 82,055 103,243 103,243
Discounted payments received
on note receivable for common
stock ........... (44,274) 2,117,836 2,073,562
Common stock issued for
acquisitions ... 2,945,000 10,519,270 10,519,270
Net income ..................... 389,091 389,091
============ ============ ============ ============ ============
BALANCE DECEMBER 31, 1998 ........ 18,834,032 $ 17,527,483 $ (3,055,098) $ 0 $14,472,385
============ ============ ============ ============ ============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) .................................... $ 389,091 $ (254,887) $ (905,438)
Adjustments to reconcile net loss to net cash used
in operating activities:
Deferred tax benefit ................................ (422,210)
Loss on disposal of assets .......................... 15,907
Depreciation and amortization ...................... 1,183,396 76,851 44,420
Net accretion of discount on investment securities . (42,204)
Provision for bad debts ............................ 68,651
Consulting service expense paid with common stock 24,600
Changes in assets
and liabilities:
Accounts receivable, net ......................... (1,452,045) (379,764) (149,754)
Inventories ...................................... (450,645) (141,974) (59,809)
Prepaid expenses and other assets ................ (151,944) (33,725) (57,085)
Accounts and acquisition costs payable and
accrued expenses ............................... 734,067 852,607 103,201
------------ ----------- -----------
Net cash (used in) provided by operating activities .. (101,639) 135,015 (1,042,069)
------------ ----------- -----------
INVESTING ACTIVITIES:
Net cash paid in acquisitions ........................ (1,458,691) (425,000)
Purchase of investment securities .................... (2,825,799)
Proceeds from maturities of investment securities .... 425,852 3,907,000
Issuance of notes receivable ......................... (102,000) (114,143)
Capital expenditures ................................. (388,003) (181,806) (92,752)
------------ ----------- -----------
Net cash (used in) provided by investing activities .. (1,846,694) (282,954) 874,306
------------ ----------- -----------
FINANCING ACTIVITIES:
Proceeds from note receivable issued for common stock 2,073,562 234,501 183,557
Proceeds from short-term margin loan ................. (139,268) 139,268
Repayment of net deferred compensation ............... (45,129) (203,646)
Cash received for stock options and warrants exercised 103,243
Payment of notes payable ............................. (204,823)
Net proceeds from issuance of common stock ........... 387,403
------------ ----------- -----------
Net cash provided by financing activities ... 1,971,982 437,507 119,179
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH ........................ 23,649 289,568 (48,584)
CASH AT BEGINNING OF YEAR .............................. 392,712 103,144 151,728
============ =========== ===========
CASH AT END OF YEAR .................................... $ 416,361 $ 392,712 $ 103,144
============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................... $ 413,335 $ 2,936
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of notes payable ........................... $ 10,000,000
Common stock issued for acquisition .................. $ 10,558,996 $ 420,000
Common stock issued for services rendered ............ $ 24,600
Discount on redemption of note receivable
for common stock .................................... $ 44,274
Reclassification of evaluation inventory
units to property .................................. $ 88,372
Common stock issued for note receivable .............. $ 1,930,915
See notes to consolidated financial statements .........
</TABLE>
BOATRACS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - BOATRACS, Inc. and its wholly owned subsidiaries
Enerdyne Technologies, Inc. ("Enerdyne"), OceanTrac, Inc. and BOATRACS
(Europe) B.V. (collectively called the "Company") is engaged in the
business of distribution of the OmniTRACS satellite-based communications
and tracking system for marine application under a license and distribution
agreement with QUALCOMM, Incorporated ("QUALCOMM", see Note 10) and is also
a provider of video compression products to the government and commercial
markets. Under the QUALCOMM agreement, the Company sells mobile
communications terminals and software for use on board marine vessels and
by marine dispatchers. In addition, the Company also provides 24-hour data
transmission and messaging services. MED Associates, Inc. ("Gulfport")
which was acquired by the Company in November 1997 is a provider of
software applications and service solutions to the commercial workboat
industry and to oil companies.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Boatracs, Inc. and its wholly owned
subsidiaries. All significant intercompany balances have been eliminated in
consolidation.
Investment Securities - Investment securities represented U.S. Treasury
securities that the Company held to maturity, which were reported at
amortized cost.
Inventories - Inventories, comprising of raw materials, work in process and
furnished goods, are carried at the lower of average cost or market.
Property, Patent and Goodwill - Property is recorded at cost. Depreciation
is provided under the straight-line method over the estimated useful lives
of the assets (generally 3-5 years). Goodwill is amortized over 10 and 16
years, and the Company's patent is amortized over 16 years.
Revenue Recognition - Revenue from the sale of communication systems is
recognized at the time the equipment is shipped to the customer. Revenue
from messaging is recognized at the time the transmission is made by the
customer. Sales of standard video compression units, which do not entail
significant customer modifications, are recognized upon shipment of
products to customers. Revenues related to contracts involving significant
customer modifications or the development of new technologies are accounted
for using the percentage-of-completion as costs are incurred. Products are
subject to a right of return for one year. Actual return experience has not
been significant.
Significant Customers - For the Company's communications, data transmission
and software revenues, major customers individually accounted for 24%, 10%
and 8% of 1998 sales, 18%, 12% and 9% of 1997 sales, and 26%, 12% and 8% of
1996 sales. Accounts receivable from these customers aggregated $387,432
and $437,077 at December 31, 1998 and December 31, 1997 respectively.
Enerdyne's major video compression customers individually accounted for
19%, 16% and 10% of sales since acquisition date in 1998. Accounts
receivable from these customers aggregated $270,994 at December 31, 1998.
The Company and Enerdyne have not historically experienced any losses on
their accounts receivable.
Stock-Based Compensation - Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," encourages, but does
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, " Accounting for
Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of the grant
over the exercise price.
Net Income (Loss) Per Share - Net income (loss) per share is calculated
using the weighted average number of shares outstanding during each year.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share" (EPS). This statement requires the presentation of earnings per
share to reflect both "Basic EPS" and "Diluted EPS" on the face of the
income statement. In the years ending December 31, 1997 and 1996, common
stock equivalents had an anti-dilutive effect on the net loss, and
therefore diluted EPS is not presented.
Segment Information - In 1998, the FASB issued SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information". Accordingly, the
Company has disclosed all applicable results of operations by segment and
geographic details as proscribed.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications - Certain amounts in the 1997 and 1996 financial
statements have been reclassified to conform to the 1998 presentation.
2. ACQUISITIONS
Enerdyne Technologies, Inc. - On July 7, 1998, the Company purchased
Enerdyne Technologies, Inc. ("Enerdyne"), a provider of versatile, high
performance digital video compression products to the government and
commercial markets. Enerdyne, formed in 1984, is located in Santee,
California. The acquisition price of $22.6 million was paid for by a
combination of cash, common stock and notes payable. Patents in the amount
of $18 million and goodwill in the amount of $10.5 million were recorded
and will each be amortized over 16 years. The two selling shareholders of
Enerdyne signed employment contracts with the Company for one and two
years, respectively, and one selling shareholder was elected to the Board
of Directors in September, 1998.
A First Amendment to the Agreement and Plan of Reorganization ("Amendment")
in connection with the Enerdyne Acquisition was executed effective July 7,
1998. The Amendment increased the number of compensatory option shares and
exercise price subject to a specific paydown on the acquisition notes
payable to the selling shareholders. On December 29, 1998 bank financing
was obtained to effect the compensatory contingency per the Amendment (see
Notes Payable - Note 6) and the options were revised to 663,500 at an
exercise price of $2.65 in accordance with the calculations and provisions
in the Amendment.
The following summarized unaudited pro forma financial information assumes
the acquisition had occurred on January 1 of each year:
PROFORMA INFORMATION, (Unaudited) 1998 1997
--------------------
----------- -----------
Net sales ....................... $ 5,657,842 $12,421,000
Net income ..................... $ 295,086 $ 1,184,000
Basic earnings (loss) per share $ .02 $ .08
Diluted earnings per common share $ .01 $ .07
Weighted average common
shares outstanding 18,870,412 16,535,000
Weighted average common
shares outstanding, 20,309,195 16,677,000
assuming dilution
OceanTrac Inc. - Effective July 1, 1998, the Company acquired all of the
outstanding shares in OceanTrac Inc., a Canadian corporation ("OceanTrac").
The acquisition was effected by the exercise of the Company's rights under
a 1996 Joint Venture Agreement entered into among the Company, OceanTrac
and OceanTrac Systems Limited, a Nova Scotia corporation ("Systems"). In
addition, the Company purchased all of the assets of Systems for
consideration of 5,000 shares of the Company's Common Stock valued at $4.75
per share and foregiveness of notes totaling $310,463. The acquisition of
OceanTrac and Systems resulted in recording of intangibles in the amount of
approximately $388,000 which will be amortized by the Company over ten
years.
MED Associates, Inc. - Effective November 1, 1997, the Company purchased
certain assets and liabilities of MED Associates, Inc. ("Gulfport") for
$500,000 cash, and 300,000 shares of restricted common stock valued at
$1.40 per share. Goodwill in the original amount of $845,000 was recorded
and is amortized over ten years.
On December 30, 1998 the Agreement with Gulfport was amended to reduce the
shares of restricted stock to 240,000 and cash that was payable in December
1998 to $30,000.
Accordingly, goodwill was reduced by $304,000.
Gulfport is a Mississippi-based provider of software applications and
service solutions to the marine industry. The acquisition was accounted for
as a purchase. Accordingly, the assets and liabilities of Gulfport are
included in the consolidated balance sheet as of December 31, 1997. The
results of Gulfport's operations from the date of the acquisition to
December 31, 1997 were not significant.
3. BALANCE SHEET DETAILS
1998 1997
----------- -----------
Accounts receivable ....... $ 2,384,604 $ 949,874
Less allowance for doubtful
accounts ................ 64,200 12,864
----------- -----------
$ 2,320,404 $ 937,010
----------- -----------
Inventory:
Raw materials ........... $ 364,889
Work in progress ........ 214,155
Finished goods .......... 105,693 $ 234,092
----------- -----------
Total ................. $ 684,737 $ 234,092
----------- -----------
Property - at cost:
Computers and equipment .. $ 835,320 $ 334,942
Furniture and fixtures ... 211,905
Leasehold improvements ... 55,390 37,655
----------- -----------
1,102,615 372,597
Less accumulated
depreciation ........ 364,278 148,734
----------- -----------
$ 738,337 $ 223,863
----------- -----------
Goodwill ................... $11,633,203 $ 845,000
Less amortization ........ 441,070 14,083
----------- -----------
$11,192,133 $ 830,917
----------- -----------
Patent ................... $18,000,000
Less amortization ....... 540,865
-----------
$17,459,135
-----------
Depreciation expense was $216,967, and $62,768 and $44,420 for the years
ended December 31, 1998, 1997, 1996 respectively. Amortization expense was
$966,429 and $14,083 for the years ended December 31, 1998 and 1997
respectively.
4. NOTES RECEIVABLE
Canadian Company - The Company had a note receivable agreement with a
Canadian company. Outstanding advances on the note bore interest at 9.0%
and were due on demand. Advances on the note totaled $310,463 at December
31, 1997. In July 1998, the Company acquired 100% of the Canadian Company
(see Note 2 -Acquisitions).
5. LEASES
Facility Leases - The corporate office leases its facilities under a
non-cancelable operating lease that expires December 2002. The Company
relocated to this facility in July 1998. The Company's leases have rent
escalation terms based on the Consumer Price Index, which will affect
future minimum lease payments. The Company also leases a 9,800 square foot
building in Santee, California for its Enerdyne subsidiary, which expires
in July 1999, and a 2,507 square foot facility in Gulfport, Mississippi,
which expires in January 2000. Boatracs (Europe) B.V., operates a facility
in Leiden, The Netherlands pursuant to a lease expiring in December 2001.
Total rent expense was $217,157, $57,894 and $51,900 for the years ended
December 31, 1998, 1997 and 1996 respectively.
Future minimum lease payments at December 31, 1998 are summarized as
follows:
Year Ending December 31,
1999 $ 388,388
2000 226,318
2001 224,556
2002 189,865
Total $1,029,127
6. NOTES PAYABLE
In connection with the acquisition of Enerdyne on July 7, 1998 (see Note 2
Acquisitions), the Company issued two notes payable in the total amount of
$10,000,000 to or on behalf of the previous owners. Notes in the amount of
$8,000,000 are senior promissory notes payable on July 7, 1999 and bearing
interest at 8.5% per annum. The other notes are subordinated promissory
notes in the amount of $2,000,000 with specified minimum annual payments
and any remaining amounts payable June 30, 2002 and bearing interest at
8.5% per annum.
On December 29, 1998, the Company entered into a five year loan agreement
with a bank for $4,250,000 at a variable interest rate based on the
lender's prime rate. The initial rate at December 29, 1998 was 7.75%. The
proceeds were used to pay a portion of the $8,000,000 loan to the previous
Enerdyne owners. The loan is collaterized by the stock of the Company's
subsidiaries (Boatracs Europe, OceanTrac, Inc. and Enerdyne Technologies,
Inc.), as well as the Company's inventory, accounts, equipment, fixtures
and other goods. The terms for the remaining balances on the notes were
amended so that they expire on January 1, 2004.
On December 29, 1998, the Company entered into a line of credit agreement
with the bank to borrow up to $750,000 at an interest rate equal to the
lender's prime rate which was 7.75% on December 29, 1998. The agreement
expires on December 29, 2000. At December 31, 1998 there were no borrowings
on the line of credit.
Balance at
December 31, 1998
--------------------
Promissory note payable to bank $ 4,250,000
Senior promissory notes 3,575,177
Subordinated promissory note 2,000,000
-----------------
9,825,177
Current portion 1,730,399
-----------------
Long term portion $ 8,094,778
-----------------
Future minimum debt payments are summarized as follows:
Year ending December 31,
1999 $1,730,399
2000 1,964,687
2001 2,154,937
2002 2,217,248
2003 1,685,066
Thereafter 72,840
---------------
Total $9,825,177
---------------
Future minimum debt payments are subject to acceleration under certain
conditions.
7. INCOME TAXES
Due to a valuation allowance provided for deferred income tax assets for the
years ended December 31, 1997 and 1996, there was no income tax expense or
benefit and the Company's effective income tax rate was 0%.
The tax effects of significant temporary differences that comprise deferred
tax balances are as follows:
December 31 December 31,
1998 1997
------------- -----------
Deferred assets/(liabilities)
Net operating loss carryforward $568,000 $830,000
Income tax credits 105,000 49,000
Allowance for uncollectible account 28,000 6,000
Deferred income 8,000 16,000
State taxes 5,000 400
Patent (6,984,000)
Other 12,000 15,000
------------- -----------
Net deferred assets/(liabilities) (6,258,000) 916,400
Valuation allowance (388,000) (916,400)
------------- -----------
Total deferred tax amount $(6,646,000) 0
------------- -----------
The provision for income taxes consists of the following:
Income/(expense)
. Fiscal 1998
------------------
Current:
Federal $173,939
State 3,497
------------------
Total current 177,436
------------------
Deferred:
Federal 127,726
State 117,048
------------------
Total deferred 244,774
------------------
Total Provision $422,210
------------------
At December 31, 1998, the Company had unused net operating loss
carryforwards of approximately $449,000 for Federal income tax purposes
which expire at various dates from 2005 to 2012 and $320,000 for state
income tax purposes which expire at various dates from 1999 to 2002.
A reconciliation of the statutory federal income tax rate with the
Company's effective income tax is as follows:
Fiscal Fiscal Fiscal
1998 1997 1996
--------- ------------ ---------
Statutory federal rate (34%) (34%) (34%)
State income taxes
Netof federal income tax (245%)
benefit
Change in valuation
allowance (1293%) 36% 34%
R&D credit (82%) (6%)
Goodwill 321%
Other 28% 4%
------------ ------------ ---------
Effective tax rates (1305%) 0% 0%
============ ============ =========
8. STOCKHOLDERS' EQUITY
Note Receivable Issued for Common Stock - During March 1995, the Company
issued 1,112,265 shares of common stock to Qualcomm (see Note 9 - Related
Party Transactions) for $737,000. The purchase price of the shares was paid
by a reduction in the price of certain products and services currently
provided by Qualcomm to the Company and, upon satisfaction of certain
conditions, the conversion of a certain non-exclusive territory to an
exclusive territory, under a license and distribution agreement (see Note
10 License and Distribution Agreement). The transaction was recorded as a
note receivable for common stock issued which is reduced as discounts are
earned. Through December 31, 1998, a total of $737,000 in discounts had
been earned and the balance of the note receivable eliminated.
In October 1997, the company issued 2,900,000 shares of common stock to an
individual who subsequently became an officer/director of the company, at a
discounted rate of $0.80 per share pursuant to the terms of the Restricted
Stock Purchase Agreement. In connection with the shares, the Company
received a promissory note in the amount of $1,930,915 bearing 5.77%
interest. The note required payments of $420,240 on April 15 and October 15
of each year commencing in 1998 with the final payment due on April 15,
2000. The note had been recorded as a reduction of equity on the balance
sheet. During 1998, the note and accrued interest were purchased by an
outside party at a discount of $44,274, which was recorded as a reduction
of the common stock originally issued.
In July 1998, the Company issued a total of 3,000,000 shares of common
stock to the selling shareholders and their investment bankers of Enerdyne
valued at $3.17 pursuant to an Agreement and Plan of Reorganization.
Stock Warrants - During October 1995, the Company issued 25,000 common
stock purchase warrants. The warrants represent the right to purchase one
share of the Company's common stock at $1.50 and expire during October
1998. In 1998, the warrants were exercised.
In April 1998, the Company issued 30,000 warrants to a consultant, at an
exercise price of $1.50 per share.
In June 1998, the Company issued warrants to purchase 25,000 shares of
common stock at $4.44 per share to a third party in connection with a
purchase of a promissory note from a director and officer of the Company.
In July 1998, the Company issued warrants to purchase 500,000 shares of
common stock at $2.00 per share to the selling shareholders of Enerdyne and
their investment bankers.
Stock Options - During January 1996, the Company entered into a
Non-Circumvention Agreement with a financial consultant. The agreement
included a grant of 50,000 stock options at $1.50 each. There is no
expiration date on the agreement, however the agreement may be terminated
by the company at will.
In July, 1998, the Company issued options to purchase 1,000,000 shares of
common stock to the two selling shareholders of Enerdyne at $2.00 per
share. Pursuant to an amendment to the agreement, the options were adjusted
to a total of 1,327,000 options at $2.65 each.
Registration Statements with the Securities and Exchange Commission -
During 1995, the Company filed two registration statements on Form S-1 with
the Securities and Exchange Commission, registering a total of 6,049,684
shares of the Company's common stock. The Company did not receive any
proceeds from this transaction.
During May 1996, the Company filed Post-Effective Amendment No. 3 to its
Form S-1, which provides for registration of 6,033,385 shares on behalf of
certain selling stockholders. The Company did not receive any proceeds from
this transaction.
During May, 1997, the Company filed a registration statement on Form SB-2
that provides for registration of 5,490,956 shares on behalf of selling
stockholders. The Company did not receive any proceeds from this
transaction.
During April 1998, the Company filed a registration statement on Form SB-2
that provides for registration of 9,900,070 shares on behalf of selling
shareholders. The Company did not receive any proceeds from this
transaction. The registration statement, which is not yet effective, has
been refiled for final acceptance by the Commission.
Stock Option Plan - Under the amended 1996 Stock Option Plan ("the Plan"),
the Company may grant incentive and non-qualified options to purchase up to
2,000,000 shares of common stock to employees, directors and consultants at
prices that are not less than 100% (85% for non-qualified) of fair market
value on the date the options are granted. Options issued under the Plan
expire seven years after the options are granted and generally become
exercisable ratably over a five-year period following the date of grant.
Stock option transactions are summarized below:
Number of Price per Share
of shares
Outstanding , January 1, 1996 0
Granted ...................... 730,500 $ 1.00- $ 1.81
Cancelled .................... (21,000) $ 1.00- $ 1.81
-----
Outstanding, December 31, 1996 709,500 $ 1.00- $ 1.81
Granted ...................... 167,500 $ 1.19- $ 1.25
Cancelled .................... (208,934) $ 1.00- $ 1.18
Exercised .................... (4,667) $ 1.00- $ 1.13
-----
Outstanding, December 31, 1997 663,399 $ 1.00- $ 1.81
Granted ...................... 767,300 $ 2.00- $ 4.63
Cancelled .................... (87,669) $ 1.13- $ 3.75
Exercised .................... (57,531) $ 1.00- $ 2.38
-----
Outstanding, December 31, 1998 1,285,499
-----
The Company applies Accounting Principles Board of Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its Plan. Accordingly, no compensation expense has been
recognized for its stock-based compensation plan. Had compensation cost
been determined based upon the fair value at the grant date for awards
under the Plan consistent with the methodology prescribed under Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net income for the period ended December 31,
1998 would have been reduced by approximately $541,000 and the Company's
net loss for the years ended December 31, 1997 and 1996 would have been
increased by $73,000 and $33,000 for each of the two years, respectively.
Under FASB 123, the fair value of the options granted during 1998 is
estimated as approximately $2,258,000 on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: no
dividend yield, expected volatility of 236%, risk-free interest rate of
5.1%, and an expected average life of 6.7 years.
The following table summarizes information as of December 31 1998
concerning currently outstanding and exercisable options:
Options Outstanding Options Exercisable
--------------------------------------------------------------------
Weighted Average Weighted Number
Range of
Average Number Remaining Number Average
Exercise Outstand Contractual Exercise Exercis Exercise
Pricec ing Life Price able Price
---------- ----------- ----------------------- ---------------------
$1.00-$2.50 931,500 5.2 $1.53 212,200 $1.10
$2.51-$5.00 354,000 6.4 $3.59 0 n/a
9. RELATED PARTY TRANSACTIONS
On October 15, 1997, Company received a promissory note from an individual
who subsequently became an officer, director and shareholder of the Company
in the amount of $1,930,915 bearing a rate of 5.77%. The note was issued in
connection with a Restricted Stock Purchase Agreement of the same date for
a total of 2,900,000 shares of the Company's stock (see Note 8 - Note
Receivable Issued for Common Stock). The shares were issued at a discounted
rate of $0.80 per share based on the restrictions of the agreement. The
note called for semi annual installments with the final payment on April
15, 2000. During June 1998, the note and accrued interest were purchased by
an outside party at a discount of $44,274, which was recorded as a
reeduction of the common stock originally issued.
10. LICENSE AND DISTRIBUTION AGREEMENT
During 1990, the Company entered into a license and distribution agreement,
as amended through June 25, 1997, with QUALCOMM. Pursuant to the agreement,
the Company was appointed QUALCOMM'S exclusive and non-exclusive
distributor, in defined territories, of the OmniTRACS satellite-based
communications and tracking system (the "System") for marine applications.
During 1996, the Company reached certain sales goals and became the
exclusive distributor in previously non-exclusive territories. The Company
was also appointed provider of message services to the users of the System.
In connection therewith, the Company was also granted an exclusive and
non-exclusive license to certain software used with the System. QUALCOMM
was granted an exclusive perpetual, worldwide, royalty free license to any
improvements made by the Company to the System or related software.
Under the agreement, the Company is required to sell a certain minimum
number of systems in order to maintain the exclusivity of its distribution
rights. The minimum purchase requirements for each calendar year is to be
agreed upon between the Company and QUALCOMM subject to a minimum of 300
systems for calendar year ended December 31, 1997 and increasing by 10%
each year thereafter. The Company met this requirement in 1998, 1997 and
1996.
If QUALCOMM is unable to provide service or elects not to remain in
business, they may terminate the agreement with six months' notice and have
no further liability. QUALCOMM shall take such steps, which are reasonable
and necessary to enable the Company to continue to provide the message
services to its existing end users.
The agreement expires during June 2000 and may be renewed for two
additional five-year periods. The agreement is subject to re-negotiation at
the end of the option period.
Sub-service Provider Agreement - During 1997, the Company entered into a
Sub-service Provider Agreement with ALCATEL Qualcomm, a French company,
whereby the Company will provide maritime satellite-based communications
and tracking of vessels to certain countries in Europe.
11. SALARY REDUCTION SIMPLIFIED EMPLOYER PLAN (SAR-SEP)
During September 1996, the Company approved the adoption of a Salary
Reduction Simplified Employer Plan (SAR-SEP) allowing eligible employees to
contribute savings on a pretax basis effective January 1996. Employees were
able to contribute up to 15% of their salary, not to exceed $9,500
annually. A discretionary contribution is determined each year by the
Company. In 1998 and 1997, the Company did not elect to contribute to the
Plan, and the Plan was terminated in 1998.
12. GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION
The Company operates what management believes to be two reportable business
segments: Communications and Video Compression. The Company's reportable
segments are strategic business units that offer different products and
services. They are managed separately based on fundamental differences in
their operations.
The Communications segment consists of the operations of Boatracs, Inc.,
Boatracs (Europe) B.V. and Oceantracs, Inc., as well as the operations of
MED. The Communications segment has exclusive distribution rights in the
United States for marine application of the OmniTRACS system of
satellite-based communication and tracking systems manufactured by
QUALCOMM. In addition, the Company's wholly owned subsidiaries, Boatracs
(Europe) B.V. and Oceantracs, Inc. have agreements with QUALCOMM'S
authorized service providers in Europe and Canade for marine distribution
of OmniTRACS in parts of Europe and Canada. MED is a provider of software
applications and service solutions to the commercial work boat and
petroleum industries, including customers of Boatracs.
The Video Compression segment consists of the operations of Enerdyne which
the Company acquired in July 1998 (see Note 2 - Acquisitions). Enerdyne is
a provider of versatile, high performance digital video compression
products to the government and commercial markets.
In 1997 and 1996 there was only one segment, communications.
Information by industry segment for the year ended December 31, 1998 is set
forth below.
Video
Communications Compression Consolidated
--------------------------------- -------------
Revenues $ 7,914,508 $ 2,258,812 $10,173,320
Income from operations $186,233 $146,560 $332,793
Interest revenue $43,040 $4,383 $47,423
Interest expense $413,335 $413,335
Depreciation and
amortization $272,816 $910,580 $1,183,396
Total assets $ 3,844,938 $29,225,548 $33,070,486
The Company has two foreign subsidiaries: Boatracs (Europe) B.V. and
Oceantracs Inc. Boatracs (Europe) B.V. is located in The
Netherlands and provides communication
services to the European market. Oceantrac Inc. provides
communication services in Eastern Canada. In addition, Enerdyne has
limited foreign sales.
The following table
presents revenues and long lived assets (excluding goodwill)
for each of the geographical areas in which the Company operates:
1998 1997 1996
---------------------- -------------------- --------------------
Long- Long- Long-
Lived Lived Lived
Revenues Assets Revenues Assets Revenues Assets
----------- ----------- --------- --------- -------------------
United
States $9,503,838 $18,087,961 $4,402,055 $159,934 $3,489,868 $100,232
Inter-
national 669,482 109,511 845,486 63,929 11,314 20,499
----------- ----------- ----------------- --------- --------
Total $10,173,320 $18,197,472 $5,247,541 $223,863 $3,501,182 $120,731
EXHIBIT 10.22
LOAN AGREEMENT
==============================================================================
Borrower:
BOATRACS, INC. and ENERDYNE Lender: FIRST NATIONAL BANK
TECHNOLOGIES, INC. Corporate Banking
10675 SORRENTO VALLEY ROAD, #200 P.O. Box 85625 (CS#51)
SAN DIEGO, CA 92121 San Diego, CA 92186-5625
BUSN PHONE: 619-657-0100
==============================================================================
THIS LOAN AGREEMENT between BOATRACS, INC. and ENERDYNE TECHNOLOGIES, INC.
