<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
DECEMBER 31, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission File Number: 0-12697
Dynatronics Corporation
------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Utah 87-0398434
---- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7030 Park Centre Drive, Salt Lake City, UT 84121
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 568-7000
--------------
(Issuer's telephone number)
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. Yes X No __
The number of shares outstanding of the issuer's common stock, no par
value, as of February 8, 2000 is 8,783,622.
Transitional Small Business Disclosure Format
(Check One):
Yes __ No X
<PAGE>
DYNATRONICS CORPORATION
TABLE OF CONTENTS
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Balance Sheet
December 31, 1999 1
Unaudited Condensed Statements of Income
Three and Six Months Ended December 31, 1999 and 1998 2
Unaudited Condensed Statements of Cash Flows
Six Months Ended December 31, 1999 and 1998 3
Notes to Unaudited Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan
of Operation 7
PART II. OTHER INFORMATION 12
<PAGE>
DYNATRONICS CORPORATION
Condensed Balance Sheet
(Unaudited)
[CAPTION]
<TABLE>
December 31
ASSETS 1999
------------
<S> <C>
Current assets:
Cash and cash equivalents $ 93,196
Trade accounts receivable, less allowance for doubtful
accounts of $131,935 3,000,924
Related party and other receivables 166,695
Inventories 4,316,784
Prepaid expenses 167,345
Prepaid income taxes 192,661
Deferred tax asset-current 174,039
------------
Total current assets 8,111,644
Net property and equipment 3,387,800
Excess of cost over book value, net of accumulated amortization
of $426,991 1,014,128
Deferred tax asset-noncurrent 155,606
Other assets 739,886
------------
$ 13,409,064
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 226,749
Line of credit 2,608,392
Accounts payable 723,376
Accrued expenses 303,742
------------
Total current liabilities 3,862,259
Long-term debt, excluding current installments 2,176,596
Deferred compensation 679,064
------------
Total long-term liabilities, excluding current installments 2,855,660
------------
Total liabilities 6,717,919
Stockholders' equity:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 8,748,038 shares 2,435,519
Treasury stock, 35,584 shares (120,096)
Retained earnings 4,375,722
------------
Total stockholders' equity 6,691,145
------------
$ 13,409,064
============
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE>
DYNATRONICS CORPORATION
Condensed Statements Of Income
(Unaudited)
[CAPTION]
<TABLE>
Three Months Ended Six Months Ended
December 31 December 31
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $3,440,764 4,019,706 6,892,760 8,930,931
Cost of sales 2,110,819 2,253,773 4,215,297 4,911,870
---------- ---------- ---------- ----------
Gross profit 1,329,945 1,765,933 2,677,463 4,019,061
Selling, general, and administrative expenses 1,113,216 1,200,765 2,174,517 2,520,069
Research and development expenses 190,283 174,162 378,623 339,545
---------- ---------- ---------- ----------
Operating income (loss) 26,446 391,006 124,323 1,159,447
Other income (expense):
Interest income 752 62 1,552 5,187
Interest expense (95,842) (102,033) (194,065) (185,468)
Other income, net 4,395 5,172 10,641 9,849
---------- ---------- ---------- ----------
Total other income (expense) (90,695) (96,799) (181,872) (170,432)
Income (loss) before income taxes (64,249) 294,207 (57,549) 989,015
Income tax expense (benefit) (24,414) 110,878 (21,868) 388,034
---------- ---------- ---------- ----------
Net income (loss) $ (39,835) 183,329 (35,681) 600,981
========== ========== ========== ==========
Basic and diluted net income (loss)
per common share $ (0.00) 0.02 (0.00) 0.07
========== ========== ========== ==========
Weighted average basic and diluted common
shares outstanding (note 2)
Basic 8,747,942 8,674,325 8,731,468 8,660,111
Diluted 8,747,942 9,077,135 8,731,468 9,099,947
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
DYNATRONICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
[CAPTION]
<TABLE>
Six Months Ended
December 31
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (35,681) 600,981
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of property and equipment 97,145 125,553
Other amortization 46,109 46,108
Provision for doubtful accounts 18,000 18,000
Provision for inventory obsolescence 133,998 78,000
Provision for warranty reserve 144,197 79,057
Deferred compensation 59,616 42,042
Decrease (increase) in operating assets:
Receivables (321,974) (966,394)
Inventories 41,492 (1,901,719)
Prepaid expenses and other assets (127,662) 85,798
Increase (decrease) in operating liabilities:
Trade accounts payable and accrued expenses (447,411) 137,525
Income taxes payable (21,868) 58,859