(referred to in this Agreement individually and collectively as "Borrower") and
FIRST NATIONAL BANK (referred to in this Agreement as "Lender") is made and
executed on the following terms and conditions. Borrower has received prior
commercial loans from Lender or has applied to Lender for a commercial loan or
loans and other financial accommodations. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of December 29, 1998, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
Account. The word "Account" means a trade account, account receivable, or other
right to payment for goods sold or services rendered owing to Borrower (or to a
third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity obligated
upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds under this
Agreement.
Borrower. The word "Borrower" means individually and collectively
BOATRACS, INC. and ENERDYNE TECHNOLOGIES, INC. and all
other persons and entities signing Borrowers' Note.
Borrowing Base. The words "Borrowing Base" shall mean as determined by Lender
from time to time, the lesser of (a) $750,000.00; or (b) the sum of (i) 80% of
Eligible Accounts, plus (ii) the lesser of (1) $300,000.00 or (2) 50% of the
aggregate amount of Eligible Inventory less related trade accounts payable. In
determining the amount of the Borrowing Base, all Eligible Accounts and Eligible
Inventory of all Borrowers shall be included.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response
Compensation, and Liability Act of 1980, as amended.
Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real or
personal property, whether granted directly or indirectly, whether granted now
or in the future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien, charge,
lien or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created by
law, contract, or otherwise. The word "Collateral" includes without limitation
all collateral described below in the section titled "COLLATERAL."
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable to
Lender. The net amount of any Eligible Account against which Borrower may borrow
shall exclude all returns, discounts, credits, and offsets of any nature. Unless
otherwise agreed to by Lender in writing, Eligible Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an officer, an
employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary of, or
affiliated with or related to Borrower or its shareholders, officers, or
directors.
(c) Accounts with respect to which goods are placed on consignment, guaranteed
sale, or other terms by reason of which the payment by the Account Debtor may
be conditional.
(d) Accounts with respect to which the Account Debtor is not a resident of the
United States, except to the extent such Accounts are supported by insurance,
bonds or other assurances satisfactory to Lender.
(e) Accounts with respect to which Borrower is or may become liable to the
Account Debtor for goods sold or services rendered by the Account Debtor to
Borrower.
(f) Accounts which are subject to current dispute, counterclaim, or setoff.
(g) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account Debtor.
(h) Accounts with respect to which Lender, in its reasonable discretion, deems
the creditworthiness or financial condition of the Account Debtor to be
unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed against it a
petition in bankruptcy or an application for relief under any provision of any
state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has
had appointed a trustee, custodian, or receiver for the assets of such Account
Debtor; or who has made an assignment for the benefit of creditors or has
become insolvent or fails generally to pay its debts (including its payrolls)
as such debts become due.
(j) Accounts with respect to which the Account Debtor is the United States
government or any department or agency of the United States.
(k) Accounts which have not been paid in full within 90 days from the invoice
date. The entire balance of any Account of any single Account debtor will be
ineligible whenever the portion of the Account which has not been paid within
90 days from the invoice date is in excess of 25.000% of the total amount
outstanding on the Account.
(l) That portion of the Accounts of any single Account Debtor, which exceeds
25.000% of all of Borrower's Accounts.
Eligible Inventory. The words "Eligible Inventory" mean, at any time,
all of Borrower's Inventory (valued at the lower of
cost or market) as defined below except:
(a) Inventory which is not owned by Borrower free and clear of all security
interests, liens, encumbrances, and claims of third parties.
(b) Inventory which Lender, in its reasonable discretion, deems to be obsolete,
unsalable, damaged, defective, or unfit for further processing.
ERISA The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth
below in the section titled "EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date of termination of
Lender's commitment to lend under this Agreement. The Expiration Date shall be
January 31, 1999.
Grantor. The word "Grantor" means and includes without limitation each and all
of the persons or entities granting a Security Interest in any Collateral for
the Indebtedness, including without limitation all Borrowers granting such a
Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and
accommodation parties in connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without limitation all
Loans, together with all other obligations, debts and liabilities of Borrower to
Lender, or any one or more of them, as well as all claims by Lender against
Borrower, or any one or more of them; whether now or hereafter existing,
voluntary or involuntary, due or not due, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly with
others; whether Borrower may be obligated as a guarantor, surety, or otherwise;
whether recovery upon such Indebtedness may be or hereafter may become barred by
any statute of limitations; and whether such Indebtedness may be or hereafter
may become otherwise unenforceable.
Inventory. The word "Inventory" means all of Borrower's raw materials, work in
process, finished goods, merchandise, parts and supplies, of every kind and
description, and goods held for sale or lease or furnished under contracts of
service in which Borrower now has or hereafter acquires any right, whether held
by Borrower or others, and all documents of title, warehouse receipts, bills of
lading, and all other documents of every type covering all or any part of the
foregoing. Inventory includes inventory temporarily out of Borrower's custody or
possession and all returns on Accounts.
Lender. The word "Lender" means FIRST NATIONAL BANK, its successors and
assigns.
Line of Credit. The words "Line of Credit" mean the credit facility described in
the Section titled "LINE OF CREDIT" below.
Loan. The word "Loan" or "Loans" means and includes without limitation any and
all commercial loans and financial accommodations from Lender to Borrower,
whether now or hereafter existing, and however evidenced, including without
limitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note or
notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes,
assessments, or similar charges either not yet due or being contested in good
faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other
like liens arising in the ordinary course of business and securing obligations
which are not yet delinquent; (d) purchase money liens or purchase money
security interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the date of
this Agreement or permitted to be incurred under the paragraph of this Agreement
titled "Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the Lender in
writing; and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the
net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or
other agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever, whether created by law,
contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act
of 1986 as now or hereafter amended.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to make any Advance to
or for the account of Borrower under this Agreement is subject to the following
conditions precedent, with all documents, instruments, opinions, reports, and
other items required under this Agreement to be in form and substance
satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all Related
Documents have been duly authorized, executed, and delivered by Borrower to
Lender.
(b) Lender shall have received such opinions of counsel and supplemental
opinions not previously received by Lender and such other documents or
instruments as Lender may reasonably request.
(c) The security interests in the Collateral shall have been duly authorized,
created, and perfected with first lien priority and shall be in full force and
effect.
(d) All guaranties required by Lender for the Line of Credit shall have been
executed by each Guarantor, delivered to Lender, and be in full force and
effect.
(e) Lender, at its option and for its sole benefit, shall have conducted an
audit of Borrower's Accounts, Inventory, books, records, and operations, and
Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses specified
in this Agreement and the Related Documents as are then due and payable.
(g) There shall not exist at the time of any Advance a condition, which would
constitute an Event of Default under this Agreement, and Borrower shall have
delivered to Lender the compliance certificate called for in the paragraph
below titled "Compliance Certificate."
Making Loan Advances. Advances under the Line of Credit may be requested either
orally or in writing by authorized persons. Lender may, but need not, require
that all oral requests be confirmed in writing. Each Advance shall be
conclusively deemed to have been made at the request of and for the benefit of
Borrower (a) when credited to any deposit account of Borrower maintained with
Lender or (b) when advanced in accordance with the instructions of an authorized
person. Lender, at its option, may set a cutoff time, after which all requests
for Advances will be treated as having been requested on the next succeeding
Business Day.
Mandatory Loan Repayments. If at any time the aggregate principal amount of the
outstanding Advances shall exceed the applicable Borrowing Base, Borrower,
immediately upon written notice from Lender, shall pay to Lender an amount equal
to the difference between the outstanding principal balance of the Advances and
the Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full
the aggregate unpaid principal amount of all Advances then outstanding and all
accrued unpaid interest, together with all other applicable fees, costs and
charges, if any, not yet paid.
Loan Account. Lender shall maintain on its books a record of account in which
Lender shall make entries for each Advance and such other debits and credits as
shall be appropriate in connection with the credit facility. Lender shall
provide Borrower with monthly statements of Borrower's account, which statements
shall be considered to be correct and conclusively binding on Borrower unless
Borrower notifies Lender to the contrary within thirty (30) days after
Borrower's receipt of any such statement, which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower (and others,
if required) shall grant to Lender Security Interests in such property and
assets as Lender may require (the "Collateral"), including without limitation
Borrower's present and future Accounts, general intangibles, and Inventory.
Lender's Security Interests in the Collateral shall be continuing liens and
shall include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:
Perfection of Security Interests. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to perfect
and continue Lender's Security Interests in the Collateral. Upon request of
Lender, Borrower will deliver to Lender any and all of the documents evidencing
or constituting the Collateral, and Borrower will note Lender's interest upon
any and all chattel paper if not delivered to Lender for possession by Lender.
Contemporaneous with the execution of this Agreement, Borrower will execute one
or more UCC financing statements and any similar statements as may be required
by applicable law, and will file such financing statements and all such similar
statements in the appropriate location or locations. Borrower hereby appoints
Lender as its irrevocable attorney-in-fact for the purpose of executing any
documents necessary to perfect or to continue any Security Interest. Lender may
at any time, and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing statement for use
as a financing statement. Borrower will reimburse Lender for all expenses for
the perfection, termination, and the continuation of the perfection of Lender's
security interest in the Collateral. Borrower promptly will notify Lender of any
change in Borrower's name including any change to the assumed business names of
Borrower. Borrower also promptly will notify Lender of any change in Borrower's
Social Security Number or Employer Identification Number. Borrower further
agrees to notify Lender in writing prior to any change in address or location of
Borrower's principal governance office or should Borrower merge or consolidate
with any other entity.
Collateral Records. Borrower does now, and at all times hereafter shall, keep
correct and accurate records of the Collateral, all of which records shall be
available to Lender or Lender's representative upon demand for inspection and
copying at any reasonable time. With respect to the Accounts, Borrower agrees to
keep and maintain such records as Lender may require, including without
limitation information concerning Eligible Accounts and Account balances and
agings. With respect to the Inventory, Borrower agrees to keep and maintain such
records as Lender may require, including without limitation information
concerning Eligible Inventory and records itemizing and describing the kind,
type, quality, and quantity of Inventory, Borrower's Inventory costs and selling
prices, and the daily withdrawals and additions to Inventory.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of Accounts
and Inventory and Eligible Accounts and Eligible Inventory, in form and
substance satisfactory to the Lender. Thereafter Borrower shall execute and
deliver to Lender such supplemental schedules of Eligible Accounts and Eligible
Inventory and such other matters and information relating to the Accounts and
Inventory as Lender may request. Supplemental schedules shall be delivered
according to the following schedule: Borrower to provide Lender with an Aging of
all Accounts Receivable on a monthly basis within twenty (20) days of each month
end. In addition, Borrower to provide Lender with a listing of all Accounts
Receivable, including name, address and telephone number for each account within
thirty (30) days of year end. Borrower to provide Lender with an Aging of all
Accounts Payable, Inventory Listing, Borrowing Base Certificate and Covenant
Compliance Letter within twenty (20) days of each month end.
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) In Borrower's good
faith judgement, each Account is represented by Borrower, to be an Eligible
Account for purposes of this Agreement conforms to the requirements of the
definition of an Eligible Account; (b) All Account information listed on
schedules delivered to Lender will be true and correct, subject to immaterial
variance; and (c) Lender, its assigns, or agents shall have the right at any
time and at Borrower's expense to inspect, examine, and audit Borrower's records
and to confirm with Account Debtors the accuracy of such Accounts.
Representations and Warranties Concerning Inventory. With respect to the
Inventory, Borrower represents and warrants to Lender: (a) In Borrower's good
faith judgement, all Inventory is represented by Borrower, to be Eligible
Inventory for purposes of this Agreement conforms to the requirements of the
definition of Eligible Inventory; (b) All Inventory values listed on schedules
delivered to Lender will be true and correct, subject to immaterial variance;
(c) The value of the Inventory will be determined on a consistent accounting
basis; (d) Except as agreed to the contrary by Lender in writing, all Eligible
Inventory is now and at all times hereafter will be in Borrower's physical
possession and shall not be held by others on consignment, sale on approval, or
sale or return; (e) Except as reflected in the Inventory schedules delivered to
Lender, all Eligible Inventory is now and at all times hereafter will be of good
and merchantable quality, free from defects; (f) Eligible Inventory is not now
and will not at any time hereafter be stored with a bailee, warehouseman, or
similar party without Lender's prior written consent, and, in such event,
Borrower will concurrently at the time of bailment cause any such bailee,
warehouseman, or similar party to issue and deliver to Lender, in form
acceptable to Lender, warehouse receipts in Lender's name evidencing the storage
of Inventory; and (g) Lender, its assigns, or agents shall have the right at any
time and at Borrower's expense to inspect and examine the Inventory and to check
and test the same as to quality, quantity, value, and condition.
Remittance Account. Following an Event of Default by Borrower, Borrower agrees
that Lender may require Borrower to institute procedures whereby the payments
and other proceeds of the Accounts shall be paid by the Account Debtors under a
remittance account or lock box arrangement with Lender, or Lender's agent, or
with one or more financial institutions designated by Lender. Borrower further
agrees that, if no Event of Default exists under this Agreement, any and all of
such funds received under such a remittance account or lock box arrangement
shall, at Lender's sole election and discretion, either be (a) paid or turned
over to Borrower; (b) deposited into one or more accounts for the benefit of
Borrower (which deposit accounts shall be subject to a security assignment in
favor of Lender); (c) deposited into one or more accounts for the joint benefit
of Borrower and Lender (which deposit accounts shall likewise be subject to a
security assignment in favor of Lender); (d) paid or turned over to Lender to be
applied to the Indebtedness in such order and priority as Lender may determine
within its sole discretion; or (e) any combination of the foregoing as Lender
shall determine from time to time. Borrower further agrees that, should one or
more Events of Default exist, any and all funds received under such a remittance
account or lock box arrangement shall be paid or turned over to Lender to be
applied to the Indebtedness, again in such order and priority as Lender may
determine within its sole discretion.
ADDITIONAL CREDIT FACILITIES. In addition to the Line of Credit facility,
the following credit accommodations are either in
place or will be made available to Borrower:
Term Loan. Subject to the terms and conditions of this Agreement, a term loan
evidenced by a Promissory Note executed by Borrower in favor of Lender dated
December 29, 1998, in the amount of $4,250,000.00 .
Other Facility. Subject to the terms and conditions of this Agreement, the
following described credit facility is either in place or will be made available
to Borrower: Promissory Note dated December 29, 1998, in the amount of
$750,000.00, executed by Borrower in favor of Lender, containing a Revolving
Line of Credit sublimit for the issuance of Letters of Credit not to exceed
$400,000.00.
MULTIPLE BORROWERS. This Agreement has been executed by multiple obligors who
are referred to herein individually, collectively and interchangeably as
"Borrower." Unless specifically stated to the contrary, the word "Borrower" as
used in this Agreement, including without limitation all representations,
warranties and covenants, shall include all Borrowers. Borrower understands and
agrees that, with or without notice to Borrower, Lender may with respect to any
other Borrower (a) make one or more additional secured or unsecured loans or
otherwise extend additional credit; (b) alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms any indebtedness, including increases and decreases of the rate of
interest on the indebtedness; (c) exchange, enforce, waive, subordinate, fail or
decide not to perfect, and release any security, with or without the
substitution of new collateral; (d) release, substitute, agree not to sue, or
deal with any one or more of Borrower's sureties, endorsers, or other guarantors
on any terms or in any manner Lender may choose; (e) determine how, when and
what application of payments and credits shall be made on any indebtedness; (f)
apply such security and direct the order or manner of sale thereof, including
without limitation, any nonjudicial sale permitted by the terms of the
controlling security agreement or deed of trust, as Lender in its discretion may
determine; (g) sell, transfer, assign, or grant participations in all or any
part of the indebtedness; (h) exercise or refrain from exercising any rights
against Borrower or others, or otherwise act or refrain from acting; (i) settle
or compromise any indebtedness; and (j) subordinate the payment of all or any
part of any indebtedness of Borrower to Lender to the payment of any liabilities
which may be due Lender or others.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California and is
validly existing and in good standing in all states in which Borrower is doing
business. Borrower has the full power and authority to own its properties and to
transact the businesses in which it is presently engaged or presently proposes
to engage. Borrower also is duly qualified as a foreign corporation and is in
good standing in all states in which the failure to so qualify would have a
material adverse effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement and
all Related Documents by Borrower, to the extent to be executed, delivered or
performed by Borrower, have been duly authorized by all necessary action by
Borrower; do not require the consent or approval of any other person, regulatory
authority or governmental body; and do not conflict with, result in a violation
of, or constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other instrument
binding upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to Lender
truly and completely disclosed Borrower's financial condition as of the date of
the statement, and there has been no material adverse change in Borrower's
financial condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent obligations
except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.
Properties. Except for Permitted Liens and the Letter of Credit issued by Lender
in the amount of $82,550.00, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal name,
and Borrower has not used, or filed a financing statement under, any other name
for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5
through 7.7 of Division 20 of the California Health and Safety Code, Section
25100, et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that: (a)
During the period of Borrower's ownership of the properties, there has been no
use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on, under,
about or from any of the properties. (b) Borrower has no knowledge of, or reason
to believe that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the properties by any prior owners or
occupants of any of the properties, or (ii) any actual or threatened litigation
or claims of any kind by any person relating to such matters. (c) Neither
Borrower nor any tenant, contractor, agent or other authorized user of any of
the properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance with all
applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances described
above. Borrower authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any inspections
or tests made by Lender shall be at Borrower's expense and for Lender's purposes
only and shall not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable for cleanup or
other costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release of a
hazardous waste or substance on the properties. The provisions of this section
of the Agreement, including the obligation to indemnify, shall survive the
payment of the Indebtedness and the termination or expiration of this Agreement
and shall not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against Borrower
is pending or to the best of Borrower's knowledge, threatened, and to the best
of Borrower's knowledge, no other event has occurred which may materially
adversely affect Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been disclosed to and
acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan and
Note, that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the Related
Documents are binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance with
their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely fo
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may have
any liability complies in all material respects with all applicable requirements
of law and regulations, and (i) no Reportable Event nor Prohibited Transaction
(as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower
has not withdrawn from any such plan or initiated steps to do so, (iii) no steps
have been taken to terminate any such plan, and (iv) there are no unfunded
liabilities other than those previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 10675 SORRENTO VALLEY ROAD, #200, SAN DIEGO, CA 92121.
Unless Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the Collateral.
Year 2000. Borrower, to it's best knowledge, warrants and represents that all
software utilized in the conduct of Borrower's business will have appropriate
capabilities and compatiblity for operation to handle calendar dates falling on
or after January 1, 2000, and all information pertaining to such calendar dates,
in the same manner and with the same functionality as the software does
respecting calendar dates falling on or before December 31, 1999. Further,
Borrower warrants and represents that the data-related user interface functions,
data-fields, and data-related program instructions and functions of the software
include the indication of the century.
Information. All information heretofore or contemporaneously herewith furnished
by Borrower to Lender for the purposes of or in connection with this Agreement
or any transaction contemplated hereby is, and all information hereafter
furnished by or on behalf of Borrower to Lender will be, true and accurate in
every material respect on the date as of which such information is dated or
certified; and none of such information is or will be incomplete by omitting to
state any material fact necessary to make such information not misleading.
Survival of Representations and Warranties. Borrower understands and agrees that
Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower. Borrower
further agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect until such time
as Borrower's Indebtedness shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Borrower shall Promptly inform Lender in writing as soon as Borrower
becomes aware of (a) all material adverse changes in Borrower's financial
condition, and (b) all existing and all threatened litigation, claims,
investigations, administrative proceedings or similar actions affecting Borrower
or any Guarantor which could materially affect the financial condition of
Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with generally
accepted accounting principles, applied on a consistent basis, and permit Lender
to examine and audit Borrower's books and records at all reasonable times.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables, inventory
schedules, budgets, forecasts, tax returns, and other reports with respect to
Borrower's financial condition and business operations as Lender may request
from time to time.
Insurance. Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may reasonably require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request of
Lender, will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that coverages
will not be cancelled or diminished without at least ten (10) days' prior
written notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired in
any way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or is offered
a security interest for the Loans, Borrower will provide Lender with such loss
payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties
insured; (e) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (f) the
expiration date of the policy. In addition, upon request of Lender (however not
more often than annually, and commencing no earlier than six (6) months from the
date hereof), Borrower will have an independent appraiser satisfactory to Lender
determine, as applicable, the actual cash value or replacement cost of any
Collateral. The cost of such appraisal shall be paid by Borrower.
Life Insurance. As soon as practical, obtain and maintain life insurance in form
and with insurance companies reasonably acceptable to Lender on the following
individual in the amount indicated below and, at Lender's option, cause such
insurance coverage to be pledged, made payable to, or assigned to Lender on
Lender's forms. Lender, at its discretion, may apply the proceeds of any
insurance policy to the unpaid balances of any Indebtedness:
Name of Insured Amount
Scott T. Boden $10,000,000.00
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantors named
below, on Lender's forms, and in the amounts and under the conditions spelled
out in those guaranties.
Guarantors Amounts
Boatracs, Europe B.V. Unlimited
Oceantracs, Inc. Unlimited
Subordination. Prior to disbursement of any Loan proceeds, deliver to Lender
subordination agreements on Lender's forms, executed by Borrower's creditors
named below, subordinating all of Borrower's indebtedness to such creditors, or
such lesser amounts as may be agreed to by Lender in writing, and any security
interests in collateral securing that indebtedness to the Loans and security
interests of Lender.
Names of Creditors Amounts
Scott T. Boden $976,000.00
Irene Shinsato $976,000.00
Scott T. Boden $4,628,100.00
Irene Shinsato $3,187,100.00
Fredericks, Shields & Co., LLC $184,800.00
(now known as Flemming, Lessard
& Shields, LLC
Other Agreements. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary
by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (a) the legality of the same shall be
contested in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official to deliver to
Lender at any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the Related
Documents.
Operations. Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including without limitation, compliance with the
Americans With Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee benefit
plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any records
it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender at
least annually and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other officer or
person acceptable to Lender, certifying that the representations and warranties
set forth in this Agreement are true and correct as of the date of the
certificate and further certifying that, as of the date of the certificate, no
Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects with
all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all Security
Interests on terms set forth on this Agreement or Related Documents.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower and Guarantors in the aggregate, covenant and agree
with Lender that while this Agreement is in effect, Borrower and Guarantors
shall not, without the prior written consent of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal course
of business and indebtedness to Lender contemplated by this Agreement, create,
incur or assume additional indebtedness for borrowed money, including capital
leases, in excess of the aggregate amount of U.S. $200,000.00, (b) except as
allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease,
grant a security interest in, or encumber any of Borrower's or Guarantor's
assets, or (c) sell with recourse any of Borrower's or Guarantor's accounts,
except to Lender.
Continuity of Operations. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided, however
that notwithstanding the foregoing, but only so long as no Event of Default has
occurred and is continuing or would result from the payment of dividends, if
Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue
Code of 1986, as amended), Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to enable the shareholders
to pay income taxes and make estimated income tax payments to satisfy their
liabilities under federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their ownership of shares
of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
assets, other than in the ordinary course of business (b) purchase, create or
acquire any interest in any other enterprise or entity, or (c) incur any
obligation as surety or guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor files a petition in
bankruptcy or similar proceedings (c) Borrower or any Guarantor is the subject
of an involuntary bankruptcy or similar proceeding, has a receiver appointed
over all or substantially all of its assets, and such proceeding is not
dismissed within sixty (60) days, or is adjudged a bankrupt; (d) there occurs a
material adverse change in Borrower's financial condition, in the financial
condition of any Guarantor, or in the value of any Collateral securing any Loan;
(e) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such Guarantor's guaranty of the Loan or any other loan with Lender.
PRIMARY BANKING RELATIONSHIP. Borrower to maintain its Primary Banking
Relationship with Lender, defined as the preponderance of Borrower's deposit
accounts, balances and loan activity. The failure of Borrower to establish or
maintain its primary banking relationship with Lender may be cause for Lender,
at Lender's sole discretion to modify its terms and conditions or lending to
Borrower, including but not limited to a five (5%) percent increase in the
interest rate charged on all of Borrower's indebtedness due to Lender or may
cause Lender to declare all indebtedness owed by Borrower to Lender immediately
due and payable in full.
INSPECTION. First National Bank or a third party designated by First National
Bank may conduct examinations of Borrower's books and records, as reasonably
deemed necessary. All costs, including all third party costs, associated with
the examinations shall be charged directly to Borrower.
REVOLVING LINE OF CREDIT ANNUAL REVIEW. Notwithstanding the maturity, the
Revolving Line of Credit will be reviewed by Lender on an annual basis upon each
anniversary date from the date hereof to insure Borrower's compliance with the
covenants and conditions as set forth herein, which continued compliance will be
a condition precedent to further advances thereunder.
MANDATORY PREPAYMENTS. Borrower shall make the following mandatory prepayments:
- -100% of the net after-tax cash proceeds of the sale or disposition of any
property, or asset of Borrower or any of its subsidiaries, other than those
disposed of in the ordinary course of business.
- -100% of the net cash proceeds received from the issuance of debt instruments of
the Borrower or its subsidiaries.
- -100% of the net cash proceeds received from the issuance of equity securities
of the Borrower or any of its' subsidiaries; provided however any such proceeds
used to reduce the unpaid principal balances of the promissory notes previously
executed by Borrower in favor of Scott T. Boden and Irene Shinsato shall not be
subject to such mandatory prepayment.
- -100% of Excess Cash Flow, less $1,000,000.00 calculated annually.
Excess Cash Flow is defined as: EBITDA plus the sum of (i) cash extraordinary or
non-recurring gains, plus/minus changes in working capital; less the sum of (ii)
interest expense, debt repayments, taxes, capital expenditures (in accordance
with the Capital Expenditure limitation set forth below, cash extraordinary
losses, and financing fees/Lender charges.
Mandatory prepayments would be applied to the term loan balances first, in the
inverse-order of maturity.
Notwithstanding the foregoing Mandatory Prepayments, Lender may approve an
alternative use for the funds (i.e.: an acquisition of another company). Any
alternative use of funds will require prior Lender approval, and such consent
may be withheld at Lender's sole discretion. Approval will also be contingent
upon compliance with all terms, conditions, and covenants of the loan documents
after giving effect to the alternative use.
COLLATERAL. Lender will hold a first position lien against all assets of
Borrower, including but not limited to patents, contracts, accounts receivable,
inventory, intellectual property, equipment, etc., now owned or hereafter
acquired, (excluding purchase money liens or liens of equipment lessors). Lender
will also require the pledge of the capital stock of Boatracs' Subsidiaries
(including Enerdyne) as collateral.
GUARANTORS. Lender will require the execution of a Commercial Guaranty from
all current and future subsidiaries of Borrower.
ADDITIONAL FINANCIAL REPORTING REQUIREMENTS. Borrower shall furnish Lender with,
as soon as available, but in no event later than ninety (90) days after the end
of each fiscal year, Borrower's balance sheet and income statement for the year
ended, audited (unqualified opinion) by a certified public accountant reasonably
satisfactory to Lender, and, as soon as available, but in no event later than
forty five (45) days after the end of each fiscal quarter, Borrower's balance
sheet and profit and loss statement for the period ended, prepared and certified
as correct to the best knowledge and belief by Borrower's chief financial
officer or other officer or person acceptable to Lender, plus a covenant
compliance certificate by the Borrowers' Chief Financial Officer. All financial
reports required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
Borrower shall deliver to Lender annual projections/budgets within forty five
(45) days of each year end.
Borrower shall deliver to Lender Certified Public Accountant management letter
immediately upon Borrower's receipt thereof.
Borrower shall deliver to Lender other information as deemed necessary by
Lender within thirty (30) days from date of Lender's
request.
CONDITIONS PRECEDENT. The following are conditions precedent to Lender's
obligation to make any advances under this Agreement
or Related Documents.
Initializing audit of accounts receivable, accounts payable, inventory and
operating controls to be completed by Lender's auditor and to be reviewed by
Lender to its' sole satisfaction prior to initial funding. Additional audits to
be conducted at Borrower's expense semi-annually by Lender's auditor.
No material adverse change in the business, operations or financial condition of
Borrower or it's subsidiaries.
Borrower shall cause Lender to be named as loss payee on all insurance policies
with coverages and insurers to be acceptable to Lender.
Borrower shall assign to Lender a $10,000,000.00 keyman life insurance policy
covering the life of Scott Boden (or lesser amount as available and mutually
agreed upon).
Lender shall review and approve purchase documents and terms of seller notes.
Lender shall review and approve consolidated financials since March, 1998.
Lender shall review and approve proforma consolidating financials for a five
year period, including balance sheets and income statements.
Scott T. Boden and Irene Shinsato shall subordinate approximately $2,000,000.00
in existing notes (less amortization to date) with terms and conditions of
repayment acceptable to Lender in accordance with that certain Subordination
Agreement of even date herewith.
Scott T. Boden and Irene Shinsato shall subordinate approximately $3,750,000.00
in additional notes with terms and conditions acceptable to Lender.
Borrower's or Guarantor's shall complete all documents as deemed necessary by
Lender for transactions of this nature.
ADDITIONAL LOAN COVENANTS AND CONDITIONS.
1. Borrower will not directly or indirectly, make or commit to make any capital
expenditures, as measured on a consolidated basis annually, which would exceed
in the aggregate, $300,000.00 in 1998 or $500,000.00 in any year thereafter,
without the express written consent of lender, or incur liability for rentals of
property (including both real and personal property) in an amount which,
together with capital expenditures, shall in any fiscal year exceed such sum.
2. Notwithstanding the foregoing, if the Borrower is not in compliance with all
the terms, conditions, covenants and restrictions of the loan documents,
Borrower shall not make capital expenditures beyond basic maintenance needs,
without Lender's prior consent. Lender's consent may be withheld at Lender's
sole discretion.
3. Borrower will not declare or pay any cash dividends or other distributions
with respect to its' capital stock, or make any cash payment to its' officers,
directors, or affiliates except (i) Salaries and bonuses payables in the
ordinary course of business, (ii) directors' fees not exceeding $10,000.00 per
year, plus reasonable out-of-pocket expenses related to the attendance of Board
Meetings.
4. So long as Borrower is in full and complete compliance with each term,
provision, condition and covenant of the Loan Agreement and Related Documents,
Borrower may make scheduled cash payments against subordinated debt.
Notwithstanding the foregoing, payments of subordinated debt using Borrower's
stock is permitted, so long as such payment in stock would not cause borrower to
be out of compliance with any terms, conditions, or covenants of the Bank loan
documents.
5. Neither Borrower's nor Guarantor's shall enter into any merger,
consolidation, or acquisition without the prior written consent of Lender which
consent shall not be unreasonably withheld so long as an Event of Default has
not occurred under this Agreement or the Related Documents and Borrower or the
surviving entity following such reorganization continues to fulfill all
covenants and conditions contained herein and, if deemed necessary by Lender, in
its sole discretion, expressly assumes all obligations of Borrower hereunder and
under the Note and Related Documents.
6. Total Debt to EBITDA, defined as (i) Total Debt (as defined below) at the end
of the fiscal quarter just ended, divided by (ii) EBITDA (as defined below) for
the fiscal quarter just ended, added to the prior three quarterly EBITDA
amounts, shall at all times be not greater than the amounts below for the period
shown. The trailing four-quarter calculation of EBITDA shall include Enerdyne as
if it had already been wholly owned subsidiary for the four quarters prior to
the Closing Date. (currently 3.28 at 09/30/98)
7. At Closing Date - 3.65; 12/31/98 - 3.65; 03/31/99 - 3.25;
06/30/99 - 3.00; 09/30/99 - 2.75; 12/31/99 - 2.50;
03/31/00 - 2.25 and beyond.
8. Total debt shall be defined as including, without limitation, the sum of: (i)
all indebtedness for borrowed money, (ii) all capital leases, (iii) all
guaranties of any third party debt, and (iv) all obligations to reimburse a Bank
or other person in respect to amounts paid or to be paid pursuant to a letter of
credit or similar instrument.
9. EBITDA shall be defined according to GAAP and shall not include other
payments from notes receivable or stock options.
10. EBITDA to Fixed Charges is calculated as the ratio of EBITDA on a trailing
four quarterly basis, to total Fixed Charges. This ratio shall be decided upon
after further discussions with Borrower.
11. Fixed Charges shall be generally defined as the sum of, (i) current portion
of long term debt, (ii) permitted lease payments, (iii) interest expense
including imputed interest on capital leases, and (iv) maintenance level capital
expenditures (pursuant to the limitation previously described), all of which
would be calculated on a pro-rata basis for the number of quarters used in the
measurement period.
12. Borrower shall maintain a minimum Net Worth as according to GAAP, shall at
no time be less than the sum of (i) 95% of the consolidated net worth as of the
Closing Date, plus (ii) 75% of the consolidated net income of the Borrower from
the Closing Date through the last fiscal quarter just ended (not to include any
quarter in which the net income is negative), plus (iii) 100% of net proceeds of
capital stock issued by Borrower, plus (iv) debt subordinated to Lender.
13. Borrower to maintain consolidated net profit after tax annually at all times
as measured in accordance with GAAP. In addition, Borrower may have not more
than one quarterly loss per fiscal year.
14. No sale of Borrower assets, Subsidiary assets, or assets of a Division of
the borrower, would be allowed, without the express written consent of Lender,
except for the assets sold in the ordinary course of business.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Loans within five (5) days of its original
due date.
Other Defaults. Failure of Borrower or any Grantor to comply with or to perform
when due any other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents, or failure of Borrower to comply
with or to perform any other term, obligation, covenant or condition contained
in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default under
any loan, extension of credit, security agreement, purchase or sales agreement,
or any other agreement, for money borrowed in excess of $50,000.00 in favor of
any other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or perform
their respective obligations under this Agreement or any of the Related
Documents.
False Statements. Any warranty, representation or statement made or furnished to
Lender by or on behalf of Borrower or any Grantor under this Agreement or the
Related Documents is false or misleading in any material respect at the time
made or furnished, or becomes false or misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest on any material item
of Collateral) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a going
business, the appointment of a receiver for any part of Borrower's property, any
assignment for the benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws by or
against Borrower, unless in the event of an involuntary bankruptcy proceeding,
attachment, garnishment or appointment of a receiver, such proceedings shall be
dismissed or vacated within sixty (60) days.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower, any creditor of any Grantor against
any collateral securing the Indebtedness, or by any governmental agency. This
includes a garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not apply if there is
a good faith dispute by Borrower or Grantor, as the case may be, as to the
validity or reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding, and if Borrower or Grantor gives Lender written notice of
the creditor or forfeiture proceeding and furnishes reserves or a surety bond
for the creditor or forfeiture proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness. Lender, at its option, may, but shall not be
required to, permit the Guarantor's estate to assume unconditionally the
obligations arising under the guaranty in a manner satisfactory to Lender, and,
in doing so, cure the Event of Default.
Events Affecting Co-Borrowers. Any of the preceding events occurs with respect
to any co-borrower of any of the Indebtedness or any co-borrower dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any of
the Indebtedness. Lender, at its option, may, but shall not be required to,
permit the co-borrower's estate to assume unconditionally the obligations on the
Indebtedness in a manner satisfactory to Lender, and, in doing so, cure the
Event of Default.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of
payment or performance of the Indebtedness is impaired.
Right to Cure. If any default, other than a Default on Indebtedness, is curable
and if Borrower or Grantor, as the case may be, has not been given a notice of a
similar default within the preceding twelve (12) months, it may be cured (and no
Event of Default will have occurred) if Borrower or Grantor, as the case may be,
after receiving written notice from Lender demanding cure of such default: (a)
cures the default within ten (10) days; or (b) if the cure requires more than
ten (10) days, immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter continues and
completes all reasonable and necessary steps sufficient to produce compliance as
soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth in
this Agreement. No alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or parties sought to
be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of San Diego
County, the State of California. Lender and Borrower hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Borrower against the other. (Initial Here ______________ ) This
Agreement shall be governed by and construed in accordance with the laws of the
State of California.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under this
Agreement shall be joint and several, and all references to Borrower shall mean
each and every Borrower. This means that each of the persons signing below is
responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's sale or
transfer, whether now or later, of one or more participation interests in the
Loans to one or more purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation interests, as
well as all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and will have
all the rights granted under the participation agreement or agreements governing
the sale of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or against
any purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any interest in
the Loans. Borrower further agrees that the purchaser of any such participation
interests may enforce its interests irrespective of any personal claims or
defenses that Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's expenses,
including without limitation attorneys' fees, incurred in connection with the
preparation, execution, enforcement, modification and collection of this
Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses, whether or not there is a lawsuit, including attorneys' fees for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other sums provided
by law.
Notices. All notices required to be given under this Agreement shall be given in
writing, may be sent by telefacsimile (unless otherwise required by law), and
shall be effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited in the United States mail, first
class, postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties, specifying
that the purpose of the notice is to change the party's address. To the extent
permitted by applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice purposes, Borrower
will keep Lender informed at all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successors and Assigns. All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the benefit
of Lender, its successors and assigns. Borrower shall not, however, have the
right to assign its rights under this Agreement or any interest therein, without
the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by Borrower
to Lender under this Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender or on Lender's
behalf.
Time Is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall constitute a
waiver of any of Lender's rights or of any obligations of Borrower or of any
Grantor as to any future transactions. Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent instances where
such consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
EACH BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN
AGREEMENT, AND EACH BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
DECEMBER 8, 1998.
BORROWER:
BOATRACS, INC.
By:__________________________________________________(SEAL)
Jon Gilbert, President/Chief Executive Officer/Director
By:__________________________________________________(SEAL)
Michael Silverman, Chairman of the Board/Director
ATTEST:
___________________________________(Corporate Seal)
Secretary or Assistant Secretary
ENERDYNE TECHNOLOGIES, INC., Co-Borrower
By:__________________________________________________(SEAL)
Jon Gilbert, President
By:__________________________________________________(SEAL)
Curt McLeland, Chief Financial Officer/Secretary
ATTEST:
__________________________________________________________ ( Corporate Seal )
Secretary or Assistant Secretary
LENDER:
FIRST NATIONAL BANK
By:__________________________________________________________
Authorized Officer
=================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.26a (c) 1998 CFI
ProServices, Inc. All rights reserved. [CA-C40 F3.26
1308361B.LN C4.OVL]
EXHIBIT 10.23
First National Bank
PROMISSORY NOTE
Borrower: BOATRACS, INC.; ET. AL.
10675 SORRENTO VALLEY ROAD, #200
SAN DIEGO, CA 92121
Lender: FIRST NATIONAL BANK
Corporate Banking
P.O. BOX 86626 ICS#61)
Son Diego, CA 92186-662S
Principal Amount: $4,250,000.00Initial Rate: 7.750% Date of Note:
December 29,1998
PROMISE TO PAY. BOATRACS, INC. and ENERDYNE TECHNOLOGIES, INC. (referred to
In this Note Individually and
collectively as "Borrower") jointly and severally promise to pay to FIRST
NATIONAL BANK ("Lender"), or order, In
lawful money of the United States of America, the principal amount of Four
Million Two Hundred Fifty Thousand &
00/100 Dollars ($4,250,000.00), together with Interest on tile unpaid
principal balance from December 29,1998, until
paid In full.
PAYMENT. Subject to any payment changes resulting from changes In the Index,
Borrower will pay this loan In 59 principal payments of $70,833.33 each and one
final principal and Interest payment of $71,291.00. Borrower's first principal
payment Is due January 29,1999, and all subsequent principal payments are due on
the same day of each month after that. In addition, Borrower will pay regular
monthly payments of It accrued unpaid Interest due as of each payment date.
Borrower's first Interest payment Is due January 29, 1999, and all subsequent
Interest payments are due on the same day of each month after that. Borrower's
final payment due December 29, 2003, will be for all principal and accrued
Interest not yet paid. The annual Interest rate for this Note Is computed on a
365/360 basis; that is by applying the ratio of the annual Interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance Is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender may
designate In writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid Interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The Interest rate on this Note Is subject to change from
time to time based on changes In an Index which Is the Prime Rate (the "Index").
This Is the rate Lender announces from time to time as Its Prime Rate, which
generally Is the rate Lender charges, or would charge, on 90-day unsecured loans
to the most creditworthy corporate customers. This rate may not be the lowest
rate available from Lender at any given time. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender may
make loans based on other rates as well. The Interest rate change will not occur
more often than each day. The Index currently Is 7.750%. The Interest rate to be
applied to the unpaid principal balance of this Note will be at a rate equal to
the Index, resulting in an Initial rate of 7.750%. NOTICE: Under no
circumstances will the Interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whither voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender Is entitled to a
minimum interest charge of $100.00. Other than Borrower's obligation to pay any
minimum Interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than It is due. Early payments will not, unless agreed
to by Lender In writing, relieve Borrower of Borrower's obligation to continue
to make payments under the payment schedule. Rather, they will reduce the
principal balance due and may result In Borrower making fewer payments.
LATE CHARGE. If a payment Is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $10.00,
whichever Is greater.
DEFAULT. Borrower will be In default If any of the following happens: (a)
Borrower falls to make any payment when due within five(5)days of the original
due date(b) Borrower breaks any promise Borrower has made to Lender, or Borrower
falls to comply with or to perform when due any other term, obligation,
covenant, or condition contained In this Note or any agreement related to this
Note, or In any other agreement or loan Borrower has with Lender. (c) Borrower
defaults under any loan. extension of credit, security agreement, purchase or
sales agreement, or any other agreement, for money borrowed in excess of
$50,000.00, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf Is false or misleading In any material respect either now or
at the time made or furnished. Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's properly, Borrower makes an assignment for
the benefit of creditors, or any proceeding Is commenced either by Borrower or
against Borrower under any bankruptcy or Insolvency laws continued in paragraph
entitled "additional Provision" (f)Any creditor tries to take any of Borrower's
properly on or In which Lender has a lien or security Interest. This Includes a
garnishment of any of Borrower's accounts with Lender. (g) Any guarantor dies or
any of the other events described In this default section occurs with respect to
any grantor of this Note. (h) A material adverse change occurs In Borrower's
financial condition, or Lender reasonably believes the prospect of payment or
performance of the Indebtedness Is Impaired. If any default, other than a
default in payment, is curable and if Borrower has not been given a notice of a
breach of the same provision of this Note within the preceding twelve(12)months,
it may be cured (and no event of default will have occurred) if Borrower, after
receiving written notice from Lender demanding cure of such default:(a)cures the
default within ten (10) days; or(b)If the cure requires more than ten (10) days,
immediately initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid Interest Immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, Including failure to pay upon
final maturity, Lender, at Its option, may also, if permitted under applicable
law, Increase the variable Interest rate on this Note to 5.000 percentage points
over the Index. Lender may hire or pay someone else to help collect this Note If
Borrower does not pay. Borrower also will pay Lender that amount. This Includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses whether or not there is a lawsuit, Including attorneys'
fees and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or Injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court costs, In
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender In the State of California. If there Is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of San Diego County, the State of California. Lender and Borrower hereby
waive the right to any jury trial In any action, proceeding, or counterclaim
brought by either Lender or Borrower against the other. (Initial Here) This Note
shall be governed by and construed In accordance with the laws of file Stale of
California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
make's a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays Is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security Interest In,
and hereby assigns, convoys, delivers, pledges, and transfers to Lender all
Borrower's right, title and Interest In and to, Borrowers accounts with Lender
(whether checking, savings, or some other account), Including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
In the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security Interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
ANNUAL FEE. Borrower will be assessed an annual fee of 0.25% on the then
outstanding balance on each anniversary date
during the term of this loan.
INTEREST RATE OPTION. The following interest rate option is available under this
note. London Interbank Offered Rates(LIBOR). A margin of 2.600 percentage points
over London Interbank Offered Rates(LIBOR). For purposes of this Note, London
Interbank Offered Rates(LIBOR)shall mean London Interbank Offered Rates(LIBOR),
as published in the Wall Street Journal Money Rate Section. The three month
average rate will be used.(the "Index").The Index is not necessarily the lowest
rate charged by Lender on its loans. If the Index becomes unavailable during the
term of this loan, Lender may designate a substitute index after notice to
Borrower. Lender will tell Borrower the current Index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates as
well. The interest rate change will not occur more often than each quarter, on
the first day of the month. Provided Borrower is not in default under this Note,
Borrower may designate in writing at least ten(10)days in advance which of the
above interest rates shall be applicable to the then outstanding principal
balance under this Note. In the event the London Interbank Offered
Rates(LIBOR)option is selected, this rate will remain in effect for
ninety(90)days, after at which time, borrower may redesignate the rate. In the
absence of any such designation, the interest rate shall default to the Prime
Rate as described in the paragraph entitled "Variable Interest Rate. In
addition, no prepayments will be permitted under this option except mandatory
prepayments as defined in the Exhibit entitled "Mandatory Prepayments" or
payment in full.
ADDITIONAL PROVISION. Unless in the event of an involuntary bankruptcy,
proceeding, attachment, garnishment or appointment of receiver, such proceedings
shall be dismissed or vacated within sixty(60)days.
MANDATORY PREPAYMENTS. An exhibit, titled "MANDATORY PREPAYMENTS," is attached
to this Note and by this reference is made a part of this Note just as if all
the provisions, terms and conditions of the Exhibit had been fully set forth In
this Note.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Each Borrower understands and
agrees that, with or without notice to Borrower, Lender may with respect to any
other Borrower(a)make one or more additional secured or unsecured loans or
otherwise extend additional credit;(b)alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms any Indebtedness, Including Increases and decreases of the rate of
Interest on the Indebtedness;(c)exchange, enforce, waive, subordinate, fail or
decide not to perfect, and release any security, with or without The
substitution of new collateral;(d)apply such security and direct the order or
manner of sale thereof, Including without limitation, any nonjudicial sale
permitted by the terms of the controlling security agreements, as Lender In Its
discretion may determine;(e) release, substitute, agree not to sue, or deal with
any one or more of Borrower's sureties, endorsers, or other guarantors on any
terms or In any manner Lender may choose; and(f)determine how, when and what
application of payments and credits shall be made on any other Indebtedness
owing by such other borrower. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change In the terms of this Note, and unless
otherwise expressly slated In writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or Impair, fail to realize upon or perfect Lender's security
Interest In the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or police to anyone other
than the party with whom the modification is made. The obligations under this
Note are joint and several.
PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF
THE NOTE.
BORROWER
BOATRACS, INC
By: Jon Gilbert, President/Chief Executive Officer/Director
By: Michael Silverman, Chairman 0f Board/Director
ENERDYNE TECHNOLOGIES,INC., Co-Borrower
By: Jon Gilbert, President
By: Curt McLeland, Chief Financial Officer/Secretary
ATTEST:
Secretary or Assistant Secretary I
(Corporate Seal)
MANDATORY PREPAYMENTS
Borrower: BOATRACS, INC.; ET. AL.
10675 SORRENTO VALLEY ROAD, 0200
SAN DIEGO, CA 92121
Lender: FIRST NATIONAL BANK
Corporate Banking
P.O. Box 85626 (CS#51)
San Diego, CA 92186-5626
This MANDATORY PREPAYMENTS Is attached to and by this reference Is made a part
of each Promissory Note or Credit Agreement, dated December 29, 1998, and
executed In connection with a loan or other financial accommodations between
FIRST NATIONAL BANK and BOATRACS, INC. and ENERDYNE TECHNOLOGIES, INC.. Borrower
shall make the following mandatory prepayments: -100% of the net after-tax cash
proceeds of the sale or disposition of any property, or asset of Borrower or any
of Its subsidiaries, other than those disposed of In the ordinary course of
business. - 100% of the net cash proceeds received from the Issuance of debt
Instruments of the Borrower or Its subsidiaries. -100% of the net cash proceeds
received from the Issuance of equity securities of the Borrower or any of Its'
subsidiaries; provided however, any such proceeds used to reduce the unpaid
principal balances of the promissory notes previously executed by Borrower In
favor of Scott T. Boden and Irene Shinsato shall not be subject to such
mandatory prepayment.
- -100% of Excess Cash Flow, less $1,000,000.00 calculated annually.
Excess Cash flow Is defined as Earnings before Interest, taxes, deductions &
amortizations "EBITDA" plus the sum of (1) cash extraordinary or non-recurring
gains, plus/minus changes In working capital, less the sum of (ii) Interest
expense, debt repayments, taxes, capital expenditures (in accordance with the
Capital Expenditure limitation as set forth In the Loan Agreement and Related
Documents), cash extraordinary losses, and financing fees/Lender charges.
Mandatory prepayments would be applied to the term loan balances first, In the
lnverse-order of maturity. Notwithstanding the foregoing Mandatory Prepayments,
Lender may approve an alternative use for the funds (i.e., an acquisition of
another company). Any alternative use of funds would require prior Lender
approval, and such consent may be withhold at Lender's sole discretion. Approval
would be contingent upon compliance with all forms, conditions, and covenants of
the loan documents after giving effect to the alternative use. THIS MANDATORY
PREPAYMENT IS EXECUTED ON DECEMBER 29,1998.
BOATRACS, INC
Jon Gilbert, President/Chief Executive Officer/Director
Michael Silverman, Chairman of the Board/Director
LENDER:
FIRST NATIONAL BANK
By: Authorized Officer
ENERDYNE TECHNOLOGIES, INC. Co-Borrower
Jon Gilbert, President
Curt McLeland, Chief Financial Officer/Secretary
EXHIBIT 10.24
First National Bank
PROMISSORY NOTE
Borrower: BOATRACS, INC.; ET. AL.
10675 SORRENTO VALLEY ROAD, #200
SAN DIEGO, CA 92121
Lender: FIRST NATIONAL BANK
Corporate Banking
P.O. Box 85625 (CS#51)
San Diego, CA 92186-5625
Principal Amount: $750,000.00 Initial Rate: 7.750%Date of Note: December 29,
1998
PROMISE TO PAY. BOATRACS, INC. and ENERDYNE TECHNOLOGIES, INC. (referred to In
this Note Individually and
collectively as "Borrower") jointly and severally promise to pay to FIRST
NATIONAL BANK ("Lender"), or order, In
lawful money of the United States of America, the principal amount of Seven
Hundred Fifty Thousand & 00/100 Dollars
($750,000.00) or so much as may be outstanding, together with Interest on the
unpaid outstanding principal balance of
each advance. Interest shall be calculated from the date of each advance
until repayment of each advance.
PAYMENT. Borrower will pay this loan In one payment of all outstanding principal
plus all accrued unpaid Interest on December 29, 2000. In addition, Borrower
will pay regular monthly payments of accrued unpaid Interest beginning January
29, 1999, and all subsequent Interest payments are due on the same day of each
month after that. The annual Interest rate for this Note Is computed on a
365/360 basis; that Is, by applying the ratio of the annual Interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance Is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender may
designate In writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The Interest rate on this Note Is subject to change from
time to time based on changes In an Index which Is the Prime Rate (the "Index").
This Is the rate Lender announces from time to time as Its Prime Rate, which
generally Is the rate Lender charges, or would charge, on 90-day unsecured loans
to the most creditworthy corporate customers. This rate may not be the lowest
rate available from Lender at any given time. Lender will tell Borrower the
current Index rate Upon Borrower's request. Borrower understands that Lender may
make loans based on other rates as well. The Interest rate change will not occur
more often than each day. The Index currently Is 7.750%. The Interest rate to be
applied to the unpaid principal balance of this Note will be at a rate equal to
the Index, resulting In an Initial rate of 7.750%. NOTICE: Under no
circumstances will the Interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender Is entitled to a
minimum Interest charge of $100.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments of accrued unpaid Interest. Rather, they will reduce the
principal balance due.
LATE CHARGE. If a payment Is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $10.00,
whichever Is greater.
DEFAULT. Borrower will be In default If any of the following happens: (a)
Borrower falls to make any payment when due within five(5) days of the original
due date(b)Borrower breaks any promise Borrower has made to Lender, or Borrower
fails to comply with or to perform when due any other term, obligation,
covenant, or condition contained In this Note or any agreement related to this
Note, or In any other agreement or loan Borrower has with Lender. (c) Borrower
defaults under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, for money borrowed in excess of
$50,000.00, In favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf Is false or misleading In any material respect either now or
at the time made or furnished. (e)Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding Is commenced either by Borrower or
against Borrower under any bankruptcy or Insolvency laws continued in paragraph
entitled "Additional Provision".(f)Any creditor tries to take any of Borrower's
property on or In which Lender has a lion or security Interest. This, Includes a
garnishment of any of Borrower's accounts with Lender. (g) Any guarantor dies or
any of the other events described In this default section occurs with respect to
any guarantor of this Note.(h)A material adverse change occurs In Borrower's
financial condition, or Lender reasonably believes the prospect of payment or
performance of the Indebtedness Is Impaired. If any default, other than a
default in payment, is curable and if Borrower has not been given a notice of a
breach of the same provision of this Note within the preceding twelve(12)months,
It may be cured (and no event of default will have occurred) If Borrower, after
receiving written notice from Lender demanding cure of such default:(a)cures the
default within ten(10)days; or(b)If the cure requires more than ten(10)days,
immediately initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, Including failure to pay upon
final maturity, Lender, at Its option, may also, If permitted under applicable
law, Increase the variable Interest rate on this Note to 5.000 percentage points
over the Index. Lender may hire or pay someone else to help collect this Note If
Borrower does not pay. Borrower also will pay Lender that amount. This includes,
subject to any limits Under applicable law, Lender's attorneys' fees and
Lender's legal expenses whether or not there Is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or Injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court costs, In
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of California. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of San Diego County, the State of California. Lender and Borrower hereby
waive the right to any jury trial In any action, proceeding, or counterclaim
brought by either Lender or Borrower against the other. (initial Here)This Note
shall be governed by and construed In accordance with the laws of the State of
California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays Is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security Interest In,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and Interest In and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), Including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
In the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security Interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or In writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed In writing. All communications, Instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The Following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address shown
above written notice of revocation of their authority: Jon Gilbert,
President/Chief Executive Officer/Director; and Michael Silverman, Chairman of
the Board/Director. Borrower agrees to be liable for all sums either:(a)
advanced in accordance with the instructions of an authorized person or(b)
credited to any of Borrower's accounts with Lender. The unpaid principal balance
owing on this Note at any time may be evidenced by endorsements on this Note or
by Lender's internal records, including daily computer print-outs. Lender will
have no obligation to advance funds under this Note if:(a)Borrower or any
guarantor is in default under the terms Note or agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note;(b)Borrower or any guarantor ceases doing business or is
insolvent;(c)any guarantor seeks, claims or otherwise attempts to limit, modify
or revoke such guarantor's guarantee of this Note or any other loan with Lender;
(d)Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or(e)Lender in good faith deems itself insecure
under this Note or any other agreement between Lender and Borrower.