---------- ----------
Net cash used in operating activities (414,039) (1,596,190)
---------- ----------
Cash flows from investing activities:
Capital expenditures (66,306) (179,390)
Proceeds from sale of assets 111,046 0
---------- ----------
Net cash provided by (used in) investing activities 44,740 (179,390)
---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt (206,301) (107,305)
Net change in line of credit (3,246) 1,162,665
Proceeds from sale of common stock 43,693 108,967
---------- ----------
Net cash provided by (used in) financing activities (165,854) 1,164,327
---------- ----------
Net decrease in cash and cash equivalents (535,153) (611,253)
Cash and cash equivalents at beginning of period 628,349 748,099
---------- ----------
Cash and cash equivalents at end of period $ 93,196 136,846
========== ==========
Supplemental cash flow information
Cash paid for interest (net of amounts capitalized) 194,065 185,468
Cash paid for income taxes 0 331,975
Supplemental Disclosure of Non-cash Investing and Financing Activities
Treasury stock acquired in consideration for common stock issued
as a result of a cashless stock option exercise. 0 120,096
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
DYNATRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 1999
(Unaudited)
NOTE 1. PRESENTATION
The financial statements as of December 31, 1999 and for the six months then
ended were prepared by the Company without audit pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations. In the opinion of management, all necessary adjustments,
which consist only of normal recurring adjustments, to the financial
statements have been made to present fairly the financial position and
results of operations and cash flows. The results of operations for the
respective periods presented are not necessarily indicative of the results
for the respective complete years. The Company has previously filed
with the SEC an annual report on Form 10-KSB which included audited financial
statements for the two years ended June 30, 1999. It is suggested
that the financial statements contained in this filing be read in conjunction
with the statements and notes thereto contained in the Company's
10-KSB filing.
NOTE 2. NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted-average number of
common shares and, as appropriate, dilutive common stock equivalents
outstanding during the period. Stock options are considered to be common stock
equivalents.
Basic net income per common share is the amount of net income for the period
available to each share of common stock outstanding during the reporting
period. Diluted net income per common share is the amount of net income
for the period available to each share of common stock outstanding during
the reporting period and to each share that would have been outstanding
assuming the issuance of common shares for all dilutive potential common
shares outstanding during the period.
In calculating net income per common share, the net income was the same for
both the basic and diluted calculation. A reconciliation between the basic
and diluted weighted-average number of common shares for the six months
ended December 31, 1999 and 1998 is summarized as follows:
<PAGE>
(Unaudited)
Six Months Ended
December 31,
1999 1998
---------- ----------
Basic weighted average number
of common shares outstanding
during the period 8,731,468 8,660,111
Weighted average number of dilutive
common stock options outstanding
during the period -0- 439,836
---------- ----------
Diluted weighted average number
of common and common equivalent
shares outstanding during the period 8,731,468 9,099,947
========== ==========
Common stock equivalents of 255,193 outstanding during the six-month period
ended December 31, 1999 that could potentially dilute basic net income per
share in the future were not included in the computation of diluted net
income per share because to do so would have been antidilutive for the period.
NOTE 3. COMPREHENSIVE INCOME
For the periods ending December 31, 1999 and 1998, comprehensive income was
equal to the net income as presented in the accompanying condensed statements
of income.
NOTE 4. INVENTORIES
Inventories consisted of the following:
December 31
1999
-----------
Raw Material $ 2,909,139
Finished Goods 1,656,642
Inventory Reserve (248,997)
-----------
$ 4,316,784
===========
<PAGE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment were as follows:
December 31
1999
-----------
Land $ 354,744
Buildings 2,792,744
Machinery and equipment 1,630,181
-----------
4,777,669
Less accumulated depreciation
and amortization 1,389,869
-----------
$ 3,387,800
===========
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Condensed
Financial Statements (unaudited) and Notes thereto appearing elsewhere in
this Form 10-QSB.