ANNUAL FEE. Borrower will be assessed an annual fee of 0.25% based upon the
previous years average unused line of credit balance on each anniversary date
during the term of this loan.
BORROWING BASE. The words "Borrowing Base" shall mean as determined by Lender
from time to time, the lessor(a)$750,000.00; or(b)the sum of(i)80% of Eligible
Accounts, plus(ii)the lesser of (1)$300,000.00 or(2)50% of the aggregate amount
of Eligible inventory of all Borrowers shall be included.
OTHER FACILITY. Subject to the terms and conditions of this Agreement and
Related Documents, the following described credit facility will be made
available to Borrower: Revolving Line of Credit sublimit for the issuance of
Letters of Credit not to exceed $400,000.00.
PROMISSORY NOTE
ADDITIONAL PROVISION. Unless in the event of an involuntary bankruptcy,
proceeding, attachment, garnishment or appointment of receiver, such proceedings
shall be dismissed or vacated within sixty (60) days.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of Its rights or
remedies under this Note without losing them. Each Borrower understands and
agrees that, with or without notice to Borrower, Lender may with respect to any
other Borrower(a)make one or more additional secured or unsecured loans or
otherwise extend additional credit;(b)alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms any Indebtedness, Including Increases and decreases of the rate of
Interest on the Indebtedness;(c)exchange, enforce, waive, subordinate, fail or
decide not to perfect, and release any security, with or without the
substitution of now collateral; (d) apply such security and direct the order or
manner of sale thereof, Including without limitation, any nonjudicial sale
permitted by the terms of the controlling security agreements, as Lender In Its
discretion may determine; (e) release, substitute, agree not to sue, or deal
with any one or more of Borrower's sureties, endorsers, or other guarantors on
any terms or In any manner Lender may choose; and (f) determine how, when and
what application of payments and credits shall be made on any other Indebtedness
owing by such other borrower. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change In the forms of this Note, and unless
otherwise expressly stated In writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or Impair, fail to realize upon or perfect Lender's security
Interest In the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification Is made. The obligations under this
Note are joint and several.
PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF
THE NOTE.
BORROWER:
BOATRACS,INC. (SEAL)
By: Jon Gilbert, President/Chief Executive Officer/Director
By: Michael Silverman, Chairman of the Board/Director
ENERDYNE TECHNOLOGIES, INC., Co-Borrower
By: Jon Gilbert, President
By: Curt McLeland, Chief Financial Officer/Secretary
(SEAL)
ATTEST
Secretary or Assistant Secretary
(Corporate Seal)
EXHIBIT 10.25
First National Bank
COMMERCIAL PLEDGE AND SECURITY AGREEMENT
Borrower: BOATRACS, INC.; ET. AL.
10676 SORRENTO VALLEY ROAD, #200
SAN DIEGO, CA 92121
Grantor: Boatracs, Inc.
10676 Sorrento Valley Road, #200
San Diego, CA 92121
Lender: FIRST NATIONAL BANK
Corporate Banking
P.O. Box 85625 (CS#5i)
San Diego, CA 92186-5625
THIS COMMERCIAL PLEDGE AND SECURITY AGREEMENT Is entered Into among
BOATRACS, INC. and ENERDYNE TECHNOLOGIES, INC.
(referred to below Individually and collectively as "Borrower"); Boatracs,
Inc. (referred to below as "Grantor); and
FIRST NATIONAL BANK (referred to below as "Lender").
GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
a security Interest In the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated In this Agreement with respect to the
Collateral, In addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement:
Agreement. The word "Agreement" means this Commercial Pledge and Security
Agreement, as this Commercial Pledge and Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules attached to
this Commercial Pledge and Security Agreement from time to time.
Borrower. The word "Borrower" means each and every person or entity signing
the Note, Including without limitation
BOATRACS, INC. and ENERDYNE TECHNOLOGIES, INC.
Collateral. The word "Collateral" means the following specifically described
property, which Grantor has delivered or agrees to deliver (or cause to be
delivered or appropriate book-entries made) Immediately to Lender, together with
all Income and Proceeds as described below: 10000.000 shares of Oceantrac
Incorporated, Stock Certificate Number 2 1000000.000 shares of Enerdyne
Technologies, Inc. Stock Certificate Number I In addition, the word "Collateral"
Includes all property of Grantor, In the possession of Lender (or In the
possession of a third party subject to the control of Lender), whether now or
hereafter existing and whether tangible or Intangible In character, Including
without limitation each of the following: (a) All property to which Lender
acquires title or documents of title. (b) All property assigned to Lender. (c)
All promissory notes, bills of exchange, stock certificates, bonds, savings
passbooks, lime certificates of deposit, Insurance policies, and all other
instruments and evidences of an obligation., (d) All records relating to any of
the property described In this Collateral section, whether In the form of a
writing, microfilm, microfiche, or electronic media.
Event of Default. The words "Event of Default mean and Include without
limitation any of the Events of Default set
forth below In the section titled 'Events of Default."
Grantor. The word "Grantor" means Boatracs, Inc. Any Grantor who signs this
Agreement, but does not sign the Note, Is signing this Agreement only to grant a
security Interest In Grantor's Interest In the Collateral to Lender and Is not
personally liable under the Note except as otherwise provided by contract or law
(e.g., personal liability under a guaranty or as a surely).
Guarantor. The word "Guarantor" means and Includes without limitation each
and all of the guarantors, sureties, and
accommodation parties In connection with the Indebtedness.
Income and Proceeds. The words Income and Proceeds" mean all present and future
Income, proceeds, earnings, Increases, and substitutions from or for the
Collateral of every kind and nature, Including without limitation all payments,
Interest, profits, distributions, benefits, rights, options, warrants dividends,
stock dividends, stock splits, stock rights, regulatory dividends,
distributions, subscriptions, monies, claims for money due and to become due,
proceeds of any Insurance on the Collateral, shares of stock of different par
val0e or no par value Issued In substitution or exchange for shares Included In
the Collateral, and all other property Grantor Is entitled to receive on account
of such Collateral, Including accounts, documents, Instruments, chattel paper,
and general Intangibles.
Indebtedness. The word "Indebtedness" means the Indebtedness evidenced by the
Note, Including all principal and Interest, together with all other Indebtedness
and costs and expenses for which Borrower or Grantor Is responsible under this
Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" Includes all other obligations, debts and liabilities plus
interest thereon, of Borrower, or any one or more of them, to Lender, as well as
all claims by Lender against Borrower, or any one or more 61 them, whether
existing now or later; whether they are voluntary or involuntary, due or not
due, direct or Indirect, absolute or contingent, liquidated or unliquidated;
whether Borrower may be liable Individually or jointly with others; whether
Borrower may be obligated as guarantor, surely, accommodation party or
otherwise; whether recovery upon such Indebtedness may be or hereafter may
become barred by any statute of limitations; and whether such Indebtedness may
be or hereafter may become otherwise unenforceable. (initial Here
Lender. The word "Lender" means FIRST NATIONAL BANK, Its successors and assigns.
Note. The word "Note" means the notes dated December 29, 1998, In the principal
amounts of $760,000.00 and $4,250,000.00 from BOATRACS, INC. to Lender, together
with all renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for the note.
Obligor. The word "Obligor" means and Includes without limitation any and all
persons or entities obligated to pay
money or to perform some other act under the Collateral.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust and all other Instruments, agreements and documents whether now or
hereafter existing, executed In connection with the Indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this
Agreement or by applicable law, (a) Borrower agrees that lender need not tell
Borrower about any action or inaction Lender takes in connection with this
Agreement; (b) Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (c) Borrower waives any defenses that may
arise because of any action or inaction of Lender, Including without limitation
any failure of Lender to realize upon the Collateral or any delay by lender in
realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or fails to take under this Agreement.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this
Agreement is executed at Borrower's request and not at the request of Lender;
(b) Grantor has the full right, power and authority to enter into this Agreement
and to pledge the Collateral to Lender; (c) Grantor has established adequate
means of obtaining from Borrower on a continuing basis Information about
Borrower's financial condition; and (d) Lender has made no representation to
Grantor about Borrower or Borrower's creditworthiness.
GRANTOR'S WAIVERS. Except as prohibited by applicable law, Grantor waivers any
right to require Lender to (a) make any presentment, protest, demand, or notice
of any kind, including notice of change of any terms of repayment of the
indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional indebtedness, (b) proceed against
any person, including Borrower, before proceeding against Grantor;(c) proceed
against any collateral for the indebtedness, including Borrower's collateral,
before proceeding against Grantor;(d) apply any payments or proceeds received
against the indebtedness in any order; (e) give notice of the terms, time and
place of any sale of any collateral pursuant to the Uniform Commercial Code or
any other law governing such sale;(f) disclose any information about the
indebtedness, the Borrower, any collateral, or any other guarantor or surety or
about any action or nonaction of Lender; or (g)pursue any remedy or course of
action in Lender's power whatsoever.
Grantor also waives any and all rights or defenses arising by reason of (h) any
disability or other defense of Borrower, any other guarantor or surety or any
other person; (I) the cesiation from any cause whatsoever, other than payment In
full, of the Indebtedness; 0) the application of proceeds of the Indebtedness by
Borrower for purposes other than the purposes understood and Intended by Grantor
and Lender; (k) any act of omission or commission by Lender which directly or
Indirectly results In or contributes to the discharge of Borrower or any other
guarantor or surety, or the Indebtedness, or the loss or release of any
collateral by operation of law or otherwise; (1) any statute of limitations In
any action under this Agreement or on the Indebtedness; or (m) any modification
or change In terms of the Indebtedness, whatsoever, Including without
limitation, the renewal, extension, acceleration, or other change In the time
payment of the Indebtedness Is due and any change in the Interest rate. Grantor
waives all rights and defenses arising out of an election of remedies by Lender,
even though that election of remedies, such as nonjudicial foreclosure with
respect to security for a guaranteed obligation, has destroyed Grantor's rights
of subrogation and reimbursement against Borrower by the operation of Section
580d of the California Code of Civil Procedure, or otherwise. This waiver
includes, without limitation, any loss of rights Grantor may suffer by reason of
any rights or protections of Borrower in connection with any anti-deficiency
laws, or other laws limiting or discharging the Indebtedness or Borrower's
obligations (including, without limitation, Section 726, 580a, 580b, and 580d of
the California Code of Civil Procedure). Grantor waives all rights and
protections of any kind which Grantor may have for any reason, which would
affect or limit the amount of any recovery by Lender from Grantor following a
nonjudicial sale or judicial foreclosure of any real or personal property
security for the Indebtedness Including, but not limited to, the right to any
fair market value hearing pursuant to California Code of Civil Procedure Section
580a.
Grantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Grantor might otherwise be entitled
under slate and federal law. The rights and defenses waived include, without
limitation, those provided by California laws of suretyship and guaranty,
anti-deficiency laws, and the Uniform Commercial Code. Grantor acknowledges that
Grantor has provided these waivers of rights and defenses with the intention
that they be fully relied upon by Lender. Until all Indebtedness is paid In
full, Grantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further, Grantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Grantor hereby forever waives and relinquishes In favor of
Lender and Borrower, and their respective successors, any claim or right to
payment Grantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Grantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security interest in
and hereby assigns, convoys, delivers, pledges, and transfers all of Grantor's
right, title and interest in and to Grantor's accounts with Lender (whether
checking, savings, or some other account), including all accounts held jointly
with someone also and all accounts Grantor may open in the future, excluding,
however, all IRA and Keogh accounts, and all trust accounts for which the grant
of a security interest would be prohibited by law. Grantor authorizes Lender, to
the extent permitted by applicable law, to charge or setoff all Indebtedness
against any and all such accounts.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. Grantor
represents and warrants to Lender
that:
Ownership. Grantor is the lawful owner of the Collateral free and clear of all
security interests, liens,
encumbrances and claims of others except as disclosed to and accepted by Lende
in writing prior to execution of this
Agreement.
Right to Pledge. Grantor has the full right, power and authority to enter into
this Agreement and to pledge the
Collateral.
Binding Effect. This Agreement is binding upon Grantor, as well as Grantor's
heirs, successors, representatives and
assigns, and is legally enforceable in accordance with its terms.
No Further Assignment. Grantor has not, and will not, sell, assign, transfer,
encumber or otherwise dispose of any of Grantor's rights in the Collateral
except as provided In this Agreement.
No Defaults. There are no defaults existing under the Collateral, and there are
no offsets or counterclaims to the same. Grantor will strictly and promptly
perform each of the terms, conditions, covenants and agreements contained in the
Collateral which are to be performed by Grantor, if any.
No Violation. The execution and delivery of this Agreement will not violate any
law or agreement governing Grantor or to which Grantor is a party, and its
certificate or articles of incorporation and bylaws do not prohibit any term or
condition of this Agreement.
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO COLLATERAL. Lender may hold the
Collateral until all the Indebtedness has been paid and satisfied and thereafter
may deliver the Collateral to any Grantor. Lender shall have the following
rights In addition to all other rights it may have by law:
Maintenance and Protection of Collateral. Lender may, but shall not be obligated
to, take such steps as it deems necessary or desirable to protect, maintain,
insure, store, or care for the Collateral, including payment of any liens or
claims against the Collateral. Lender may charge any cost incurred in so doing
to Grantor.
Income and Proceeds from the Collateral. Lender may receive all Income and
Proceeds and add it to the Collateral. Grantor agrees to deliver to Lender
immediately upon receipt, in the exact form received and without commingling
with other property, all Income and Proceeds from the Collateral which may be
received by, paid, or delivered to Grantor or for Grantor's account, whether as
an addition to, in discharge of, in substitution of, or in exchange for any of
the Collateral.
Application of Cash. At Lender's option, Lender may apply any cash, whether
included in the Collateral or received as Income and Proceeds or through
liquidation, sale, or retirement, of the Collateral, to the satisfaction of the
Indebtedness or such portion thereof as Lender shall choose, whether or not
matured.
Transactions with Others. Lender may (a) extend time for payment or other
performance,(b)grant a renewal or change in terms or conditions, or (c)
compromise, compound or release any obligation, with any one or more Obligors,
endorsers, or Guarantors of the Indebtedness as Lender deems advisable, without
obtaining the prior written consent of Grantor, and no such act or failure to
act shall affect Lender's rights against Grantor or the Collateral.
All Collateral Secures Indebtedness. All Collateral shall be security for the
Indebtedness, whether the Collateral Is located at one or more offices or
branches of Lender and whether or not the office or branch where the
Indebtedness is created is aware of or relies upon the Collateral. Collection of
Collateral. Lender, at Lender's option may, but need not, collect directly from
the Obligors on any of the Collateral all Income and Proceeds or other sums of
money and other property due and to become due under the Collateral, and Grantor
authorizes and directs the Obligors, if Lender exercises such option, to pay and
deliver to Lender all Income and Proceeds and other sums of money and other
property payable by the terms of the Collateral and to accept Lender's receipt
for the payments.
Power of Attorney. Grantor irrevocably appoints Lender as Grantor's
attorney-in-fact, with full power of substitution, (a) to demand, collect,
receive, receipt for, sue and recover all Income and Proceeds and other sums of
money and other property which may now or hereafter become due, owing or payable
from the Obligors in accordance with the terms of the Collateral; (b) to
execute, sign and endorse any and all instruments, receipts, checks, drafts and
warrants issued in payment for the Collateral; (c) to settle or compromise any
and all claims arising under the Collateral, and in the place and stead of
Grantor, execute and deliver Grantor's release and acquittance for Grantor; (d)
to file any claim or claims or to take any action or institute or take part in
any proceedings, either in Lender's own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable; and (e) to execute in Grantor's name and to deliver to the Obligors
on Grantor's behalf, at the time and in the manner specified by the Collateral,
any necessary instruments or documents.
Perfection of Security Interest. Upon request of Lender, Grantor will deliver to
Lender any and all of the documents evidencing or constituting the Collateral.
When applicable law provides more than one method of perfection of Lender's
security interest, Lender may choose the method(s) to be used. Upon request of
Lender, Grantor will sign and deliver any writings necessary to perfect Lender's
security interest. If the Collateral consists of securities for which no
certificate has been issued, Grantor agrees, at Lender's option, either to
request issuance of an appropriate certificate or to execute appropriate
instructions on Lender's forms instruction the issuer, transfer agent, mutual
fund company, or broker, as the case may be, to record on its books or records,
by book-entry or otherwise, Lender's security interest in the Collateral.
Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to continue the
security interest granted in this Agreement. This is a continuing Security
Agreement and will continue in effect even though all or any part of the
Indebtedness is paid in full and even though for a period of time Borrower may
not be indebted to Lender.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lenders option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
LIMITATIONS ON OBLIGATIONS OF Lender. Lender shall use ordinary reasonable care
in the physical preservation and custody of the Collateral in Lender's
possession, but shall have no other obligation to protect the Collateral or its
value. In particular, but without limitation, Lender shall have no
responsibility for (a) any depreciation in value of the Collateral or for the
collection or protection of any Income and Proceeds from the Collateral, (b)
preservation of rights against parties to the Collateral or against third
persons, (c) ascertaining any maturates, calls, conversions, exchanges, offers,
tenders, or similar matters relating to any of the Collateral, or (d) informing
Grantor about any of the above, whether or not Lender has or is deemed to have
knowledge of such matters. Except as provided above, Lender shall have no
liability for depreciation or deterioration of the Collateral.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement: Default on Indebtedness. Failure of Borrower to make any
payment on the Indebtedness within five (5) days following the original due
date. Other Defaults. Failure of Borrower or Grantor to comply with or to
perform any other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or failure of Borrower to comply
with or to perform any term, obligation, covenant or condition contained in any
other agreement between Lender and Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor default under
any loan, extension of credit, security agreement, purchase or sales agreement,
or any other agreement favor of any other creditor or person that may materially
affect any of Borrower's properly or Borrower's or any Grantor's ability to
repay the Loans or perform their respective obligations under this Agreement or
any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to
Lender by or on behalf of Borrower or Grantor under this Agreement, the Note or
the Related Documents is false or misleading in any material respect, either now
or at the time made or furnished. Defective Collateralization. This Agreement or
any of the Related Documents ceases to be in full force and effect (including
failure of any collateral documents to create a valid and perfected security
Interest or lien) at any time and for any reason.
Insolvency. Continued in paragraph entitled "Additional Provision" The
dissolution or termination of Borrower or Grantor's existence as a going
business, the appointment of a receiver for any part of Borrower or Grantor's
property, any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any bankruptcy or
Insolvency laws by or against Borrower or Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or Grantor or by any governmental
agency against the Collateral or any other collateral securing the Indebtedness.
This Includes a garnishment of any of Borrower or Grantor's deposit accounts
with Lender. However, this Event of Default shall not apply If there Is a good
faith dispute by Borrower or Grantor as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding and If
Borrower or Grantor gives Lender written notice of the creditor or forfeiture
proceeding and deposits with Lender monies or a surety bond for the creditor or
forfeiture proceeding, In an amount determined by Lender, In Its sole
discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or such Guarantor dies or becomes
Incompetent. Lender, at its option, may, but shall not be required to, permit
the Guarantor's estate to assume unconditionally the obligations arising under
the guaranty in a manner satisfactory to Lender, and, in doing so, cure the
Event of Default.
Adverse Change. A material adverse change occurs In Borrower's financial
condition, or Lender reasonably believes the prospect of payment or performance
of the Indebtedness Is Impaired. Right to Cure. It any default, other than a
Default on Indebtedness, Is curable and If Borrower or Grantor has not been
given a prior notice of a breach of the same provision of this Agreement, It may
be cured (and no Event of Default will have occurred) If Borrower or Grantor,
after Lender sends written notice demanding cure of such default, (a) cures the
default within ten (10) days; or (b), If the cure requires more than ten (10)
days, Immediately Initiates steps which Lender deems In Lender's sole discretion
to be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender may exercise any one or more of the
following rights and remedies: Accelerate Indebtedness. Declare all
Indebtedness, Including any prepayment penalty which Borrower would be required
to pay, Immediately due and payable, without notice of any kind to Borrower or
Grantor. Collect the Collateral. Collect any of the Collateral and, at Lender's
option and to the extent permitted by applicable law, retain possession of the
Collateral while suing on the Indebtedness. Sell the Collateral. Sell the
Collateral, at Lender's discretion, as a unit or In parcels, at one or more
public or private sales. Unless the Collateral Is perishable or threatens to
decline speedily In value or Is of a type customarily sold on a recognized
market, Lender shall give or mail to Grantor, or any of them, notice at least
ten (10) days In advance of the time and place of any public sale, or of the
date after which any private sale may be made. Grantor agrees that any
requirement of reasonable notice Is satisfied If Lender mails notice by ordinary
mail addressed to Grantor, or any of them, at the last address Grantor has given
Lender in writing. If a public sale Is held, there shall be sufficient
compliance with all requirements of notice to the public by a single publication
In any newspaper of general circulation In the county where the Collateral Is
located, selling forth the time and place of sale and a brief description of the
properly to be sold. Lender may be a purchaser at any public sale.
Register Securities. Register any securities Included In the Collateral In
Lender's name and exercise any rights
normally Incident to the ownership of securities.
Sell Securities. Sell any securities Included In the Collateral In a manner
consistent with applicable federal and state securities laws, notwithstanding
any other provision of this or any other agreement. If, because of restrictions
under such laws, Lender Is or believes It Is unable to sell the securities In an
open market transaction, Grantor agrees that Lender shall have no obligation to
delay sale until the securities can be registered, and may make a private sale
to one or more persons or to a restricted group of persons, even though such
sale may result In a price that Is less favorable than might be obtained In an
open market transaction, and such a sale shall be considered commercially
reasonable. If any securities held as Collateral are "restricted securities" as
defined In the Rules of the Securities and Exchange Commission (such as
Regulation D or Rule 144) or state securities departments under state "Blue Sky"
laws, or If Borrower or Grantor Is an affiliate of the Issuer of the securities,
Borrower and Grantor agree that neither Grantor nor any agent of Grantor will
sell or dispose of any securities of such Issuer without obtaining Lender's
prior written consent.
Foreclosure. Maintain a judicial suit for foreclosure and sale of the
Collateral.
Transfer Title. Effect transfer of title Upon sale of all or part of the
Collateral. For this purpose, Grantor Irrevocably appoints Lender as Its
attorney-In-fact to execute endorsements, assignments and Instruments In the
name of Grantor and each of them (if more than one) as shall be necessary or
reasonable.
Other Rights and Remedies. Have and exercise any or all of the rights and
remedies of a secured creditor under the provisions of the Uniform Commercial
Code, at law, in equity, or otherwise.
Application of Proceeds. Apply any cash which Is part of the Collateral, or
which Is received from the collection or sale of the Collateral, to
reimbursement of any expenses, including any costs for registration of
securities, commissions incurred in connection with a sale, attorney fees as
provided below, and court costs, whether or not there is a lawsuit and including
any fees on appeal, incurred by Lender in connection with the collection and
sale of such Collateral and to the payment of the indebtedness of Borrower to
Lender, with any excess funds to be paid to Grantor as the interests of Grantor
may appear. Borrower agrees, to the extent permitted by law, to pay any
deficiency after application of the proceeds of the Collateral to the
indebtedness.
Cumulative Remedies. All of Lender's rights and remedies, whether evidence by
this Agreement or by any other writing, shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth in
this Agreement. No alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or parties sought to
be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Borrower and Grantor
agree upon Lender" request to submit to the jurisdiction of the courts of San
Diego County, the State of California. Lender, Borrower and Grantor hereby waive
the right to any jury trial in any action, proceeding, or counterclaim brought
by either Lender, Borrower or Grantor against the Other (Initial Here). This
Agreement shall be governed by and construed in accordance with the laws of the
State of California.
Attorneys' Fees; Expenses. Borrower and Grantor agree to pay upon demand all of
Lender's costs and expenses, Including attorneys' fees and Lender's legal
expenses, Incurred In connection with the enforcement of this Agreement. Lender
may pay someone else to help enforce this Agreement, and Borrower and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses Include
Lender's attorneys' fees and legal expenses whether or not there Is a lawsuit,
Including attorneys'fees and legal expenses for bankruptcy proceedings (and
Including efforts to modify or vacate any automatic stay or Injunction),
appeals, and any anticipated post-judgment collection services. Borrower and
Grantor also shall pay all court costs and such additional fees as may be
directed by the court. Caption Headings. Caption headings In this Agreement are
for convenience purposes only and are not to be used to Interpret or define the
provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower and Grantor
under this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower, and all references to Grantor shall mean
each and every Grantor. This means that each of the persons signing below Is
responsible for all obligations In this Agreement. Notices. All notices required
to be given under this Agreement shall be given In writing, may be sent by
telefacsimile (unless otherwise required by law), and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited In the United States mail, first class, postage prepaid,
addressed to the party to whom the notice Is to be given at the address shown
above. Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the purpose
of the notice Is to change the party's address. To the extent permitted by
applicable law, If there Is more than one Borrower or Grantor, notice to any
Borrower or Grantor will constitute notice to all Borrower and Grantors. For
notice purposes, Borrower and Grantor will keep Lender Informed at all limes of
Borrower and Grantor's current address(es).
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be Invalid or unenforceable as to any person or circumstance, such
finding shall not tender that provision Invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, It shall be stricken
and all other provisions of this Agreement In all other respects shall remain
valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer of
the Collateral, this Agreement shall be binding upon and Inure to the benefit of
the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver Is given in writing and signed by Lender. No delay
or omission on the part of Lender In exercising any right shall operate as a
waiver of such right or any other fight. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights or of
any of Grantor's obligations as to any future transactions. Whenever the consent
of Lender Is required under this Agreement, the granting of such consent by
Lender In any Instance shall not constitute continuing consent to subsequent
instances where such consent Is required and In all cases such consent may be
granted or withheld In the sole discretion of Lender.
ADDITIONAL PROVISION. Unless in the event of an involuntary bankruptcy,
proceeding, attachment, garnishment or appointment of receiver, such proceedings
shall be dismissed or vacated within sixty (60) days. BORROWER AND GRANTOR
ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS PLEDGE AND SECURITY
AGREEMENT, AND BORROWER AND GRANTOR AGREE TO ITS TERMS. THIS AGREEMENT IS DATED
DECEMBER 29,1998.
BORROWER
(SEAL)
/S/Jon Gilbert, President/Chief Executive Officer/Director
(SEAL)
/S/Michael Silverman, Chairman of the Board/Director
Jon Gilbert, President
Curt McLeland, Chief Financial Officer/secretary
(SEAL)
GRANTOR:
Jon Gilbert, President/Chief Executive Officer/Director
(SEAL)
Michael Silverman, Chairman of the Board/Director
ATTEST:
Secretary or Assistant Secretary
(Corporate Seal)
EXHIBIT 10.26
First National Bank
COMMERCIAL SECURITY AGREEMENT
Borrower: BOATRACS, INC.; ET. AL.
10676 SORRENTO VALLEY ROAD, #200
SAN DIEGO, CA 92121
Grantor: ENERDYNE TECHNOLOGIES, INC.
Lender: FIRST NATIONAL BANK
Corporate Banking
P.O. Box 86625 (CS#51)
San Diego, CA 92186-6625
THIS COMMERCIAL SECURITY AGREEMENT Is entered Into among BOATRACS, INC. and
ENERDYNE TECHNOLOGIES, INC. (referred to below Individually and collectively as
"Borrower"); ENERDYNE TECHNOLOGIES, INC. (referred to below as "Grantor"); and
FIRST NATIONAL BANK (referred to below as "Lender"). For valuable consideration,
Grantor grants to Lender a security Interest In the Collateral to secure the
Indebtedness and agrees that Lender shall have the rights stated In this
Agreement with respect to the Collateral, In addition to all other rights which
Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined In this Agreement shall have the
meanings attributed to such terms In the Uniform Commercial Code. All references
to dollar amounts shall mean amounts In lawful money of the United States of
America.
Agreement, The word "Agreement" means this Commercial Security Agreement, as
this Commercial Security Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Commercial Security
Agreement from time to time.
Borrower. The word "Borrower" means each and every person or entity signing the
Note, Including without limitation
BOATRACS, INC. and ENERDYNE TECHNOLOGIES, INC.
Collateral. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located: All Inventory, chattel paper, accounts,
equipment, general Intangibles and fixtures more specifically described In the
"Business Assets Collateral Description" attached hereto and Incorporated herein
by reference In addition, the word "Collateral" Includes all the following,
whether now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located: (a) All attachments, accessions, accessories,
tools, parts, supplies, Increases, and additions to and all replacements of and
substitutions for any property described above. (b) All products and produce of
any of the property described In this Collateral section. (c) All accounts,
general Intangibles, Instruments, rents, monies, payments, and all other rights,
arising out of a sale, lease, or other disposition of any of the property
described In this Collateral section. (d) All proceeds (including Insurance
proceeds) from the sale, destruction, loss, or other disposition of any of the
property described In this Collateral section. (e) All records and data relating
to any of the property described In this Collateral section, whether In the form
of a writing, photograph, microfilm, microfiche, or electronic media, together
with all of Grantor's right, title, and Interest In and to all computer software
required to utilize, create, maintain, and process any such records or data on
electronic media.
Event of Default. The words "Event of Default" mean and Include without
limitation any of the Events of Default set
forth below In the section titled "Events of Default."
Grantor. The word "Grantor" means ENERDYNE TECHNOLOGIES, INC.. Any Grantor who
signs this Agreement, but does not sign the Note, is signing this Agreement only
to grant a security Interest In Grantor's Interest In the Collateral to Lender
and Is not personally liable under the Note except, as otherwise provided by
contract or law (e.g., personal liability under a guaranty or as a surety).
Guarantor. The word "Guarantor" means and Includes without limitation each and
all of the guarantors, sureties, and accommodation parties in connection with
the Indebtedness.
Indebtedness. The word "Indebtedness" means the Indebtedness evidenced by the
Note, Including all principal and Interest, together with all other Indebtedness
and costs and expenses for which Grantor or Borrower Is responsible under this
Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" Includes all other obligations, debts and liabilities, plus
Interest thereon, of Borrower, or any one or more of them, to Lender, as well as
all claims by Lender against Borrower, or any one or more of them, whether
existing now or later; whether they are voluntary or Involuntary, due or not
due, direct or Indirect, absolute or contingent, liquidated or unliquidated;
whether Borrower may be liable Individually or jointly with others; whether
Borrower may be obligated as guarantor, surety, accommodation party or
otherwise; whether recovery upon such Indebtedness may be or hereafter become
barred by any statute of limitations; and whether such Indebtedness may be or
hereafter may become otherwise unenforceable. (Initial H
Lender. The word "Lender" means FIRST NATIONAL BANK, Its successors and assigns.
Note. The word "Note" means the notes dated December 29, 1998, In the principal
amounts of $750,000.00 and $4,250,000.00 from BOATRACS, INC. to Lender, to ether
with all renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for the note. Related Documents. The words
"Related Documents" mean and Include without limitation all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, and all other Instruments,
agreements and documents, whether now or hereafter existing, executed In
connection with the Indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this
Agreement or by applicable law, (a) Borrower agrees that Lender need not tell
Borrower about any action or Inaction Lender takes In connection with this
Agreement; (b) Borrower assumes the responsibility for being and keeping
Informed about the Collateral; and (c) Borrower waives any defenses that may
arise because of any action or Inaction of Lender, including without limitation
any failure of Lender to realize upon the Collateral or any delay by Lender In
realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or falls to take under this Agreement.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this
Agreement Is executed at Borrower's request and not at the request of Lender;
(b) Grantor has the full right, power and authority to enter into this Agreement
and to pledge the Collateral to Lender; (c) Grantor ahs established adequate
means of obtaining from Borrower on a continuing basis information about
Borrower's financial condition; and (d) Lender has made no representation to
Grantor about Borrower or Borrower's creditworthiness.
GRANTOR'S WAIVERS. Except as prohibited by applicable law, Grantor waives any
right to require Lender to (a) make any presentment, protest, demand, or notice
of any kind, including notice of change of any terms of repayment of the
Indebtedness default by Borrower or any other guarantor or surety, any action or
nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, on the creation of new or additional Indebtedness (b) proceed against
any person, including Borrower, before proceeding against Grantor; (c) proceed
against any collateral for the Indebtedness including Borrower's collateral,
before proceeding against Grantor; (d) apply any payments or proceeds received
against the Indebtedness in any order (e) give notice of the terms, time, and
place of any sale of any collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, any collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever. Grantor also waives any and all rights or
defenses arising by reason of (h) any disability or other defense of Borrower,
any other guarantor or surety or any other person; (i) the cessation from any
cause whatsoever, other than payment in full, of the Indebtedness; (j) the
application of proceeds of the Indebtedness by Borrower for purposes other than
the purposes understood and intended by Grantor and Lender; (k) any act of
omission or commission by Lender which directly or indirectly results in or
contributes to the discharge of Borrower or any other guarantor or surety, or
the Indebtedness, or the loss or release of any collateral by operation of law
or otherwise; (l) any statute of limitations in any action under this Agreement
or on the Indebtedness; or (m) any modification or change in terms of the
Indebtedness, whatsoever, including without limitation, the renewal, extension,
acceleration, or other change in the time payment of the Indebtedness is due and
any change in the interest rate. Grantor waives all rights and defenses arising
out of an election of remedies by Lender, even though that election of remedies,
such as nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed Grantor's rights of subrogation and reimbursement
against Borrower by the operation of Section 580d of the California Code of
Civil Procedure, or otherwise. This waiver includes, without limitation, any
loss of rights Grantor may suffer by reason of any rights or protections of
Borrower in connection with any ant-deficiency laws, or other laws limiting or
discharging the Indebtedness or Borrower's obligations (including, without
limitation, Section 726, 580a, 580b, and 580d of the California Code of Civil
Procedure). Grantor waives all rights and protections of any kind which Grantor
may have for any reason, which would affect or limit the amount of any recovery
by Lender from Grantor following a nonjudicial sale or judicial foreclosure of
any real or personal property security for the Indebtedness Including, but not
limited to, the right to any fair market value hearing pursuant to California
Code of Civil Procedure Section 580a.
Grantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Grantor might otherwise be entitled
under state and federal law. The rights and defenses waived Include, without
limitation, those provided by California laws of suretyship and guaranty,
anti-deficiency laws, and the Uniform Commercial Code. Grantor acknowledges that
Grantor has provided these waivers of rights and defenses with the intention
that they be fully relied upon by Lender. Until all Indebtedness Is paid In
full, Grantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further, Grantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Grantor hereby forever waives and relinquishes In favor of
Lender and Borrower, and their respective successors, any claim or right to
payment Grantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Grantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security Interest In
and hereby assigns, conveys, delivers, pledges, and transfers all of Grantor's
right, title and Interest In and to Grantor's accounts with Lender (whether
checking, savings, or some other account), Including all accounts held jointly
with someone else and all accounts Grantor may open In the future, excluding,
however, all IRA and Keogh accounts, and all trust accounts for which the grant
of a security Interest would be prohibited by law. Grantor authorizes Lender, to
the extent permitted by applicable law, to charge or setoff all Indebtedness
against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor Warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to perfect
and continue Lender's security Interest In the Collateral. Upon request of
Lender, Grantor will deliver to Lender any and all of the documents evidencing
or constituting the Collateral, and Grantor will note Lender's Interest upon any
and all chattel paper If not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as Its Irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to continue the
security Interest granted In this Agreement. Lender may at any time, and without
further authorization from Grantor, file a carbon, photographic or other
reproduction of any financing statement or of this Agreement for use as a
financing statement. Grantor will reimburse Lender for all expenses for the
perfection and the continuation of the perfection of Lender's security Interest
in the Collateral. Grantor promptly will notify Lender before any change In
Grantor's name Including any change to the assumed business names of Grantor.
This Is a continuing Security Agreement and will continue In effect even though
all or any part of the Indebtedness Is paid In full and even though for a period
of time Borrower may not be Indebted to Lender.
No Violation. The execution and delivery of this Agreement will not violate any
law or agreement governing Grantor or to which Grantor is a party, and its
articles or agreements relating to entity Incorporation, organization or
existence do not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of accounts,
chattel paper, or general Intangibles, the Collateral Is enforceable in
accordance with its terms, is genuine, and complies with applicable laws
concerning form, content and manner of preparation and execution, and all
persons appearing to be obligated on the Collateral have authority and capacity
to contract and are In fact obligated as they appear to be on the Collateral.
Location of the Collateral. Grantor, upon request of Lender, wi11 deliver to
Lender In form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, Including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d) all
other properties where Collateral Is or may be located. Except In the ordinary
course of its business, Grantor shall not remove the Collateral from Its
existing locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent the
Collateral consists of Intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such other
locations as are acceptable to Lender. Except in the ordinary course of Its
business, Including the sales of Inventory, Grantor shall not remove the
Collateral from Its existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of vehicles, or other titled
property, Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the State of
California, without the prior written consent of Lender. Transactions involving
Collateral. Except for inventory sold or accounts collected in the ordinary
course of Grantor's business, Grantor shall not sell, offer to sell, or
otherwise transfer or dispose of the Collateral. While Grantor is not In default
under this Agreement, Grantor may sell inventory, but only In the ordinary
course of Its business and only to buyers who qualify as a buyer In the ordinary
course of business. A sale In the ordinary course of Grantor's business does not
include a transfer in partial or total satisfaction of a debt or any bulk sale.
Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral
to be subject to any lien, security Interest, encumbrance, or charge, other than
the security Interest provided for In this Agreement, without the prior written
consent of Lender. This Includes security Interests even It junior In right to
the security interests granted under this Agreement. Unless waived by Lender,
all proceeds from any disposition of the Collateral (for whatever reason) shall
be held in trust for Lender and shall not be commingled with any other funds;
provided however, this requirement shall not constitute consent by Lender to any
sale or other disposition. Upon receipt, Grantor shall immediately deliver any
such proceeds to Lender.
Title. Grantor represents and warrants to Lender that It holds good and
marketable title to the Collateral, free and clear of all liens and encumbrances
except for the lien of this Agreement. No financing statement covering any of
the Collateral is on file in any public office other than those which reflect
the security Interest created by this Agreement or to which Lender has
specifically consented. Grantor shall defend Lender's rights in the Collateral
against the claims and demands of all other persons.
Collateral Schedules and Locations. Insofar as the Collateral consists of
Inventory, Grantor shall deliver to Lender, as often as Lender shall require,
such lists, descriptions, and designations of such Collateral as Lender may
require to Identify the nature, extent, and location of such Collateral. Such
Information shall be submitted for Grantor and each of Its subsidiaries or
related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all tangible
Collateral In good condition and repair. Grantor will not commit or permit
damage to or destruction of the Collateral or any part of the Collateral. Lender
and its designated representatives and agents shall have the right at all
reasonable times to examine, inspect, and audit the Collateral wherever located.
Grantor shall Immediately notify Lender of all cases Involving the return,
rejection, repossession, loss or damage of or to any Collateral; of any request
for credit or adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the Collateral
or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments
Compliance With Government Requirements. Grantor shall comply with all laws,
ordinances, rules and regulations of all governmental authorities, now or
hereafter in effect, applicable to the ownership, production, disposition, or
use of the Collateral. Grantor may contest in good faith any such law, ordinance
or regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral never
has been, and never will be so long as this Agreement remains a lien on the
Collateral, used for the generation, manufacture, storage, transportation,
treatment, disposal, release or threatened released of any hazardous waste or
substance, as those terms are defined in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section
9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986, Pub.L.No.99-499 ("SARA"), the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the
California Health and Safety Code, Section 25100, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous substance" shall also
include, without limitation, petroleum and petroleum by-products or any fraction
thereof and asbestos. The representations and warranties contained herein are
based on Grantor's due diligence In Investigating the Collateral for hazardous
wastes and substances. Grantor hereby (a) releases and waives any future claims
against Lender for Indemnity or contribution in the event Grantor becomes liable
for cleanup or other costs under any such laws, and (b) agrees to Indemnity and
hold harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to Indemnity shall
survive the payment of the Indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks
Insurance, Including without limitation fire, theft and liability coverage
together with such other Insurance as Lender may require with respect to the
Collateral, in form, amounts, coverages and basis reasonably acceptable to
Lender and Issued by a company or companies reasonably acceptable to Lender.
Grantor, upon request of Lender, will deliver to Lender from time to time the
policies or certificates of Insurance In form satisfactory to Lender, Including
stipulations that coverages will not be cancelled or diminished without at least
ten (10) days' prior written notice to Lender and not Including any disclaimer
of the insurer's liability for failure to give such a notice. Each Insurance
policy also shall Include an endorsement providing that coverage In favor of
Lender will not be Impaired In any way by any act, omission or default of
Grantor or any other person. In connection with all policies covering assets In
which Lender holds or is offered a security Interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require. If
Grantor at any time falls to obtain or maintain any Insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such Insurance
as Lender deems appropriate, Including If It so chooses "single interest
insurance," which will cover only Lender's Interest In the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of any
material loss or damage to the Collateral. Lender may make proof of loss If
Grantor falls to do so within fifteen (15) days of the casualty. All proceeds of
any Insurance on a material portion of the Collateral, Including accrued
proceeds thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral, Lender
shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the
proceeds for the reasonable cost of repair or restoration. If Lender does not
consent to repair or replacement of the Collateral, Lender shall retain a
sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay
the balance to Grantor. Any proceeds which have not been disbursed within six
(6) months after their receipt and which Grantor has not committed to the repair
or restoration of the Collateral shall be used to prepay the Indebtedness.
Insurance Reserves. Following an event of default, Lender may require Grantor to
maintain with Lender reserves for payment of Insurance premiums, which reserves
shall be created by monthly payments from Grantor of a sum estimated by Lender
to be sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If fifteen
(15) days before payment Is due, the reserve funds are Insufficient, Grantor
shall upon demand pay any deficiency to Lender. The reserve funds shall be hold
by Lender as a general deposit and shall constitute a non-interest-bearing
account which Lender may satisfy by payment of the Insurance premiums required
to be paid by Grantor as they become due. Lender does not hold the reserve funds
In trust for Grantor, and Lender Is not the agent of Grantor for payment of the
insurance premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility. Insurance
Reports. Grantor, upon request of Lender, shall furnish to Lender reports on
each existing policy of Insurance showing such Information as Lender may
reasonably request Including the following: (a) the name of the Insurer; (b) the
risks Insured; (c) the amount of the policy; (d) the property Insured; (e) the
then current value on the basis of which Insurance has been obtained and the
manner of determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often than
annually) have an Independent appraiser satisfactory to Lender determine, as
applicable, the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
It In any lawful manner not Inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security Interest In such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care In
the custody and preservation of the Collateral If Lender takes such action for
that purpose as Grantor shall request or as Lender, In Lender's sole discretion,
shall doom appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights In the Collateral against prior parties, nor to protect, preserve or
maintain any security Interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may. (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, Including without limitation
all taxes, liens, security Interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for Insuring, maintaining and preserving the
Collateral. All such expenditures Incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
Incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any Installment payments to become due
during either (i) the term of any applicable Insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be In addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payments within Five
days following the date due on the indebtedness. Other Defaults. Failure of
Grantor or Borrower to comply with or to perform any other term, obligation,
covenant or condition contained In this Agreement or In any of the Related
Documents or failure of Borrower to comply with or to perform any term,
obligation, covenant or condition contained In any other agreement between
Lender and Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor default under
any loan, extension of credit, security agreement, purchase or sales agreement,
or any other agreement, for money borrowed in excess of $50,000.00, in favor of
any other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or perform
their respective obligations under this Agreement or any of the Related
Documents.
False Statements. Any warranty, representation or statement made or furnished to
Lender by or on behalf of Grantor or Borrower under this Agreement, the Note or
the Related Documents Is false or misleading In any material respect, either now
or at the time made or furnished.
Detective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security Interest or lien) at any time
and for any reason. Insolvency continued in paragraph entitled "Additional
Provision". The dissolution or termination of Grantor or Borrower's existence as
a going business, the Insolvency of Grantor or Borrower, the appointment of a
receiver for any part of Grantor or Borrower's property, any assignment for the
benefit of creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or Insolvency laws by or against Grantor or
Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by Judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or Borrower or by any governmental
agency against the Collateral or any other collateral securing the Indebtedness.
This Includes a garnishment of any of Grantor or Borrower's deposit accounts
with Lender. However, this Event of Default shall not apply If there Is a good
faith dispute by Grantor or Borrower as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding and If Grantor
or Borrower gives Lender written notice of the creditor or forfeiture proceeding
and deposits with Lender monies or a surety bond for the creditor or forfeiture
proceeding, in an amount determined by Lender, in its sole discretion, as being
an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any `guarantor of any of the indebtedness or such Guarantor dies or becomes
incompetent. Lender, at its option, may, but shall not be required to, permit
the Guarantor's estate to assume unconditionally the obligations arising under
the guaranty in a manner satisfactory to Lender, and, in doing so, cure the
Event of Default.
Adverse Change. A Material adverse change occurs in Borrower's financial
condition, or Lender reasonable believes the prospect of payment or performance
of the indebtedness is impaired. Right to Cure. If any default, other than a
Default on indebtedness, is curable and if Grantor or Borrower has not been
given a prior notice of a breach of the same provision of the Agreement, it may
be cured (and no Event of Default will have occurred) if Grantor or `Borrower,
after Lender sends written notice demanding cure of such default, (a) cures the
default within ten (10) days; or (b) if the cure requires more than ten (10)
days, immediately initiates steps which Lender deems in Lender's sole discretion
to be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
RIGHTS AND REMEDIES ON DEFULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire indebtedness, including
any prepayment penalty which Borrower would be required to pay, immediately due
and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or any
portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral. Lender may require Grantor to assemble the
Collateral and make It available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the property of Grantor
to take possession of and remove the Collateral. If the Collateral contains
other goods not covered by this Agreement at the time of repossession, Grantor
agrees Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession. Sell the Collateral.
Lender shall have full power to sell, lease, transfer, or otherwise deal with
the Collateral or proceeds thereof In Its own name or that of Grantor. Lender
may sell the Collateral at public auction or private sale. Unless the Collateral
threatens to decline speedily In value or Is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the time after
which any private sale or any other Intended disposition of the Collateral Is to
be made. The requirements of reasonable notice shall be met If such notice Is
given at least ten (10) days, or such lesser time as required by state law,
before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, Including without limitation the expenses of
retaking, holding, Insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall be
payable on demand, with Interest at the Note rate from date of expenditure until
repaid. Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right, (b) the
receiver may be an employee of Lender and may serve without bond, and (c) all
fees of the receiver and his or her attorney shall become part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
Interest at the Note rate from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either Itself or through a receiver,
may collect the payments, rents, Income, and revenues from the Collateral.
Lender may at any time in Its discretion transfer any Collateral Into Its own
name or that of Its nominee and receive the payments, rents, Income, and
revenues therefrom and hold the same as security for the Indebtedness or apply
it to payment of the Indebtedness in such order of preference as Lender may
determine. Insofar as the Collateral consists of accounts, general Intangibles,
Insurance policies, instruments, chattel paper, choses In action, or similar
property, Lender may demand, collect, receipt for, settle, compromise, adjust,
sue for, foreclose, or realize on the Collateral as Lender may determine,
whether or not Indebtedness or Collateral Is then due. For these purposes,
Lender may, on behalf of and in the name of Grantor, receive, open and dispose
of mail addressed to Grantor; change any address to which mail and payments are
to be sent; and endorse notes, checks, drafts, money orders, documents of title,
Instruments and Items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to Lender. Obtain
Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may
obtain a judgment against Borrower for any deficiency remaining on the
Indebtedness due to Lender after application of all amounts received from the
exercise of the rights provided In this Agreement. Borrower shall be liable for
a deficiency even If the transaction described In this subsection Is a sale of
accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform Commercial Code, as may be
amended from time to time. In addition, Lender shall have and may exercise any
or all other rights and remedies It may have available at law, In equity, or
otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by
this Agreement or the Related Documents or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election by Lender
to pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor or Borrower under this Agreement, after Grantor or Borrower's failure to
perform, shall not affect Lender's right to declare a default and to exercise
Its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth In
this Agreement. No alteration of or amendment to this Agreement shall be
effective unless given In writing and signed by the party or parties sought to
be charged or bound by the alteration or amendment. Applicable Law. This
Agreement has been delivered to Lender and accepted by Lender In the State of
California. If there Is a lawsuit, Grantor and Borrower agree upon Lender's
request to submit to the jurisdiction of the courts of San Diego County, the
State of California. Lender, Grantor and Borrower hereby waive the right to any
jury trial In any action, proceeding, or counterclaim brought by either Lender,
Grantor or Borrower against the other. (Initial Here) This Agreement shall be
governed by and construed In accordance with the laws of the State of
California.
Attorneys' Fees; Expenses. Grantor and Borrower agree to pay upon demand all of
Lender's costs and expenses, Including attorneys' fees and Lender's legal
expenses, Incurred In connection with the enforcement of this Agreement. Lender
may pay someone else to help enforce this Agreement, and Grantor and Borrower
shall pay the costs and expenses of such enforcement. Costs and expenses Include
Lender's attorneys' fees and legal expenses whether or not there Is a lawsuit,
Including attorneys' fees and legal expenses for bankruptcy proceedings (and
including efforts to modify or vacate any automatic stay or Injunction),
appeals, and any anticipated post-judgment collection services. Grantor and
borrower also shall pay all court costs and such additional fees as may be
directed by the court.
Caption Headings. Caption headings In this Agreement are for convenienc
purposes only and are not to be used to
Interpret or define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor and Borrower
under this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower, and all references to Grantor shall mean
each and every Grantor. This means that each of the persons signing below Is
responsible for all obligations In this Agreement.
Notices. All notices required to be given under this Agreement shall be given In
writing, may be sent by telefacsimile (unless otherwise required by law), and
shall be effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited In the United States mail, first
class, postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change Its address for notices under
this Agreement by giving formal written notice to the other parties, specifying
that the purpose of the notice Is to change the party's address. To the extent
permitted by applicable law, It there 16 more than one Grantor or Borrower,
notice to any Grantor or Borrower will constitute notice to all Grantor and
Borrowers. For notice purposes, Grantor and Borrower will keep Lender informed
at all times of Grantor and Borrower's current address(es).
Power of Attorney. Grantor hereby appoints Lender as Its true and lawful
attorney-in-fact, Irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due, owing or
payable from the Collateral; (b) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants Issued In payment for
the Collateral; (c) to settle or compromise any and all claims arising under the
Collateral, and, In the place and stead of Grantor, to execute and deliver Its
release and settlement for the claim; and (d) to file any claim or claims or to
take any action or Institute or take part In any proceedings, either In Its own
name or In the name of Grantor, or otherwise, which In the discretion of Lender
may seem to be necessary or advisable. This power is given as security for the
Indebtedness, and the authority hereby conferred Is and shall be Irrevocable and
shall remain In full force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted preference
claim In Borrower's bankruptcy will become a part of the Indebtedness and, at
Lender's option, shall be payable by Borrower as provided above In the
"EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be Invalid or unenforceable as to any person or circumstances, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer of
the Collateral, this Agreement shall be binding upon and inure to the benefits
of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any Lender's rights or of any
of Grantor's obligations as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent to subsequent instances
where such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
Waiver of Co-obligor's Rights. If more than one person is obligated for the
indebtedness, Borrower irrevocably waives, disclaims and relinquishes all claims
against such other person which Borrower has or would otherwise have by virtue
of payment of the indebtedness or any part thereof, specifically including but
not limited to all rights of indemnity, contribution or exoneration. ADDITIONAL
PROVISION. Unless in the event of an involuntary bankruptcy, proceeding,
attachment, garnishment or appointment of receiver, such proceedings shall be
dismissed or vacated within sixty (60) days.
BUSINESS ASSETS COLLATERAL DESCRIMON
Debtor/Grantor: Enerdyne Technologies, Inc.