Results of Operations
In July 1998, Dynatronics introduced its new Synergie Lifestyle System line of
products. Product shipments required to fill channels of distribution,
coupled with strong initial demand for the Synergie products resulted
in record sales and earnings in the six month period ended December 31, 1998.
The record performance during that six month period of 1998 is the primary
factor underlying the differences in the comparative discussion and analysis
that follows. For a complete perspective of current operations and how they
are affected by overall strategic plans, refer to the section below entitled
"Business Plan."
Sales during the quarter ended December 31, 1999 were $3,440,764, compared to
$4,019,706 for the same period last year. Sales during the six-month period
ended December 31, 1999 were $6,892,760 compared to $8,930,931 during
the six months ended December 31, 1998. The decline in sales during the
quarter and six months ended December 31, 1999 was due primarily to the
transition from initial sales of Synergie products required to fill channels
of distribution following the first introduction of those products in 1998 to
more normalized sales in the current reporting periods. In addition, general
market trends were adversely affected from the implementation of new Medicare
guidelines earlier in calendar 1999, which restricted reimbursement for physical
therapy services. Recent legislation passed by Congress eliminated those
reimbursement reductions for a two-year period beginning in January 2000.
As a result management believes market conditions will improve for the
Company's rehabilitation and other physical therapy products in future periods.
However, there can be no assurance that market conditions will improve as
a result of the change in legislation.
Total gross profit during the quarter ended December 31, 1999 was $1,329,945
compared to $1,765,933 in the prior year period. Gross profit during the six-
month period ended December 31, 1999 was $2,677,463 compared to $4,019,061
for the similar period in 1998. The reduction in sales of higher margin
Synergie products in 1999 compared to the same period in 1998 when Synergie
products were first introduced contributed to the reduction in gross profit
and gross profit margin as a percentage of sales during the quarter and six
months ended December 31, 1999. In addition, sales of the Company's lower
margin product lines have increased more than 10% over the prior year period.
This increase, combined with the decrease in sales of the higher margin
products, primarily accounts for the decline in gross profit margins as a
percentage of sales. Another factor contributing to the decline in gross
profit was an expense of approximately $60,000 charged to cost of goods sold
during the six-month period ended December 31, 1999 relating to the
relocation of the Company's table manufacturing operations from South
Carolina to facilities in Tennessee.
Selling, general and administrative (SG&A) expenses for the three- and six-
month periods ended December 31, 1999, decreased to $1,113,216 and
$2,174,517, respectively, compared to $1,200,765 and $2,520,069, respectively
in the same periods in 1998. SG&A expenses for the three months ended
<PAGE>
December 31, 1999 include approximately $100,000 of legal fees and related
expenses incurred in connection with certain litigation involving the
Company. SG&A expenses for the six-month period ending December 31,
1999 also included expenses of approximately $70,000 related to the
relocation of the Company's table manufacturing operations from Columbia,
South Carolina to Ooltewah, Tennessee. Most of these relocation expenses
were incurred during the quarter ended September 30, 1999.
The Company's total SG&A expenses during the six months ended December 31,
1998 were higher due to costs associated with the introduction of the
new Synergie product line. During the periods covered by this report, cost-
cutting measures were implemented that the Company expects will result in
annualized savings of approximately $350,000. Over the long term, the
savings initially realized from these cost-saving measures will diminish,
because the strategic growth plans of the Company require adding back
certain expenses in the future as improved operations warrant. In addition
to the cost-saving measures, during the quarter ended September 30, 1999,
the Company consolidated its Columbia, South Carolina rehabilitation table
manufacturing operations into its facilities in Chattanooga, Tennessee. The
Company believes this consolidation will eliminate in excess of $400,000 of
expenses associated with that operation.
Research and development (R&D) expenses during the three months ended
December 31, 1999 totaled $190,283, compared to $174,162 for the same
period in 1998. R&D expenses during the six months ended December 31, 1999
were $378,623 compared to $339,545 in the previous year. This increase in
R&D expenditures is primarily related to the development of a new product
known as the Synergie Peel Microdermabrasion device. The Synergie Peel
effectively reduces fine lines, wrinkles and other superficial skin
damage by gently peeling away the top layer of skin, thereby exposing softer,
smoother skin. This new product is scheduled for introduction in February 2000.
Consistent with the Company's announced strategic plans, R&D expenditures are
expected to continue at current levels through the balance of the fiscal
year ending June 30, 2000.
Pre-tax loss for the quarter and six months ended December 31, 1999 was
$64,249 and $57,549, respectively, compared to net income of $294,207
and $989,015, respectively during the same periods of the prior year. The
introduction of Synergie products in 1998 significantly improved profits
during the three- and six-month periods ended December 31, 1998. Profits for
the current reporting periods were eroded by several factors including the
consolidation of operations, increased research and development costs,
increased legal expenses, and costs associated with the initial
implementation of the Company's announced strategic growth plans. Costs
associated with consolidation of operations and legal expenses combined
exceeded $250,000 during the six-month period ended December 31, 1999.
Absent these expenses, Dynatronics would have reported pre-tax income
approaching $200,000 for the six-month period even with the increased
R&D expenditures and the costs of implementing strategic growth plans.
Income tax benefit for the three months ended December 31, 1999 was $24,414,
compared to income tax expense of $110,878, in the prior year period. Income
tax benefit for the six months ended December 31, 1999 was $21,868 compared
to income tax expense of $388,034 in the prior year period.
<PAGE>
Net loss for the quarter ended December 31, 1999 was $39,835, compared to net
income of $183,329 in the same period one year ago. Net loss for the six
months ended December 31, 1999 was $35,681 compared to net income of $600,981
in the prior year period. The decrease in net income is directly and
primarily attributable to lower sales and margins associated with the
reduced sales of Synergie products in the six months ended December 31, 1999.
Liquidity and Capital Resources
- - -------------------------------
The Company expects revenues from operations, together with amounts available
under its bank line of credit will be adequate to meet its working capital
needs related to its business and its planned capital expenditures for the
upcoming operating year.
The Company's current ratio at December 31, 1999 was 2.1 to 1. Current assets
represent 61% of total assets.
Trade accounts receivable are from the Company's dealer network and are
generally considered to be within terms. All accounts payable are within
term with the Company continuing its policy of taking advantage of payment
discounts available wherever possible.
The Company has a $3,750,000 revolving line of credit with a commercial bank.
Borrowing limitations are based on 40% of inventory (up to a maximum of
$1.65 million) and up to 80% of eligible accounts receivable. The outstanding
balance on the line of credit at December 31, 1999 was $2,608,392. The line
is secured by the Company's inventory, accounts receivable and a deed of
trust on the company's office building in Salt Lake City, Utah. The line
bears interest at the bank's "Prime Rate," which was 8.5% per annum at
December 31, 1999. This line is subject to annual renewal and matures on
November 30, 2000. Accrued interest is payable monthly.
Inventory levels, net of reserves, at December 31, 1999 totaled $4,316,784,
while net accounts receivable were $3,000,924. During the last fiscal year,
inventories and receivables increased significantly to support the Company's
introduction of the Synergie Lifestyle System. In addition, management has
made a stronger effort to reduce backorders by increasing inventory
quantities. Financing for these increases has been provided through cash
flows from operations together with amounts available under the Company's
line of credit facility. Levels of raw material inventories for Synergie
products exceed amounts that would normally be kept on hand. This surplus
was generated during the last year when inventories were increased to
support anticipated levels of sales that were not subsequently achieved.
The Company is confident the inventories can be successfully reduced over
the coming year as sales increase as a result of the Company's strategic
initiatives discussed below.
Long-term debt excluding current installments at December 31, 1999 totaled
$2,176,596 comprised primarily of the mortgage loans on the Company's office
and manufacturing facilities. The principal balance on the mortgage loans is
approximately $2.1 million with monthly principal and interest payments of
$26,900.
<PAGE>
Business Plan
- - -------------
During the reporting quarter, management continued the implementation of its
strategic plans to reposition and diversify the Company's product lines to
guide future growth in both sales and profits. The Company's board of
directors approved the initiatives, which are designed to refocus
Dynatronics' strategy for manufacturing and distributing its popular line of
rehabilitation products. The plans also commit the necessary resources to
strengthen distribution and develop new aesthetic products targeting the
medical, spa and beauty markets.