The Description covers the following types or items of property:
All present and future right, title and interest of Debtor/Grantor in and to all
inventory, equipment, fixtures and other goods (as those terms are defined in
Division 9 of the California Uniform Commercial Code (the "UCC"), and whether
existing now or in the future) wherever located and including, without
limitation, such property now or in the future located at, upon or about, or
affixed or attached to or installed in, the real property at the following
locations: 10675 Sorrento Valley Road, Suite 200, San Diego, CA 92121; 8402
Magnolia Avenue, .Suite C, Santee, CA 92071; 3419 Washington Avenue, Gulfport,
MS 39507; 3413B Washington Avenue, 'Gulfport, MS 39507; Zaalbergwerg 1 lb, 2314
XS Leiden, The Netherlands (the "Real Property"), or used or to be used in
connection with or otherwise relating to the business of Debtor/Grantor or the
Real Property, and all types of tangible personal property of any kind or nature
related thereto, and all accessories, additions, attachments, parts, proceeds,
products, repairs, replacements and substitutions of or to any of such property
(the "Goods", and together with the Real Property, the "Property"); and All
present and future right, title and interest of Debtor/Grantor in and to all
accounts, general intangibles, chattel paper, deposit accounts, money,
instruments and documents (as those terms are defined in the UCC) and all other
agreements, obligations, rights and written materials (in each case whether
existing now or in the future), including, without limitation, all such
accounts, general intangibles, chattel paper, deposit accounts, money,
instruments and documents now or in the future relating to or otherwise arising
in connection with or derived from the business of Debtor/Grantor or the
Property or the ownership, use, development, construction, maintenance,
management, operation, marketing, leasing, occupancy, sale or financing of the
business of Debtor/Grantor, the Real Property, or the Property, including (i)
permits, approvals and other governmental authorizations, (ii) improvement plans
and specifications and architectural drawings, (iii) agreements with
contractors, subcontractors, suppliers, project managers and supervisors,
designers, architects, engineers, sales agents, leasing agents, consultants and
property managers, (iv) warranties, guaranties, indemnities and insurance
policies, together with insurance payments and unearned insurance premiums, (v)
claims, demands, awards, settlements and other payments arising or resulting
from or otherwise relating to any insurance or any loss or destruction of,
injury or damage to, trespass on or taking, condemnation (or conveyance in lieu
of condemnation) or public use of the Real Property or any of the Property, (vi)
any cash collateral account maintained pursuant to any of the Loan Documents,
and any amounts deposited by Debtor/Grantor with Secured Party/Lender which are
to be held in any such cash collateral account, (vii) leases, rental agreements,
license agreements, service and maintenance agreements, purchase and sale
agreements and purchase options, together with advance payments, security
deposits and other amounts paid to or deposited with Debtor/Grantor under any
such agreements, (viii) reserves, deposits, bonds, deferred payments, refunds,
rebates, discounts, cost savings, escrow proceeds, sale proceeds and other
rights to the payment of money, trade names, trademarks, goodwill and all other
types of intangible personal property of any kind or nature, and (x) all
supplements, modifications, amendments, renewals, extensions, proceeds,
replacements and substitutions of or to any of such property (the
"Intangibles").
Debt Grantor Enerdyne Technologies, Inc.
BY:
/s/Jon Gilbert, President
BY;
/s/Curt McLeland, Chief Financial Officer/Secretary
EXHIBIT 10.27
First National Bank
COMMERCIAL SECURITY AGREEMENT
Borrower: BOATRACS, INC.; ET. AL.
10675 SORRENTO VALLEY ROAD, #200
SAN DIEGO, CA 92121
Grantor: BOATRACS, INC.
Lender: FIRST NATIONAL BANK
Corporate Banking
P.O. Box 86625 (CS#51)
San Diego, CA 9218"625
THIS COMMERCIAL SECURITY AGREEMENT Is entered Into among BOATRACS, INC. and
ENERDYNE TECHNOLOGIES, INC. (referred to below Individually and collectively as
"Borrower"); BOATRACS, INC. (referred to below as "Grantor"); and FIRST NATIONAL
BANK (referred to below as "Lender"). For valuable consideration, Grantor,
grants to Lender a security Interest In the Collateral to secure the
Indebtedness and agrees that Lender shall have the rights stated In this
Agreement with respect to the Collateral, In addition to all other rights which
Lender may have by low.
DEFINITIONS. The following words shall have the following meanings when used In
this Agreement. Terms not otherwise defined In this Agreement shall have the
meanings attributed to such terms In the Uniform Commercial Code. All references
to dollar amounts shall mean amounts In lawful money of the United States of
America.
Agreement. The word "Agreement" means this Commercial Security Agreement, as
this Commercial Security Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Commercial Security
Agreement from time to time.
Borrower. The word 'Borrower" means each and every person or entity signing the
Note, Including without limitation
BOATRACS, INC. and ENERDYNE TECHNOLOGIES, INC.
Collateral. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located: All Inventory, chattel paper, accounts,
equipment, general Intangibles and fixtures more specifically described In the
"Business Assets Collateral Description" attached hereto and Incorporated herein
by reference In addition, the word "Collateral" Includes all the following,
whether now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located: (a) All attachments, accessions, accessories,
tools, parts, supplies, Increases, and additions to and all replacements of and
substitutions for any property described above. (b) All products and produce of
any of the property ,described in this Collateral section. (c) All accounts,
general Intangibles, Instruments, rents, monies, payments, and all other rights,
arising out of a sale, lease, or other disposition of any of the property
described In this Collateral section. (d) All proceeds (Including Insurance
proceeds) from the sale, destruction, loss, or other disposition of any of the
property described In this Collateral section. (e) All records and data relating
to any of the property described In this Collateral section, whether In the form
of a writing, photograph, microfilm, microfiche, or electronic media, together
with all of Grantor's right, title, and Interest In and to all computer software
required to utilize, create, maintain, and process any such records or data on
electronic media.
Event of Default. The words "Event of Default" mean and Include without
limitation any of the Events of Default set
forth below in the section titled "Events of Default."
Grantor. The word "Grantor" means BOATRACS, INC.. Any Grantor who signs this
Agreement, but does not sign the Note, Is signing this Agreement only to grant a
security Interest In Grantor's Interest In the Collateral to Lender and Is not
personally liable under the Note except as other wise provided by contract or
law (e.g., personal liability under a guaranty or as a surety).
Guarantor. The word "Guarantor" means and Includes without limitation each and
all of the guarantors, sureties, and
accommodation parties in connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the Indebtedness evidenced by the
Note, including all principal and Interest, together with all other Indebtedness
and costs and expenses for which Grantor or Borrower Is responsible under this
Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" Includes all other obligations, debts and liabilities, plus
Interest thereon, of Borrower, or any one
or more of them, to Lender, as well as all claims by Lender against Borrower,
or any one or more of them, whether
existing now or later; whether they are voluntary or involuntary, due or not
due, direct or indirect, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
Individually or jointly with others; whether
Borrower may be obligated as guarantor, surety, accommodation party or
otherwise; whether recovery upon such Indebtedness may be or hereafter ma
become barred by any statute of
limitations; and whether such Indebtedness
may be or hereafter may become otherwise unenforceable. (Initial Here)
Lender. The word "Lender" means FIRST NATIONAL BANK, its successors assigns.
Note. The word "Note" means the notes dated December 29, 1998, In the
principal
amounts of $750,000.00 and $4,250,000.00 from BOATRACS, INC. to Lender, together
with all renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for the note.
Related Documents. The words "Related Documents" mean and Include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other Instruments, agreements and documents, whether now or
hereafter existing, executed In connection with the Indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this
Agreement or by applicable law, (a) Borrower agrees that Lender need not tell
Borrower about any action or Inaction Lender takes In connection with this
Agreement; (b) Borrower assumes the responsibility for being and keeping
Informed about the Collateral; and (c) Borrower waives any defenses that may
arise because of any action or Inaction of Lender, including without limitation
any failure of Lender to realize upon the Collateral or any delay by Lender In
realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or falls to take under this Agreement.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this
Agreement Is executed at Borrower's request and not at the request of Lender;
(b) Grantor has the full right, power and authority to enter into this Agreement
and to pledge the Collateral to Lender; (c) Grantor ahs established adequate
means of obtaining from Borrower on a continuing basis information about
Borrower's financial condition; and (d) Lender has made no representation to
Grantor about Borrower or Borrower's creditworthiness.
GRANTOR'S WAIVERS. Except as prohibited by applicable law, Grantor waives any
right to require Lender to (a) make any presentment, protest, demand, or notice
of any kind, including notice of change of any terms of repayment of the
Indebtedness default by Borrower or any other guarantor or surety, any action or
nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, on the creation of new or additional Indebtedness (b) proceed against
means of obtaining from Borrower on a continuing basis information about
Borrower's financial condition; and (d) Lender has made no representation to
Grantor about Borrower or Borrower's creditworthiness.
GRANTOR'S WAIVERS. Except as prohibited by applicable law, Grantor waives any
right to require Lender to (a) make any presentment, protest, demand, or notice
of any kind, including notice of change of any terms of repayment of the
Indebtedness default by Borrower or any other guarantor or surety, any action or
nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, on the creation of new or additional Indebtedness (b) proceed against
Borrower, on the creation of new or additional Indebtedness (b) proceed against
any person, including Borrower, before proceeding against Grantor; (c) proceed
against any collateral for the Indebtedness including Borrower's collateral,
before proceeding against Grantor; (d) apply any payments or proceeds received
against the Indebtedness in any order (e) give notice of the terms, time, and
place of any sale of any collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, any collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever. Grantor also waives any and all rights or
defenses arising by reason of (h) any disability or other defense of Borrower,
any other guarantor or surety or any other person; (i) the cessation from any
cause whatsoever, other than payment in full, of the Indebtedness; (j) the
application of proceeds of the Indebtedness by Borrower for purposes other than
the purposes understood and intended by place of any sale of any collateral
pursuant to the Uniform Commercial Code or any other law governing such sale;
(f) disclose any information about the Indebtedness, the Borrower, any
collateral, or any other guarantor or surety, or about any action or nonaction
of Lender; or (g) pursue any remedy or course of action in Lender's power
whatsoever. Grantor also waives any and all rights or defenses arising by reason
of (h) any disability or other defense of Borrower, any other guarantor or
surety or any other person; (i) the cessation from any cause whatsoever, other
than payment in full, of the Indebtedness; (j) the application of proceeds of
the Indebtedness by Borrower for purposes other than the purposes understood and
intended by Grantor and Lender; (k) any act of omission or commission by Lender
which directly or indirectly results in or contributes to the discharge of
Borrower or any other guarantor or surety, or the Indebtedness, or the loss or
release of any collateral by operation of law or otherwise; (l) any statute of
limitations in any action under this Agreement or on the Indebtedness; or (m)
any modification or change in terms of the Indebtedness, whatsoever, including
without limitation, the renewal, extension, acceleration, or other change in the
time payment of the Indebtedness is due and any change in the interest rate.
Grantor waives all rights and defenses arising out of an election of remedies by
lender, even though that election of remedies such as nonjudicial foreclosure
with respect to security for a guaranteed obligation, has destroyed Grantor's
rights of subrogation and reimbursement against Borrower by the operation of
Section 580d of the California Code of Civil Procedure, or otherwise. This
waiver Includes, without limitation, any loss of rights Grantor may suffer by
reason of any rights or protections of Borrower In connection with any
anti-deficiency laws, or other laws limiting or discharging the Indebtedness or
Borrower's obligations (including, without limitation, Section 726, 580a, 580b,
and 580d of the California Code of Civil Procedure). Grantor waives all rights
and protections of any kind which Grantor may have for any reason, which would
affect or limit the amount of any recovery by Lender from Grantor following a
nonjudicial sale or judicial foreclosure of any real or personal property
security for the Indebtedness Including, but not limited to, the right to any
fair market value hearing pursuant to California Code of Civil Procedure Section
580a. Grantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Grantor might otherwise be entitled
under state and federal law. The rights. and defenses waived Include, without
limitation, those provided by California laws of suretyship and guaranty,
anti-deficiency laws, and the Uniform Commercial Code. Grantor acknowledges that
Grantor has provided these waivers of rights and defenses with the Intention
that they be fully relied upon by Lender. Until all Indebtedness Is paid In
full, Grantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further, Grantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become Insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Grantor hereby forever waives and relinquishes In favor of
Lender and Borrower, and their respective successors, any claim or right to
payment Grantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Grantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security Interest In
and hereby assigns, conveys, delivers, pledges, and transfers all of Grantor's
right, title and Interest In and to Grantor's accounts with Lender (whether
checking, savings, or some other account), including all accounts held jointly
with someone else and all accounts Grantor may open In the future, excluding,
however, all IRA and Keogh accounts, and all trust accounts for which the grant
of a security Interest would be prohibited by law. Grantor authorizes Lender, to
the extent permitted by applicable law, to charge or setoff all Indebtedness
against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to perfect
and continue Lender's security Interest In the Collateral. Upon request of
Lender, Grantor will deliver to Lender any and all of the documents evidencing
or constituting the Collateral, and Grantor will note Lender's interest upon any
and all chattel paper If not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as Its Irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to continue the
security interest granted In this Agreement. Lender may at any time, and without
further authorization from Grantor, file a carbon, photographic or other
reproduction of any financing statement or of this Agreement for use as a
financing statement. Grantor will reimburse Lender for all expenses for the
perfection and the continuation of the perfection of Lender's security Interest
in the Collateral. Grantor promptly will notify Lender before any change In
Grantor's name Including any change to the assumed business names of Grantor.
This Is a continuing Security Agreement and will continue In effect even though
all or any part of the Indebtedness Is paid In full and even though for a period
of time Borrower may not be Indebted to Lender.
No Violation. The execution and delivery of this Agreement will not violate any
law or agreement governing Grantor or to which Grantor is a party, and Its
articles or agreements relating to entity Incorporation, organization or
existence do not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of accounts,
chattel paper, or general Intangibles, the Collateral Is enforceable in
accordance with Its terms, Is genuine, and compiles with applicable laws
concerning form, content and manner of preparation and execution, and all
persons appearing to be obligated on the Collateral have authority and capacity
to contract and are In fact obligated as they appear to be on the Collateral.
Location of the Collateral. Grantor, upon request of Lender, will deliver to
Lender In form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, Including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d) all
other properties where Collateral Is or may be located. Except In the ordinary
course of Its business, Grantor shall not remove the Collateral from Its
existing locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent the
Collateral consists of Intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such other
locations as are acceptable to Lender. Except in the ordinary course of Its
business, Including the sales of Inventory, Grantor shall not remove the
Collateral from Its existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of vehicles, or other titled
property, Grantor shall not take or permit any action-which would require
application for certificates of title for the vehicles outside the State of
California, without the prior written consent of Lender.
Transactions Involving Collateral. Except for Inventory sold or accounts
collected In the ordinary course of Grantor's business, Grantor shall not sell,
offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor
Is not In default under this Agreement, Grantor may sell Inventory, but only In
the ordinary course of Its business and only to buyers who quality as a buyer In
the ordinary course of business. A sale In the ordinary course of Grantor's
business does not Include a transfer In partial or total satisfaction of a debt
or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise
permit the Collateral to be subject to any lien, security Interest, encumbrance,
or charge, other than the security Interest provided for In this Agreement,
without the prior written consent of Lender. This Includes security interests
even If junior In right to the security Interests granted under this Agreement.
Unless waived by Lender, all proceeds from any disposition of the Collateral
(for whatever reason) shall be held In trust for Lender and shall not be
commingled with any other funds provided however, this requirement shall not
constitute consent by Lender to any sale or other disposition. Upon receipt,
Grantor shall Immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants 16 Lender that It holds good and
marketable title to the Collateral, free and clear of all liens and encumbrances
except for the lien of this Agreement. No financing statement covering any of
the Collateral Is on file In any public office other than those which reflect
the security Interest created by this Agreement or to which Lender has
specifically consented. Grantor shall defend Lender's rights In the Collateral
against the claims and demands of all other persons.
Collateral Schedules and Locations. Insofar as the Collateral consists of
Inventory, Grantor shall deliver to Lender, as often as Lender shall require,
such lists, descriptions, and designations of such Collateral as Lender may
require to Identify the nature, extent, and location of such Collateral. Such
Information shall be submitted for Grantor and each of Its subsidiaries or
related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all tangible
Collateral In good condition and repair. Grantor will not commit or permit
damage to or destruction of the Collateral or any part of the Collateral. Lender
and Its designated representatives and agents shall have the right at all
reasonable times to examine, inspect, and audit the Collateral wherever located.
Grantor shall Immediately notify Lender of all cases Involving the return,
rejection, repossession, loss or damage of or to any Collateral; of any request
for credit or adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the Collateral
or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments
and liens upon the Collateral, its use or operation, upon this Agreement, upon
any promissory note or notes evidencing the indebtedness, or upon any of the
other Related Documents. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lender's interest in
the Collateral is not jeopardized in Lender's sole opinion. If the collateral is
subjected to a lien which is not discharged within fifteen (15) days, Grantor
shall deposit with Lender cash, a sufficient corporate surety bond or other
security satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, costs, attorneys' fees or other charges
that could accrue as a result of foreclosure or sale of the Collateral. In any
contest Grantor shall defend itself and Lender and shall satisfy any final
adverse judgment before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the contest
proceedings.
Compliance With Government Requirements. Grantor shall comply with all laws,
ordinances, rules and regulations of all governmental authorities, now or
hereafter in effect, applicable to the ownership, production, disposition, or
use of the Collateral. Grantor may contest in good faith any such law, ordinance
or regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral never
has been, and never will be so long as this Agreement remains a lien on the
Collateral, used for the generation, manufacture, storage, transportation,
treatment, disposal, release or threatened released of any hazardous waste or
substance, as those terms are defined in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section
9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986, Pub.L.No.99-499 ("SARA"), the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq. Chapters 6.5 through 7.7 of Division of the
California Health and safety Code, Section 25100, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous substance" shall also
Include, without limitation, petroleum and petroleum by-products or any fraction
thereof and asbestos. The representations and warranties contained herein are
based on Grantor's due diligence In Investigating the Collateral for hazardous
wastes and substances. Grantor hereby (a) releases and waives any future claims
against Lender for Indemnity or contribution In the event Grantor becomes liable
for cleanup or other costs under any such laws, and (b) agrees to Indemnity and
hold harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to Indemnity shall
survive the payment of the Indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks
Insurance, Including without limitation fire, theft and liability coverage
together with such other Insurance as Lender may require with respect to the
Collateral, In form, amounts, coverages and basis reasonably acceptable to
Lender and Issued by a company or companies reasonably acceptable to Lender.
Grantor, upon request of Lender, will deliver to Lender from time to time the
policies or certificates of Insurance In form satisfactory to Lender, Including
stipulations that coverages will not be cancelled or diminished without at least
ton (10) days' prior written notice to Lender and not Including any disclaimer
of the Insurer's liability for failure to give such a notice. Each Insurance
policy also shall Include an endorsement providing that coverage In favor of
Lender will not be Impaired In any way by any act, omission or default of
Grantor or any other person. In connection with all policies covering assets In
which Lender holds or Is offered a security Interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require. If
Grantor at any time falls to obtain or maintain any Insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such Insurance
as Lender deems appropriate, Including If It so chooses "single Interest
Insurance," which will cover only Lender's Interest In the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of any
material loss or damage to the Collateral. Lender may make proof of loss If
Grantor falls to do so within fifteen (15) days of the casualty. All proceeds of
any Insurance on the Collateral, including accrued proceeds thereon, shall be
held by Lender as part of the Collateral. If Lender consents to repair or
replacement of the damaged or destroyed Collateral, Lender shall, upon
satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds
for the reasonable cost of repair or restoration. If Lender does not consent to
repair or replacement of the Collateral, Lender shall retain a sufficient amount
of the proceeds to pay all of the Indebtedness, and shall pay the balance to
Grantor. Any proceeds which have not been disbursed within six(6) months after
their receipt and which Grantor has not committed to the repair or restoration
of the Collateral shall be used to prepay the Indebtedness on a material portion
of the collateral.
Insurance Reserves following an event of default Lender may require Grantor to
maintain with Lender reserves for payment of Insurance premiums, which reserves
shall be created by monthly payments from Grantor of a sum estimated by Lender
to be sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the Insurance premiums to be paid. If fifteen
(15) days before payment Is due, the reserve funds are Insufficient, Grantor
shall upon demand pay any deficiency to Lender. The reserve funds shall be held
by Lender as a general deposit and shall constitute a non-interest-bearing
account which Lender may satisfy by payment of the Insurance premiums required
to be paid by Grantor as they become due. Lender does not hold the reserve funds
In trust for Grantor, and Lender is not the agent of Grantor for payment of the
Insurance premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility. Insurance
Reports. Grantor, upon request of Lender, shall furnish to Lender reports on
each existing policy of Insurance showing such Information as Lender may
reasonably request Including the following: (a) the name of the Insurer; (b) the
risks Insured; (c) the amount of the policy; (d) the property Insured; (e) the
then current value on the basis of which Insurance has been obtained and the
manner of determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often than
annually)have an Independent appraiser satisfactory to Lender determine, as
applicable, the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not Inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender Is
required by law to perfect Lender's security Interest In such Collateral. It
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care In
the custody and preservation of the Collateral If Lender takes such action for
that purpose as Grantor shall request or as Lender, In Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights In the Collateral against prior parties, nor to protect, preserve or
maintain any security Interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, Including without limitation
all taxes, liens, security Interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for Insuring, maintaining and preserving the
Collateral. All such expenditures Incurred or paid by Lender for such purposes
will then bear Interest at the rate charged under the Note from the date
Incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable Insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be In addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
Under this Agreement.
Default on Indebtedness. Failure of Borrower to make any payment within five
days following the date due on the Indebtedness. Other Defaults. Failure of
Grantor or Borrower to comply with or to perform any other term, obligation,
covenant or condition contained In this Agreement or In any of the Related
Documents or failure of Borrower to comply with or to perform any term,
obligation, covenant or condition contained In any other agreement between
Lender and Borrower. Default In Favor of Third Parties. Should Borrower or any
Grantor default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement for money borrowed in excess
of $50,000.00, in favor of any other creditor or person that may materially
affect any of Borrower's property or Borrower's or any Grantor's ability to
repay the Loans or perform their respective obligations, under this Agreement or
any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to
Lender by or on behalf of Grantor or Borrower under this Agreement, the Note or
the Related Documents Is false or misleading in any material respect, either now
or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be In full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any time
and for any reason.
Insolvency. Continued in paragraph entitled "additional Provision". The
dissolution or termination of Grantor or Borrower's existence as a going
business, the Insolvency of Grantor or Borrower, the appointment of a receiver
for any part of Grantor or Borrower's property, any assignment for the benefit
of creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or Insolvency laws by or against Grantor or
Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or Borrower or by any governmental
agency against the Collateral or any other collateral securing the Indebtedness.
This Includes a garnishment of any of Grantor or Borrower's deposit accounts
with Lender. However, this Event of Default shall not apply If there is a good
faith dispute by Grantor or Borrower as to the validity or reasonableness of the
claim which Is the basis of the creditor or forfeiture proceeding and If Grantor
or Borrower gives Lender written notice of the creditor or forfeiture proceeding
and deposits with Lender monies or a surety bond for the creditor or forfeiture
proceeding, In an amount determined by Lender, in its sole discretion, as being
an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any `guarantor of any of the indebtedness or such Guarantor dies or becomes
incompetent. Lender, at its option, may, but shall not be required to, permit
the Guarantor's estate to assume unconditionally the obligations arising under
the guaranty in a manner satisfactory to Lender, and, in doing so, cure the
Event of Default.
Adverse Change. A Material adverse change occurs in Borrower's financial
condition, or Lender reasonable believes the prospect of payment or performance
of the indebtedness is impaired.
Right to Cure. If any default, other than a Default on indebtedness, is curable
and if Grantor or Borrower has not been given a prior notice of a breach of the
same provision of the Agreement, it may be cured (and no Event of Default will
have occurred) if Grantor or `Borrower, after Lender sends written notice
demanding cure of such default, (a) cures the default within ten (10) days; or
(b) if the cure requires more than ten (10) days, immediately initiates steps
which Lender deems in Lender's sole discretion to be sufficient to cure the
default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness, including
any prepayment penalty which Borrower would be required to pay, immediately due
and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or any
portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral. Lender may require Grantor to assemble the
Collateral and make It available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the property of Grantor
to take possession of and remove the Collateral. If the Collateral contains
other goods not covered by this Agreement at the time of repossession, Grantor
agrees Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession. Sell the Collateral.
Lender shall have full power to sell, lease, transfer, or otherwise deal with
the Collateral or proceeds thereof In Its own name or that of Grantor. Lender
may sell the Collateral at public auction or private sale. Unless the Collateral
threatens to decline speedily In value or Is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the time after
which any private sale or any other Intended disposition of the Collateral Is to
be made. The requirements of reasonable notice shall be met If such notice Is
given at least ten (10) days, or such lesser time as required by state law,
before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, Including without limitation the expenses of
retaking, holding, Insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of expenditure until
repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall have
the following rights and remedies regarding the appointment of a receiver: (a)
Lender may have a receiver appointed as a matter of right, (b) the receiver may
be an employee of Lender and may serve without bond, and (c) all fees of the
receiver and his or her attorney shall become part of the Indebtedness secured
by this Agreement and shall be payable on demand, with Interest at the Note rate
from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a receiver,
may collect the payments, rents, Income, and revenues from the Collateral.
Lender may at any time In its discretion transfer any Collateral into Its own
name or that of Its nominee and receive the payments, rents, Income, and
revenues therefrom and hold the same as security for the Indebtedness or apply
It to payment of the Indebtedness in such order of preference as Lender may
determine. Insofar as the Collateral consists of accounts, general Intangibles,
Insurance policies, Instruments, chattel paper, choses in action, or similar
property, Lender may demand, collect, receipt for, settle, compromise, adjust,
sue for, foreclose, or realize on the Collateral as Lender may determine,
whether or not Indebtedness or Collateral Is then due. For these purposes,
Lender may, on behalf of and In the name of Grantor, receive, open and dispose
of mail addressed to Grantor; change any address to which mail and payments are
to be sent; and endorse notes, checks, drafts, money orders, documents of title,
Instruments and Items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to Lender. Obtain
Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may
obtain a judgment against Borrower for any deficiency remaining on the
Indebtedness due to Lender after application of all amounts received from the
exercise of the rights provided in this Agreement. Borrower shall be liable for
a deficiency even If the transaction described In this subsection Is a sale of
accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform Commercial Code, as may be
amended from time to time. In addition, Lender shall have and may exercise any
or all other rights and remedies It may have available at law, In equity, or
otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by
this Agreement or the Related Documents or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election by Lender
to pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor or Borrower under this Agreement, after Grantor or Borrower's failure to
perform, shall not affect Lender's right to declare a default and to exercise
its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth In
this Agreement.. No alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or parties sought to
be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender In the State of California. If there Is a lawsuit, Grantor and Borrower
agree upon Lender's request to submit to the jurisdiction of the courts of San
Diego County, the Stale of California. Lender, Grantor and Borrower hereby waive
the right to any jury trial In any action, proceeding, or counterclaim brought
by either Lender, Grantor or Borrower against the other. (Initial Here) This
Agreement shall be governed by and construed in accordance with the laws of the
State of California.
Attorneys' Fees; Expenses. Grantor and Borrower agree to pay upon demand all of
Lender's costs and expenses, Including attorneys' fees and Lender's legal
expenses, Incurred In connection with the enforcement of this Agreement. Lender
may pay someone else to help enforce this Agreement, and Grantor and Borrower
shall pay the costs and expenses of such enforcement. Costs and expenses include
Lender's attorneys' fees and legal expenses whether or not there Is a lawsuit,
Including attorneys' fees and legal expenses for bankruptcy proceedings (and
Including efforts to modify or vacate any automatic stay or Injunction),
appeals, and any anticipated post-judgment collection services. Grantor and
Borrower also shall pay all court costs and such additional fees as may be
directed by the court.
Caption Headings. Caption headings In this Agreement are for convenience
purposes only and are not to be used to
interpret or define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor and Borrower
under this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower, and all references to Grantor shall mean
each and every Grantor. This means that each of the persons signing below Is
responsible for all obligations In this Agreement.
Notices. All notices required to be given under this Agreement shall be given In
writing, may be sent by telefacsimile (unless otherwise required by law), and
shall be effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited In the United States mail, first
class, postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change Its address for notices under
this Agreement by giving formal written notice to the other parties, specifying
that the purpose of the notice Is to change the party's address. To the extent
permitted by applicable law, If there Is more than one Grantor or Borrower,
notice to any Grantor or Borrower will constitute notice to all Grantor and
Borrowers. For notice purposes, Grantor and Borrower will keep Lender Informed
at all times of Grantor and Borrower's current address(es). Power of Attorney.
Grantor hereby appoints Lender as Its true and lawful attorney-in-fact,
Irrevocably, with full power of substitution to do the following: (a) to demand,
collect, receive, receipt for, sue and recover all sums of money or other
property which may now or hereafter become due, owing or payable from the
Collateral; (b) to execute, sign and endorse any and all claims, Instruments,
receipts, checks, drafts or warrants Issued In payment for the Collateral; (c)
to settle or compromise any and all claims arising under the Collateral, and, in
the place and stead of Grantor, to execute and deliver Its release and
settlement for the claim; and (d) to file any claim or claims or to take any
action or Institute or take part in any proceedings, either In Its own name or
In the name of Grantor, or otherwise, which In the discretion of Lender may seem
to be necessary or advisable. This power is given as security for the
Indebtedness, and the authority hereby conferred Is and shall be Irrevocable and
shall remain In full force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted preference
claim In Borrower's bankruptcy will become a part of the Indebtedness and, at
Lender's option, shall be payable by Borrower as provided above In the
"EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be Invalid or unenforceable as to any person or circumstances, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer of
the Collateral, this Agreement shall be binding upon and inure to the benefits
of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any Lender's rights or of any
of Grantor's obligations as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent to subsequent instances
where such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
Waiver of Co-obligor's Rights. If more than one person is obligated for the
indebtedness, Borrower irrevocably waives, disclaims and relinquishes all claims
against such other person which Borrower has or would otherwise have by virtue
of payment of the indebtedness or any part thereof, specifically including but
not limited to all rights of indemnity, contribution or exoneration.
ADDITIONAL PROVISION. Unless in the event of an involuntary bankruptcy,
proceeding, attachment, garnishment or appointment of receiver, such proceedings
shall be dismissed or vacated within sixty (60) days.
BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT, AND BORROWER AND GRANTOR AGREE TO ITS TERMS.
THIS AGREEMENT IS DATED DECEMBER 29,1998.
BORROWER
BOATRACS,INC (SEAL)
Jon Gilbert, President/Chief Executive Officer/Director By(SEAL)Michael
Silverman, Chairman of the Board/Director ENERDYNE TECHNOLOGIES INC, Co-Borrower
(SEAL) Jon Gilbert, President By:(SEAL) Curt McLeland, Chief Financial
Officer/Secretary GRANTOR (SEAL) Jon Gilbert, President/Chief Executive
Officer/Director Michael Silverman, Chairman of the Board/Director ATTEST:
Secretary or Assistant Secretary( Corporate Seal )
BUSNESS ASSETS COLLATERAL DESCRIPTION
Debtor/Grantor: Boatracs, Inc.
The Description covers the following types or items of property:
All present and future right, title and interest of Debtor/Grantor in and to all
inventory, equipment, fixtures and other goods (as those terms are defined in
Division 9 of the California Uniform Commercial Code (the "UCC"), and whether
existing now or in the future) wherever located and including, without
limitation, such property now or in the future located at, upon or about, or
affixed or attached to or installed in, the real property at the following
locations: 10675 Sorrento Valley Road, Suite 200, San Diego, CA 92121; 8402
Magnolia Avenue, .Suite C, Santee, CA 92071; 3419 Washington Avenue, Gulfport,
MS 39507; 3413B Washington Avenue, 'Gulfport, MS 39507; Zaalbergwerg 1 lb, 2314
XS Leiden, The Netherlands (the "Real Property"), or used or to be used in
connection with or otherwise relating to the business of Debtor/Grantor or the
Real Property, and all types of tangible personal property of any kind or nature
related thereto, and all accessories, additions, attachments, parts, proceeds,
products, repairs, replacements and substitutions of or to any of such property
(the "Goods", and together with the Real Property, the "Property"); and All
present and future right, title and interest of Debtor/Grantor in and to all
accounts, general intangibles, chattel paper, deposit accounts, money,
instruments and documents (as those terms are defined in the UCC) and all other
agreements, obligations, rights and written materials (in each case whether
existing now or in the future), including, without limitation, all such
accounts, general intangibles, chattel paper, deposit accounts, money,
instruments and documents now or in the future relating to or otherwise arising
in connection with or derived from the business of Debtor/Grantor or the
Property or the ownership, use, development, construction, maintenance,
management, operation, marketing, leasing, occupancy, sale or financing of the
business of Debtor/Grantor, the Real Property, or the Property, including (i)
permits, approvals and other governmental authorizations, (ii) improvement plans
and specifications and architectural drawings, (iii) agreements with
contractors, subcontractors, suppliers, project managers and supervisors,
designers, architects, engineers, sales agents, leasing agents, consultants and
property managers, (iv) warranties, guaranties, indemnities and insurance
policies, together with insurance payments and unearned insurance premiums, (v)
claims, demands, awards, settlements and other payments arising or resulting
from or otherwise relating to any insurance or any loss or destruction of,
injury or damage to, trespass on or taking, condemnation (or conveyance in lieu
of condemnation) or public use of the Real Property or any of the Property, (vi)
any cash collateral ac6ount maintained pursuant to any of the Loan Documents,
and any amounts deposited by Debtor/Grantor with Secured Party/Lender which are
to be held in any such cash collateral account, (vii) leases, rental agreements,
license agreements, service and maintenance agreements, purchase and sale
agreements and purchase options, together with advance payments, security
deposits and other amounts paid to or deposited with Debtor/Grantor under any
such agreements, (viii) reserves, deposits, bonds, deferred payments, refunds,
rebates, discounts, cost savings, escrow proceeds, sale proceeds and other
rights to the payment of money, trade names, trademarks, goodwill and all other
types of intangible personal property of any kind or nature, and (x) all
supplements, modifications, amendments, renewals, extensions, proceeds,
replacements and substitutions of or to any of such property (the Intangibles").
Debtor/Grantor:BOATRACS, Inc.
By: Jon Gilbert, President/Chief Executive Officer/ Director
BY: Michael L. Silverman, Chairman of the Board/Director
EXHIBIT 10.28
First National Bank
COMMERCIAL SECURITY AGREEMENT
Borrower: BOATRACS, INC.; ET. AL.
10675 SORRENTO VALLEY ROAD, #200
SAN DIEGO, CA 92121
Grantor: BOATRACS (EUROPE) B.V. and OCEANTRAC INCORPORATED
Lender: FIRST NATIONAL BANK
Corporate Banking
P.O. Box 85625 (CS#51)
San Diego, CA 92186-6625
THIS COMMERCIAL SECURITY AGREEMENT Is entered Into among BOATRACS, INC. and
ENERDYNE TECHNOLOGIES, INC. (referred to below Individually and collectively as
"Borrower"); BOATRACS (EUROPE) B.V. and OCEANTRAC INCORPORATED (referred to
below Individually and collectively as "Grantor"); and FIRST NATIONAL BANK
(referred to below as "Lender"). For valuable consideration, Grantor grants to
Lender a security Interest In the Collateral to secure the Indebtedness and
agrees that Lender shall have the rights stated In this Agreement with respect
to the Collateral, In addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used In
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms In the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Commercial Security Agreement, as
this Commercial Security Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Commercial Security
Agreement from time to time.
Borrower. The word "Borrower" means each and every person or entity signing the
Note, Including without limitation
BOATRACS, INC. and ENERDYNE TECHNOLOGIES, INC.
Collateral. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located: All Inventory, chattel paper, accounts,
equipment, general Intangibles and fixtures more specifically described in the
"Business Assets Collateral Description" attached hereto and Incorporated herein
by reference In addition, the word "Collateral" Includes all the following,
whether now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located: I (a) All attachments, accessions, accessories,
tools, parts, supplies, Increases, and additions to and all replacements of and
substitutions for any property described above. (b) All products and produce of
any of the property described in this Collateral section. (c) All accounts,
general Intangibles, Instruments, rents, monies, payments, and all other rights,
arising out of a sale, lease, or other disposition of any of the property
described In this Collateral section. (d) All proceeds (including Insurance
proceeds)from the sale, destruction, loss, or other disposition of any of the
property described In this Collateral section. (e) All records and data relating
to any of the property described In this Collateral section, whether in the form
of a writing, photograph, microfilm, microfiche, or electronic media, together
with all of Grantor's right, title, and Interest In and to all computer software
required to utilize, create, maintain, and process any such records or data on
electronic media.
Event of Default. The words "Event of Default" mean and Include without
limitation any of the Events of Default set
forth below In the section titled "Events of Default."
Grantor. The word "Grantor" means BOATRACS (EUROPE) B.V. and OCEANTRAC
INCORPORATED. Any Grantor who signs this Agreement, but does not sign the Note,
Is signing this Agreement only to grant a security Interest In Grantor's
Interest In the Collateral to Lender and Is not personally liable under the Note
except as otherwise provided by contract or law (e.g., personal liability under
a guaranty or as a surety).
Guarantor. The word "Guarantor" means and Includes without limitation each and
all of the guarantors, sureties, and
accommodation parties In connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the Indebtedness evidenced by the
Note, Including all principal and Interest, together with all other Indebtedness
and costs and expenses for which Grantor or Borrower Is responsible under this
Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" Includes all other obligations, debts and liabilities, plus
Interest thereon, of Borrower, or any one or more of them, to Lender, at well as
all claims by Lender against Borrower, or any one or more of them, whether
existing now or later; whether they are voluntary or involuntary, due or not
due, direct or Indirect, absolute or contingent, liquidated or unliquidated;
whether Borrower may be liable Individually or jointly with others; whether
Borrower may be obligated as guarantor, surety, accommodation party or
otherwise; whether recovery upon such Indebtedness may be or hereafter may
become barred by any statute of limitations; and whether such Indebtedness may
be or hereafter may become otherwise unenforceable. (Initial Here)
Lender. The word "Lender" means FIRST NATIONA,BANK, Its successors and assigns.
Note. The word "Note" means the notes dated December 29, 1998, In the principal
amounts of $750,000.00 and $4,250,000.00 from BOATRACS, INC. to Lender, together
with all renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for the note.
Related Documents. The words "Related Documents" mean and Include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other Instruments, agreements and documents, whether now or
hereafter existing, executed In connection with the Indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this
Agreement or by applicable law, (a) Borrower agrees that Lender need not tell
Borrower about any action or Inaction Lender takes In connection with this
Agreement; (b) Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (c) Borrower waives any defenses that may
arise because of any action or Inaction of Lender, including without limitation
any failure of Lender to realize upon the Collateral or any delay by Lender In
realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or falls to take under this Agreement.'
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that:(a)this
Agreement is executed at Borrower's request and not at the request of Lender (b)
Grantor has the full right, power and authority to enter into this Agreement and
to pledge the Collateral to Lender; (c) Grantor ahs established adequate means
of obtaining from Borrower on a continuing basis information about Borrower's
financial condition; and (d) Lender has made no representation to Grantor about
Borrower or Borrower's creditworthiness.
GRANTOR'S WAIVERS. Except as prohibited by applicable law, Grantor waives any
right to require Lender to (a) make any presentment, protest, demand, or notice
of any kind, including notice of change of any terms of repayment of the
Indebtedness default by Borrower or any other guarantor or surety, any action or
nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, on the creation of new or additional Indebtedness (b) proceed against
any person, including Borrower, before proceeding against Grantor; (c) proceed
against any collateral for the Indebtedness including Borrower's collateral,
before proceeding against Grantor; (d) apply any payments or proceeds received
against the Indebtedness in any order (e) give notice of the terms, time, and
place of any sale of any collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, any collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever.
Grantor also waives any and all rights or defenses arising by reason of (h) any
disability or other defense of Borrower, any other guarantor or surety or any
other person; (i) the cessation from any cause whatsoever, other than payment in
full, of the Indebtedness; (j) the application of proceeds of the Indebtedness
by Borrower for purposes other than the purposes understood and intended by
Grantor and Lender; (k) any act of omission or commission by Lender which
directly or indirectly results in or contributes to the discharge of Borrower or
any other guarantor or surety, or the Indebtedness, or the loss or release of
any collateral by operation of law or otherwise; (l) any statute of limitations
in any action under this Agreement or on the Indebtedness; or (m) any
modification or change in terms of the Indebtedness, whatsoever, including
without limitation, the renewal, extension, acceleration, or other change in the
time payment of the Indebtedness is due and any change in the interest rate.
Grantor waives all rights and defenses arising out of an election of remedies by
Lender, even though that election of remedies, such as nonjudicial foreclosure
with respect to security for a guaranteed obligation, has destroyed Grantor's
rights of subrogation and reimbursement against Borrower by the operation of
Section 580d of the California Code of Civil Procedure, or otherwise. This
waiver Includes, without limitation, any loss of rights Grantor may suffer by
reason of any rights or protections of Borrower In connection with any
anti-deficiency laws, or other laws limiting or discharging the Indebtedness or
Borrower's obligations (including, without limitation, Section 726, 580a, 580b,
and 580d of the California Code of Civil Procedure). Grantor waives all rights
and protections of any kind which Grantor may have for any reason, which would
affect or limit the amount of any recovery by Lender from Grantor following a
nonjudicial sale or judicial foreclosure of any real or personal property
security for the Indebtedness Including, but not limited to, the right to any
fair market value hearing pursuant to California Code of Civil Procedure Section
580a.
Grantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Grantor might otherwise be entitled
under state and federal law. The rights and defenses waived Include, without
limitation, those provided by California laws of suretyship and guaranty,
anti-deficiency laws, and the Uniform Commercial Code. Grantor acknowledges that
Grantor has provided these waivers of rights and defenses with the intention
that they be fully relied upon by Lender. Until all Indebtedness Is paid In
full, Grantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further, Grantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become Insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Grantor hereby forever waives and relinquishes In favor of
Lender and Borrower, and their respective successors, any claim or right to
payment Grantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Grantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b),or any
successor provision of the Federal bankruptcy laws.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security Interest In
and hereby assigns, conveys, delivers, pledges, and transfers all of Grantor's
right, title and Interest In and to Grantor's accounts with Lender (whether
checking, savings, or some other account), Including all accounts held jointly
with someone else and all accounts Grantor may open In the future, excluding,
however, all IRA and Keogh accounts, and all trust accounts for which the grant
of a security Interest would be prohibited by law. Grantor authorizes Lender, to
the extent permitted by applicable law, to charge or setoff all Indebtedness
against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor Warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to perfect
and continue Lender's security Interest In the Collateral. Upon request of
Lender, Grantor will deliver to Lender any and all of the documents evidencing
or constituting the Collateral, and Grantor will note Lender's Interest upon any
and all chattel paper If not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as Its Irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to continue the
security Interest granted In this Agreement. Lender may at any time, and without
further authorization from Grantor, file a carbon, photographic or other
reproduction of any financing statement or of this Agreement for use as a
financing statement. Grantor will reimburse Lender for all expenses for the
perfection and the continuation of the perfection of Lender's security interest
in the Collateral. Grantor promptly will notify Lender before any change In
Grantor's name Including any change to the assumed business names of Grantor.
This Is a continuing Security Agreement and will continue In effect even though
all or any part of the Indebtedness Is paid. In full and even though for a
period of time Borrower may not be Indebted to Lender.
No Violation. The execution and delivery of this Agreement will not violate any
law or agreement governing Grantor or to which Grantor Is a party, and its
articles or agreements relating to entity incorporation, organization or
existence do not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of accounts,
chattel paper, or general Intangibles, the Collateral Is enforceable In
accordance with its terms, is genuine, and compiles with applicable laws
concerning form, content and manner of preparation and execution, and all
persons appearing to be obligated on the Collateral have authority and capacity
to contract and are In fact obligated as they appear to be on the Collateral.
Location of the Collateral. Grantor, upon request of Lender, will deliver to
Lender In form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, Including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d) all
other properties where Collateral Is or may be located. Except In the ordinary
course of its business, Grantor shall not remove the Collateral from its
existing locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent the
Collateral consists of Intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such other
locations as are acceptable to Lender. Except in the ordinary course of Its
business, Including the sales of Inventory, Grantor shall not remove the
Collateral from Its existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of vehicles, or other titled
property, Grantor shall not take or permit any actr6n which would require
application for certificates of title for the vehicles outside the State of
California, without the prior written consent of Lender. Transactions Involving
Collateral. Except for inventory sold or accounts collected In the ordinary
course of Grantor's business, Grantor shall not sell, offer to sell, or
otherwise transfer or dispose of the Collateral. While Grantor Is not In default
under this Agreement, Grantor may sell Inventory, but only In the ordinary
course of Its business and only to buyers who quality as a buyer in the ordinary
course of business. A sale in the ordinary course of Grantor's business does not
Include a transfer in partial or total satisfaction of a debt or any bulk sale.
Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral
to be subject to any lien, security Interest, encumbrance, or charge, other than
the security Interest provided for In this Agreement, without the prior written
consent of Lender. This Includes security Interests even If junior In right to
the security Interests granted under this Agreement. Unless waived by Lender,
all proceeds from any disposition of the Collateral (for whatever reason) shall
be held in trust for Lender and shall not be commingled with any other funds;
provided however, this requirement shall not constitute consent by Lender to any
sale or other disposition. Upon receipt, Grantor shall Immediately deliver any
such proceeds to Lender. Title. Grantor represents and warrants to Lender that
It holds good and marketable title to the Collateral, free and clear of all
liens and encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public office other
than those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's rights In
the Collateral against the claims and demands of all other persons.
Collateral Schedules and Locations. Insofar as the Collateral consists of
Inventory,, Grantor shall deliver to Lender, as often as Lender shall require,
such lists, descriptions, and designations of such Collateral as Lender may
require to Identify the nature, extent, and location of such Collateral. Such
Information shall be submitted for Grantor and each of Its subsidiaries or
related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all tangible
Collateral In good condition and repair. Grantor will not commit or permit
damage to or destruction of the Collateral or any part of the Collateral. Lender
and Its designated representatives and agents shall have the right at all
reasonable times to examine, inspect, and audit the Collateral wherever located.
Grantor shall Immediately notify Lender of all cases Involving the return,
rejection, repossession, loss or damage of or to any Collateral; of any request
for credit or adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the Collateral
or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments
Compliance With Government Requirements. Grantor shall comply with all laws,
ordinances, rules and regulations of all governmental authorities, now or
hereafter in effect, applicable to the ownership, production, disposition, or
use of the Collateral. Grantor may contest in good faith any such law, ordinance
or regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral never
has been, and never will be so long as this Agreement remains a lien on the
Collateral, used for the generation, manufacture, storage, transportation,
treatment, disposal, release or threatened released of any hazardous waste or
substance, as those terms are defined in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section
9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986, Pub.L.No.99-499 ("SARA"), the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the
California Health and Safety Code, Section 25100, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous substance" shall also
include, without limitation, petroleum and petroleum byproducts or any traction
thereof and asbestos. The representations and warranties contained herein are
based on Grantor's due diligence In Investigating the Collateral for hazardous
wastes and substances. Grantor hereby (a) releases and waives any future claims
against Lender for Indemnity or contribution In the event Grantor becomes liable
for cleanup or other costs under any such laws, and (b) agrees to Indemnify and
hold harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to Indemnity shall
survive the payment of the Indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks
insurance, including without limitation fire, theft and liability coverage
together with such other Insurance as Lender may require with respect to the
Collateral, in form, amounts, coverages and basis reasonably acceptable to
Lender and Issued by a company or companies reasonably acceptable to Lender.
Grantor, upon request of Lender, will deliver to Lender from time to time the
policies or certificates of Insurance In form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at least
ten (10) days' prior written notice to Lender and not including any disclaimer
of the Insurer's liability for failure to give such a notice. Each Insurance
policy also shall Include an endorsement providing that coverage In favor of
Lender will not be Impaired in any way by any act, omission or default of
Grantor or any other person. In connection with all policies covering assets In
which Lender holds or is offered a security Interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require. If
Grantor at any time falls to obtain or maintain any Insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such Insurance
as Lender deems appropriate, Including If It so chooses "single Interest
insurance," which will cover only Lender's Interest In the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of any
loss material or damage to the Collateral. Lender may make proof of loss If
Grantor falls to do so within fifteen (15) days of the casualty. All proceeds of
any Insurance on the Collateral, Including accrued proceeds thereon, shall be
held by Lender as part of the Collateral. If Lender consents to repair or
replacement of the damaged or destroyed Collateral, Lender shall, upon
satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds
for the reasonable cost of repair or restoration. If Lender does not consent to
repair or replacement of the Collateral, Lender shall retain a sufficient amount
of the proceeds to pay all of the Indebtedness, and shall pay the balance to
Grantor. Any proceeds which have not been disbursed within six (6) months after
their receipt and which Grantor has not committed to the repair or restoration
of the Collateral shall be used to prepay the Indebtedness. Insurance Reserve.
Lender may require Grantor to maintain with Lender reserves for payment of
Insurance premiums, which reserves shall be created by monthly payments from
Grantor of a sum estimated by Lender to be sufficient to produce, at least
fifteen (15) days before the premium due date, amounts at least equal to the
Insurance premiums to be paid. If fifteen (15) days before payment Is due, the
reserve funds are Insufficient, Grantor shall upon demand pay any deficiency to
Lender. The reserve funds shall be held by Lender as a general deposit and shall
constitute a non-Interest-bearing account which Lender may satisfy by payment of
the Insurance premiums required to be paid by Grantor as they become due. Lender
does not hold the reserve funds In trust for Grantor, and Lender Is not the
agent of Grantor for payment of the insurance premiums required to be paid by
Grantor. The responsibility for the payment of premiums shall remain Grantor's
sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of Insurance showing such Information as Lender
may reasonably request Including the following: (a) the name of the Insurer; (b)
the risks Insured; (c) the amount of the policy; (d) the property Insured;
(e)the then current value on the basis of which Insurance has been obtained and
the manner of determining that value; and (f)the expiration date of the policy.
In addition, Grantor shall upon request by Lender (however not more often than
annually)have an Independent appraiser satisfactory to Lender determine, as
applicable, the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not Inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security Interest In such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care In
the custody and preservation of the Collateral If Lender takes such action for
that purpose as Grantor shall request or as Lender, In Lender's sole discretion,
shall deem appropriate Under the circumstances, but failure to honor any request
by Grantor shall not of Itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights In the Collateral against prior parties, nor to protect, preserve or
maintain any security Interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, Including without limitation
all taxes, liens, security Interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for Insuring, maintaining and preserving the
Collateral. All such expenditures Incurred or paid by Lender for such purposes
will then bear Interest at the rate charged under the Note from the date
Incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable o6 demand, (b) be added to the balance of the, Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable Insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may b entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement. Default on Indebtedness. Failure of Borrower to make any
payment within five days following the date due on the Indebtedness. Other
Defaults. Failure of Grantor or Borrower to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or In any of
the Related Documents or failure of Borrower to comply with or to perform any
term, obligation, covenant or condition contained in any other agreement between
Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any other Grantor default
under any loan, extension of credit, security agreement, purchase or sales
Agreement or any other for money borrowed in excess of $50,000.00 in favor of
any other creditor or person that may materially affect any Borrower's Property
or Borrowers or any Grantor's ability to repay the loans or perform their
respective obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to
Lender by or on behalf of Grantor or Borrower under this Agreement, the Note or
the Related Documents Is false or misleading In any material respect, either now
or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be In full force and effect (including failure of any collateral
documents to create a valid and perfected security Interest or lien)at any time
and for any reason. Insolvency continued in paragraph entitled "Additional
Provision". The dissolution or termination of Grantor or Borrower's existence as
a going business, the Insolvency of Grantor or Borrower, the appointment of a
receiver for any part of Grantor or Borrower's property, any assignment for the
benefit of creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or Insolvency laws by or against Grantor or
Borrower.
Creditor or Forfeitures Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or Borrower or by any governmental
agency against the Collateral or any other collateral securing the Indebtedness.
This includes a garnishment of any of Grantor or Borrower's deposit accounts
with Lender. However, this Event of Default shall not apply If there Is a good
faith dispute by Grantor or Borrower as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding and If Grantor
or Borrower gives Lender written notice of the creditor or forfeiture proceeding
and deposits with Lender monies or a surety bond for the creditor or forfeiture
proceeding, In an amount determined by Lender, in its sole discretion, as being
an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any `guarantor of any of the indebtedness or such Guarantor dies or becomes
incompetent. Lender, at its option, may, but shall not be required to, permit
the Guarantor's estate to assume unconditionally the obligations arising under
the guaranty in a manner satisfactory to Lender, and, in doing so, cure the
Event of Default.
Adverse Change. A Material adverse change occurs in Borrower's financial
condition, or Lender reasonable believes the prospect of payment or performance
of the indebtedness is impaired.
Right to Cure. If any default, other than a Default on indebtedness, is curable
and if Grantor or Borrower has not been given a prior notice of a breach of the
same provision of the Agreement, it may be cured (and no Event of Default will
have occurred) if Grantor or `Borrower, after Lender sends written notice
demanding cure of such default, (a) cures the default within ten (10) days; or
(b) if the cure requires more than ten (10) days, immediately initiates steps
which Lender deems in Lender's sole discretion to be sufficient to cure the
default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire indebtedness, including
any prepayment penalty which Borrower would be required to pay, immediately due
and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or any
portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral. Lender may require Grantor to assemble the
Collateral and make It available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the property of Grantor
to take possession of and remove the Collateral. If the Collateral contains
other goods not covered by this Agreement at the time of repossession, Grantor
agrees Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer, or
otherwise deal with the Collateral or proceeds thereof In Its own name or that
of Grantor. Lender may sell the Collateral at public auction or private sale.
Unless the Collateral threatens to decline speedily In value or is of a type
customarily sold on a recognized market, Lender will give Grantor reasonable
notice of the time after which any private sale or any other Intended
disposition of the Collateral Is to be made. The requirements of reasonable
notice shall be met If such notice Is given at least ten (10) days, or such
lesser time as required by state law, before the time of the sale or
disposition. All expenses relating to the disposition of the Collateral,
Including without limitation the expenses of retaking, holding, Insuring,
preparing for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
Interest at the Note rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall have
the following rights and remedies regarding the appointment of a receiver: (a)
Lender may have a receiver appointed as a matter of right, (b) the receiver may
be an employee of Lender and may serve without bond, and (c) all fees of the
receiver and his or her attorney shall become part of the Indebtedness secured
by this Agreement and shall be payable on demand, with Interest at the Note rate
from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either Itself or through a receiver,
may collect the payments, rents, Income, and revenues from the Collateral.
Lender may at any time In Its discretion transfer any Collateral into Its own
name or that of Its nominee and receive the payments, rents, Income, and
revenues therefrom and hold the same as security for the Indebtedness or apply
it to payment of the Indebtedness In such order of preference as Lender may
determine. Insofar as the Collateral consists of accounts, general Intangibles,
Insurance policies, Instruments, chattel paper, choses In action, or similar
property, Lender may demand, collect, receipt for, settle, compromise, adjust,
sue for, foreclose, or realize on the Collateral as Lender may determine,
whether or not Indebtedness or Collateral Is then due. For these purposes,
Lender may, on behalf of and In the name of Grantor, receive, open and dispose
of mail addressed to Grantor; change any address to which mail and payments are
to be sent; and endorse notes, checks, drafts, money orders, documents of title,
Instruments and Items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to Lender. Obtain
Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may
obtain a judgment against Borrower for any deficiency remaining on the
Indebtedness due to Lender after application of all amounts received from the
exercise of the rights provided In this Agreement. Borrower shall be liable for
a deficiency even If the transaction described In this subsection Is a sale of
accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform Commercial Code, as may be
amended from time to time. In addition, Lender shall have and may exercise any
or all other rights and remedies It may have available at law, In equity, or
otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by
this Agreement or the Related Documents or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election by Lender
to pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor or Borrower under this Agreement, after Grantor or Borrower's failure to
perform, shall not affect Lender's right to declare a default and to exercise
Its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth In
this Agreement. No alteration of or amendment to this Agreement shall be
effective unless given In writing and signed by the party or parties sought to
be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender In the State of California. If there is a lawsuit, Grantor and Borrower
agree upon Lender's request to submit to the jurisdiction of the courts of San
Diego County, the State of California. Lender, Grantor and Borrower hereby waive
the right to any jury trial In any action, proceeding, or counterclaim brought
by either Lender, Grantor or Borrower against the other. (Initial Here). This
Agreement shall be governed by and construed In accordance with the laws of the
State of California.
Attorneys' Fees; Expenses. Grantor and Borrower agree to pay upon demand all of
Lender's costs and expenses, Including attorneys' fees and Lender's legal
expenses, Incurred In connection with the enforcement of this Agreement. Lender
may pay someone else to help enforce this Agreement, and Grantor and Borrower
shall pay the costs and expenses of such enforcement. Costs and expenses Include
Lender's attorneys' fees and legal expenses whether or not there Is a lawsuit,
Including attorneys' fees and legal expenses for bankruptcy proceedings (and
including efforts to modify or vacate any automatic stay or Injunction),
appeals, and any anticipated post-judgment collection services. Grantor and
Borrower also shall pay all court costs and such additional fees as may be
directed by the court.
Caption Headings. Caption headings In this Agreement are for convenience
purposes only and are not to be used to
Interpret or define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor and Borrower
under this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower, and all references to Grantor shall mean
each and every Grantor. This means that each of the persons signing below Is
responsible for all obligations In this Agreement.
Notices. All notices required to be given under this Agreement shall be given In
writing, may be sent by telefacsimile (unless otherwise required by law), and
shall be effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited In the United States mail, first
class, postage prepaid, addressed to the party to whom the notice Is to be given
at the address shown above. Any party may change Its address for notices under
this Agreement by giving formal written notice to the other parties, specifying
that the purpose of the notice Is to change the party's address. To the extent
permitted by applicable law, If there is more than one Grantor or Borrower,
notice to any Grantor or Borrower will constitute notice to all Grantor and
Borrowers. For notice purposes, Grantor and Borrower will keep Lender Informed
at all times of Grantor and Borrower's current address(es). Power of Attorney.
Grantor hereby appoints Lender as Its true and lawful attorney-in-fact,
Irrevocably, with full power of substitution to do the following: (a) to demand,
collect, receive, receipt for, sue and recover all sums of money or other
property which may now or hereafter become due, owing or payable from the
Collateral; (b) to execute, sign and endorse any and all claims, Instruments,
receipts, checks, drafts or warrants Issued In payment for the Collateral; (c)
to settle or compromise any and all claims arising under the Collateral, and, In
the place and stead of Grantor, to execute and deliver Its release and
settlement for the claim; and (d) to file any claim or claims or to take any
action or Institute or take part In any proceedings, either In Its own name or
In the name of Grantor, or otherwise, which In the discretion of Lender may seem
to be necessary or advisable. This power Is given as security for the
Indebtedness, and the authority hereby conferred Is and shall be Irrevocable and
shall remain In full force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted preference
claim In Borrower's bankruptcy will
become a part of the Indebtedness and, at Lender's option, shall be payable by
Borrower as provided above in the
"EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be Invalid or unenforceable as to any person or circumstances, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer of
the Collateral, this Agreement shall be binding upon and inure to the benefits
of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any Lender's rights or of any
of Grantor's obligations as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent to subsequent instances
where such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
Waiver of Co-obligor's Rights. If more than one person is obligated for the
indebtedness, Borrower irrevocably waives, disclaims and relinquishes all claims
against such other person which Borrower has or would otherwise have by virtue
of payment of the indebtedness or any part thereof, specifically including but
not limited to all rights of indemnity, contribution or exoneration.
ADDITIONAL PROVISION. Unless in the event of an involuntary bankruptcy,
proceeding, attachment, garnishment or appointment of receiver, such proceedings
shall be dismissed or vacated within sixty (60) days.
COMMERCIAL SECURITY AGREEMENT
BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT, AND BORROWER AND GRANTOR AGREE TO ITS TERMS. THIS
AGREEMENT IS DATED DECEMBER 29,1998.
BORROWER:
BOATRACS,INC (SEAL)
By: Jon Gilbert, President/Chief Executive Officer/Director
By: Michael Silverman, Chairman of the Board/Director
ENDERYNE TECHNOLIGES, INC., Co-Borrower
Jon Gilbert, President
By: Curt McLeland, Chief Financial Officer/Secretary
GRANTOR:
BOATRACS(EUROPE) B.V.
(SEAL)
Michael Silverman, Co-managing director
Peter Carides, Co-managing director
(SEAL)
0CEANTRAC INCORPORATED
Jon Gilbert, President
BY: Curt McLeland, Chief Financial Officer
(SEAL)
ATTEST:
Secretary or Assistant Secretary
( Corporate Seal )
BUSINESS ASSETS COLLATERAL DESCRIPTION
Debtor/Grantor: Boatracs (Europe) B. V. and Oceantrac Incorporated
The Description covers the following types or items of property:
All present and future right, title and interest of Debtor/Grantor in and to all
inventory, equipment, Fixtures and other goods (as those terms are defined in
Division 9 of the California Uniform Commercial Code (the UCC1), and whether
existing now or in the future) wherever located and including, without
limitation, such property now or in the future located at, upon or about, or
affixed or attached to or installed in, the real property at the following
locations: 10675 Sorrento Valley Road, Suite 200, San Diego, CA 92121; 8402
Magnolia Avenue, Suite C, Santee, CA 92071; 3419 Washington Avenue, Gulfport, MS
39507; 3413B Washington Avenue, Gulfport, MS 39507; Zaalbergwerg I lb, 2314 XS
Leiden, The Netherlands (the "Real Property"), or used or to be used in
connection with or otherwise relating to the business of Debtor/Grantor or the
Real Property, and all types of tangible personal property of any kind or nature
related thereto, and all accessories, additions, attachments, parts, proceeds, '
products, repairs, replacements and substitutions of or to any of such property
(the "Goods", and together with the Real Property, the "Property"); and All
present and future right, title and interest of Debtor/Grantor in and to all
accounts, general intangibles, chattel paper, deposit accounts, money,
instruments and documents (as those terms are defined in the UCC) and all other
agreements, obligations, rights and written materials (in each case whether
existing now or in the future), including, without limitation, all such
accounts, general intangibles, chattel paper, deposit accounts, money,
instruments and documents now or in the future relating to or otherwise arising
in connection with or derived from the business of Debtor/Grantor or the
Property or the ownership, use, development, construction, maintenance,
management, operation, marketing, leasing, occupancy, sale or financing of the
business of Debtor/Grantor, the Real Property, or the Property, including (i)
permits, approvals and other governmental authorizations, (ii) improvement plans
and specifications and architectural drawings, (iii) agreements with
contractors, subcontractors, suppliers, project managers and supervisors,
designers, architects, engineers, sales agents, leasing agents, consultants and
property managers, (iv) warranties, guaranties, indemnities and insurance
policies, together with insurance payments and unearned insurance premiums, (v)
claims, demands, awards, settlements and other payments arising or. resulting
from or otherwise relating to any insurance or any loss or destruction of,
injury or damage to, trespass on or taking, condemnation (or conveyance in lieu
of condemnation) or public use of the Real Property or any of the Property, (vi)
any cash collateral account maintained pursuant to any of the Loan Documents,
and any amounts deposited by Debtor/Grantor with Secured Party/Lender which are
to be held in any such cash collateral account, (vii) leases, rental agreements,
license agreements, service and maintenance agreements, purchase and sale
agreements and purchase options, together with advance payments, security
deposits and other amounts paid to or deposited with Debtor/Grantor under any
such agreements, (viii) reserves, deposits, bonds, deferred payments, refunds,
rebates, discounts, cost savings, escrow proceeds, sale proceeds and other
rights to the payment of money, trade names, trademarks, goodwill and all other
types of intangible personal property of any kind or nature, and (x) all
supplements, modifications, amendments, renewals, extensions, proceeds,
replacements and substitutions of or to any of such property (the Intangibles").
Debtor/Grantor: BOATRACS (Europe) B. V. By: Michael Silverman, Co-managing
director BY: Peter Carides, Co-managing director OCENATRAC INCORPORATED BY: Jon
Gilbert, President BY: Curt McLeland, Chief Financial Officer
Jon Gilbert, President
BY:
Curt McLeland, Chief Financial Officer
EXHIBIT 10.29
COLLATERAL ASSIGNMENT,PATENT MORTGAGE AND SECURITY AGREEMENT
This Collateral Assignment, Patent Mortgage and Security Agreement ("Agreement")
is made and entered into as of the 29TH day of December, 1998, by and between
Enerdyne Technologies, Inc., a California corporation ("Grantor") and First
National Bank, a national banking association ("Grantee"), with reference to the
following:
RECITALS
A. Grantee has agreed to loan to Grantor and Boatracs, Inc., a California
corporation ("Boatracs"), Grantor's parent corporation, the sum of $5,000,000,
evidenced by two (2) promissory notes in the principal amounts of $4,250,000 and
$750,000 (collectively, the "Loan"). B. In order to induce Grantee to make the
Loan, Grantor has agreed to assign to Grantee certain intangible property to
Grantee as security for the repayment of the Loan. NOW, THEREFORE, in
consideration of the above Recitals and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
subject to the terms and conditions contained herein, Grantor and Grantee hereby
agree as follows:
1.Assignment, Patent Mortgage and Grant of Security Interest. As collateral
security for the prompt and complete repayment of the Loan, the performance of
all other obligations of Grantor and Boatracs set forth in that certain Loan
Agreement of even date herewith by and among Grantor, Grantee and Boatracs, and
the Related Documents (as such term is defined in the Loan' Agreement), Grantor
hereby assigns, transfers, conveys and grants a security interest and mortgage
to Grantee, as security, in and to Grantor's right, title and interest in, to
and under the following, now or hereafter existing, created, acquired or held by
Grantor (collectively, the "Collateral"): (a) Any and all copyright rights,
copyright applications, copyright registrations and similar protections in each
work of authorship and derivative work thereof, whether published or unpublished
and whether or not the same also constitute trade secrets (collectively, the
"Copyrights"), (b) Any and all trade secrets and any and all intellectual
property rights in computer software and computer software products, (c) Any and
all design rights which may be available to Grantor (d) All patents, patent
applications and like protections including, without limitation, improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same, including, without limitation, those set
forth on Exhibit A attached hereto and incorporated herein by reference
(collectively, the "Patents"), (e) Any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Grantor connected
with and symbolized by such trademarks, including, without limitation, those set
forth in Exhibit B attached hereto and incorporated herein by reference
(collectively, the "Trademarks"), (f) Any and all claims for damages by way of
past, present and future infringement of any of the rights set forth above, with
the right, but not the obligation, to sue for and collect such damages for said
use or infringement of the intellectual property rights described above, (g) All
licenses or other rights to use any of the Copyrights, Patents or Trademarks,
and all license fees and royalties arising from such use to the extent permitted
by such licenses and rights, (h) All amendments, renewals and extensions of any
of the Copyrights, Patents or Trademarks, and (i) All proceeds and products of
the foregoing, including, without limitation, all payments under insurance or
any indemnity or warranty payable in respect of any of the foregoing.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE CONSTRUED
AS A CURRENT ASSIGNMENT, BUT AS A CONTINGENT ASSIGNMENT TO SECURE REPAYMENT OF
THE LOAN AND ALL OF GRANTOR'S AND BOATRACS' PRESENT OR FUTURE INDEBTEDNESS,
OBLIGATIONS AND LIABILITIES TO GRANTEE, INCLUDING, WITHOUT LIMITATION, ALL
INDEBTEDNESS, OBLIGATIONS AND LIABILITIES UNDER THE LOAN AGREEMENT AND THE
RELATED DOCUMENTS.
2. Authorization and Request. Grantor authorizes and requests that the Register
of Copyrights and the, Commissioner of Patents and Trademarks record this
Agreement.
3. Covenants and Warranties.
(a) Except as set forth in Exhibit C hereto, to the best knowledge of Grantor,
Grantor has valid and marketable title to the Collateral, free and clear of all
material liens and other encumbrances, except for third party rights licensed to
it, which it has a valid right to use with respect to the Collateral. (b) Until
such time as the Loan has been repaid in full and all of Grantor's and Boatracs'
obligations under the Loan Agreement and the Related Documents have been
satisfied, Grantor will not sell, assign, transfer or otherwise encumber any
interest in the Collateral, except for:(i) non-exclusive licenses granted by
Grantor in the ordinary and normal course of its business as now conducted or as
otherwise set forth in this Agreement, and (ii) subject to Grantor's execution
of appropriate documents, in form acceptable to Grantee, to perfect or continue
the perfection of Grantee's interest in the Collateral, transfers to affiliates
of Grantor. (c) Grantor shall promptly advise Grantee of any material changes in
the composition of the Collateral, including, but not limited to, any subsequent
ownership right of grantor in or to any Copyright, Patent or Trademark not
specified in this Agreement. (d) Grantor shall: (i) protect, defend and maintain
the validity and enforceability of the Copyrights, Patents and Trademarks, (ii)
use its best efforts to detect any infringement of the Copyrights, Patents and
Trademarks and promptly advise Grantee in writing of any material infringement
detected, and (iii) not allow any Copyrights, Patents or Trademarks to be
abandoned, forfeited or dedicated to the public without the written consent of
Grantee, which consent shall not be unreasonably withheld, unless Grantor
determines that reasonable business practices suggest that abandonment is
appropriate. (e) Grantor shall promptly register the most recent version of
Grantor's material Copyrights, obtained after the date hereof, as Grantee may
reasonably request from time to time, and shall from time to time, execute and
file such other instruments and take such further actions as Grantee may
reasonably request from time to time to perfect or continue the perfection of
Grantee's interest in the Collateral. (f) (i) To the knowledge of Grantor, this
Agreement creates, and in the case of after-acquired Collateral, this Agreement
will create at the time Grantor first has rights in such after-acquired
Collateral, in favor of Grantee a validsecurity interest in the Collateral in
the United States securing the payment and performance of all indebtedness,
obligations and liabilities of Grantor to Grantee under the Loan Agreement and
Related Documents upon making the filings referred to in Section 3(g) below.
(ii)Except as against (1) any non-material liens and other encumbrances
(including, without limitation, third party license rights) granted by Grantor,
(2) any liens, security interests and other encumbrances in the Collateral
granted after December 10, 1997, (3) any liens, security interests and other
encumbrances in the Collateral (which are pending patent or trademark
registration), and (4) security interests in favor of Scott T. Boden and Irene
Shinsato pursuant to that certain Collateral Assignment, Patent Mortgage and
Security Interest dated as of July,7, 1998, which security interests have been
subordinated to the security interests in favor of Grantee hereunder, the filing
of this Agreement with both (A) the UCC Division of the California Secretary of
State, and (B)(i) for copyrights, the United States Copyright Office, or (ii)
for patents and trademarks, the United States Patent and Trademark Office, shall
perfect the security interest granted in Section 3(g) against any liens,
security interests or other encumbrances granted on or after the date three (3)
months prior to the date of filing of this Agreement.(g) To Grantor's best
knowledge, except for, and upon the filings with, as applicable: (i) the United
States Patent and Trademark Office with respect to the Patents and Trademarks,
(ii) the Register of Copyrights with respect to the Copyrights, and the UCC
Division of the California Secretary of State, necessary to perfect the security
interest and assignment created hereunder, and except as has already been made
or obtained, no authorization, approval or other action by, and no notice to or
filing with any United States governmental authority or United States regulatory
body is required either:(A)for the grant by Grantor of the security interest
granted hereby or for the execution, delivery or performance of this Agreement
by Grantor in the United States, or (B) for the perfection in the United States
or the exercise by Grantee of its rights and remedies hereunder. (h) All
information supplied or to be supplied to Grantee by or on behalf of Grantor
with respect to the Collateral is accurate and complete in all material
respects.(i) Grantor will-not enter into any agreement that would materially
impair or conflict with Grantor's obligations hereunder without Grantee's prior
written consent, which consent shall not be unreasonably withheld. Grantor shall
not permit the inclusion in any material contract to which it becomes a party of
any provision that could or might in-any way prevent the creation of a security
interest in Grantor's rights and interests in any property included within the
definition of Collateral acquired under such contracts, except that certain
contracts may contain anti-assignment provisions that could in effect prohibit
the creation of a security interest in such contracts. (j) Upon the Chief
Executive Officer or Chairman of the Board of Grantor obtaining actual knowledge
thereof, Grantor will promptly notify Grantee in writing of any event that
materially and adversely affects the value of any Collateral, the ability of
Grantor to dispose of any Collateral or the rights and remedies of Grantee in
relation thereto, including the levy of any legal process against any of the
Collateral.
4. Grantee's Rights. Grantee shall have the right, but not the obligation, to
take, at Grantor's sole expense, any actions that Grantor is required to but
fails to take under this Agreement, following fifteen (15) days prior notice and
opportunity to cure to Grantor. Grantor shall reimburse and indemnify Grantee
for all reasonable costs and expenses incurred in exercising Grantee's rights
hereunder. 5. Inspection Rights. Grantor hereby grants to Grantee, its
employees, agents and representatives, the right to visit, during business hours
and upon reasonable advance notice to Grantor, any of Grantor's plants and
facilities that manufacture, install or store products (or that have done so at
any time during the prior six (6) months) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable advance written notice to Grantor, and as often as may
be reasonably requested. 6. Further Assurances; Attorney-In-Fact.(a) On request,
Grantor agrees to disclose to Grantee all Copyrights, Patents and Trademarks
that have been applied for by or assigned or granted to Grantor and in which
Grantee does not already have a perfected security interest. (b) Grantor will
make, execute, acknowledge and deliver, and file and record in the proper filing
and recording places in the United States, all such instruments, including
appropriate financing and continuation statements and collateral agreements with
the United States Patent and Trademark Office andthe Register of Copyrights, and
take all such action as may reasonably be necessary, or as reasonably be
requested by Grantee, to perfect Grantee's security interest in all Copyrights,
Patents and Trademarks, which Grantee reasonably identifies pursuant to Section
6(a) above as material to the operation of Grantor's business on an on-going
basis or the value of the Collateral, and otherwise to carry out the intent and
purposes of this Agreement, or for assuring and confirming to Grantee the grant
and perfection of a security interest in all of the Collateral. Upon such
filing, Grantor will deliver notice thereof to Grantee. (c) Grantor hereby
irrevocably appoints Grantee as Grantor's attorney-in-fact, with full authority
in the place and stead of Grantor and in the name of Grantor, from time to time
in Grantee's discretion, to take any action and execute any instrument which
Grantee may deem reasonably necessary or advisable to accomplish the purposes of
this Agreement, including: (i) to modify, in its reasonable discretion, this
Agreement without first obtaining Grantor's approval of or signature to such
modification by amending Exhibit A or Exhibit B hereof, as appropriate, to
include reference to any material right, title or interest in any Patents or
Trademarks acquired by Grantor after the date hereof, or to delete any reference
to any right, title or interest in any Patents or Trademarks in which Grantor no
longer has or claims any right, title or interest, (ii) to file, in its
reasonable discretion, one (1) or more financing or continuation statements and
amendments thereto, related to any of the Collateral without the signature of
Grantor where permitted by law, and (iii) after ' the occurrence and during the
continuance of an Event,of Default under the Loan Agreement or the Related
Documents, to transfer the Collateral into the name of Grantee or a third party
to the extent permitted under the California Uniform Commercial Code. 7. Events
of Default. The occurrence of any of the following shall constitute an Event of
Default under this Agreement:(a) An Event of Default shall occur under the Loan
Agreement or any of the Related Documents, or(b)Grantor breaches any
representation, warranty or other agreement made by Grantor in this Agreement in
any material respect and, if such breach is capable of being cured, Grantor
fails to cure such breach within fifteen (15) days following notice thereof from
Grantee. 8. Remedies. Upon the occurrence and during the continuance of an Event
of Default hereunder, Grantee shall have the right to exercise all of the
remedies of a secured party under the California Uniform Commercial Code
including, without limitation, the right to require Grantor to assemble the
Collateral and any tangible property in which Grantee has a security interest
and to make it available to Grantee at a place designated by Grantee. Grantee
shall have a non-exclusive, royalty free license to use the Copyrights,
Trademarks and Patents to the extent reasonably necessary to permit Grantee to
exercise its rights and remedies hereunder. Grantor will pay any and all
expenses (including reasonable attorneys' fees) incurred by Grantee in the
exercise of any of its rights and remedies hereunder, including, without
limitation, any reasonable expenses incurred in disposing of the Collateral. All
of Grantee's rights and remedies with respect to the Collateral shall be
cumulative. 9. Indemnity. Grantor agrees to defend, indemnify and hold harmless
Grantee and its agents from and against all obligations, claims, demands and
liabilities claimed or asserted by any other party in connection with the
transactions described in or otherwise contemplated by this Agreement. 10.
Reassignment. At such time as Grantor shall completely satisfy all of the
obligations set forth in the Loan Agreement and the Related Documents, Grantee
shall execute and deliver to Grantor all deeds, assignments and other
instruments as may be necessary or proper to revest in Grantor full title to the
Collateral, subject to any disposition thereof which may have been previously
made by Grantee hereunder. 11. No Failure or Delay. No failure or delay on the
part of Grantee in the exercise of any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof.
12. Attorneys' Fees. If any action is brought under this Agreement by either
party hereto against the other party, the prevailing party shall be entitled to
recover reasonable attorneys' fees, costs and disbursements. 13. Amendments.
This Agreement may only be amended by an instrument in writing executed by the
parties. 14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which, when
taken together, shall constitute one and the same instrument. This Agreement
shall become effective upon the execution of a counterpart hereof or thereof by
each of the parties hereto. 15. Governing Law; Jurisdiction; Jury Waiver. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of California, without regard to conflicts of law principles.
GRANTOR HEREBY IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY
ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH
THIS AGREEMENT, THE LOAN AGREEMENT OR ANY OF THE RELATED DOCUMENTS, OR ANY OF
THE TRANSACTIONS DESCRIBED THEREIN. 16. Conflict. In the event of a conflict
between any term or other provision contained in this Agreement with any term or
other provision contained in that certain Commercial Security Agreement of even
date herewith executed by Grantor and Grantee, the terms and provisions of this
Agreement shall govern. IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date and year first written above.Grantor:Enerdyne
Technologies, Inc., a California corporationBy: Title:Grantee:First National
Bank, a national banking associationBy: Title: EXHIBIT ADescription of Patents /
Patent ApplicationsPatent No. 5,633,686 Adaptive Digital Video SystemIssued May
27, 1997 EXHIBIT BTrademark and Related Rights1. Registration No.
1,894,958Adaptive Digital Video System (ADVS)2. Pending Application No.
75/334506 Passlink(filed August 1, 1997 EXHIBIT CADVS - U.S. Trademark
Registration #1894958Adaptive Digital Video System - U.S. Patent
#5633686Passlink Serial #74/582,398Application to allege use or statement of use
not-yet filed. Registration has been refused; Enerdyne is currently preparing
response to patent office (via attorneys).Delta Information System, Inc.
("Delta") may be in violation of Enerdyne's patent. Enerdyne has taken no action
at this time. Certain of Enerdyne 's products are built to the public domain
U.S. Government.IRIG210 standard. The inventions described in Delta's patent
number US4729020 appear to be essentially the same as the IRIG210 standard.
Intelect Network Technologies has placed an advertisement in the ITS World (May
1998 issue). The ad implies that Intelect has a patent pending on the digital
video CODEC card. See page H-31. Intelect was verbally notified and they stated
that this was an error on their part, they are not manufacturing a CODEC board
and that all new ads would be corrected.
EXHIBIT 11
STATEMENT RE: BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
(in thousands, except earnings (loss) per share data)
Year Ended December 31,
-------------------------------------
1998 1997 1996
------- -------- ----------
Net income (loss) ......... $ 389 ($ 255) ($ 905)
Basic earnings (loss) per
common share .............. $ .02 ($ .02) ($ .07)
Diluted earnings per
common share .............. $ .02 n/a n/a
Weighted average common ... 17,333 13,535 12,597
Weighted average common
shares outstanding ........ 18,358 n/a n/a
assuming dilution
Common stock equivalents are considered anti-dilutive and therefore are not
included in the diluted computation.
EXHIBIT 21
Subsidiaries of the Registrant
BOATRACS (Europe) B.V. (wholly-owned).
Enerdyne Technologies, Inc.
Oceantrac, Inc.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statements numbered 333-53141 and 333-01817 of BOATRACS, INC.
on FORM S-8 on our report dated February 26, 1999, appearing
in this Annual Report on Form 10-KSB of BOATRACS, INC. for the year
ended December 31, 1998.
DELOITTE & TOUCHE LLP
/S/ DELOITTE & TOUCHE
San Diego, California
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000700941
<NAME> BOATRACS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 416,361
<SECURITIES> 0
<RECEIVABLES> 2,384,604
<ALLOWANCES> 64,200
<INVENTORY> 684,737
<CURRENT-ASSETS> 3,680,881
<PP&E> 1,102,615
<DEPRECIATION> 364,278
<TOTAL-ASSETS> 33,070,486
<CURRENT-LIABILITIES> 3,863,739
<BONDS> 0
0
0
<COMMON> 17,527,483
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,070,486
<SALES> 10,173,320
<TOTAL-REVENUES> 10,173,320
<CGS> 5,085,004
<TOTAL-COSTS> 9,840,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 413,335
<INCOME-PRETAX> (33,119)
<INCOME-TAX> 422,210
<INCOME-CONTINUING> 389,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 389,091
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