Included in these strategic plans is the expansion of marketing efforts into
the European Community. Dynatronics received approval to begin marketing its
line of electrotherapy and ultrasound devices throughout Europe in August
1999. The Company believes that Europe presents a promising market for these
products. The Company is also in the process of obtaining the necessary
approvals to market its aesthetic products in the European market. Management
is confident that access to this vast market will result in increased sales
of the Company's therapeutic and aesthetic devices, which are among its most
profitable products.
The other strategic component of these new initiatives is a stronger
commitment to diversification into the aesthetics market. During fiscal
year 1999, the Company made its initial entry into this market with the
introduction of its Synergie Lifestyle System product line. As a companion to
the Synergie System, the Company recently announced the introduction of
its new Synergie Peel Microdermabrasion device. Microdermabrasion technology
is quickly becoming the new standard of care in the aesthetics industry
because of its distinct advantages over chemical and laser peels. The
Synergie Peel incorporates a unique new protocol that combines the elements
of a traditional facial treatment with microdermabrasion and vacuum massage
to provide what the Company refers to as the "Ultimate Facial." The Synergie
Peel effectively reduces fine lines, wrinkles, and other superficial skin
damage by gently peeling away the top layer of skin, thereby exposing softer,
smoother skin. Based on the Company's experiences in this new market during
the past year, management believes that there are strong opportunities for
growth in this field.
To take full advantage of the opportunities of the broader aesthetics market,
Dynatronics has begun to establish a direct sales force for marketing its
aesthetic products. Underscoring the importance of this new initiative
is the fact that the Company's chairman, Kelvyn H. Cullimore, is personally
managing the effort to establish this new channel of distribution which may
include hiring up to 40 new representatives over the next two years. Having
control over the channels of distribution of these products is expected to
allow the Company to more fully access the potential of the aesthetics
products market. The Company perceives this market to be both lucrative and
expanding, particularly as aging baby boomers continue to look for ways to
retain a youthful appearance. The Company believes, based on its research of
the market and its recent experiences in marketing the Synergie product line,
that there are currently no significant direct distribution channels for
capital products available in the aesthetics products market.
With the new strategic initiatives underway, the Company will focus its
resources in the following areas:
- Strengthening distribution of rehabilitation products
<PAGE>
- Re-engineering key rehabilitation product lines
- Expanding distribution of products in Europe
- Improving distribution in the aesthetic products market through the
hiring of direct sales representatives
- Introducing new aesthetic products
The implementation of these strategic initiatives will take time and
resources. Profitability could be adversely affected as the Company
aggressively pursues these plans. Management is confident, however, that
these short-term costs will improve profitability and performance of
the Company over the long term.
Forward-Looking Statements and Risks Affecting the Company
The statements contained in this Report on Form 10-QSB that are not purely
historical are "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act. These statements regard the Company's
expectations, hopes, beliefs, anticipations, commitments, intentions and
strategies regarding the future. They may be identified by the use of
words or phrases such as "believes," "expects," "anticipates," "should,"
"plans," "estimates," "intends," and "potential," among others. Forward-
looking statements include, but are not limited to, statements contained in
Management's Discussion and Analysis or Plan of Operation regarding the
Company's financial performance, revenue and expense levels in the future and
the sufficiency of its existing assets to fund future operations and capital
spending needs. Actual results could differ materially from the anticipated
results or other expectations expressed in such forward-looking statements
for the reasons detailed in the Company's Annual Report on Form 10-KSB under
the headings "Description of Business" and "Risk Factors." The fact that some
of the risk factors may be the same or similar to the Company's past reports
filed with the Securities and Exchange Commission means only that the risks
are present in multiple periods. The Company believes that many of the risks
detailed here and in the Company's other SEC filings are part of doing
business in the industry in which the Company operates and competes and will
likely be present in all periods reported. The fact that certain risks are
endemic to the industry does not lessen their significance.
The forward-looking statements contained in this Report are made as of the
date of this Report and the Company assumes no obligation to update them or
to update the reasons why actual results could differ from those projected in
such forward-looking statements. Among others, risks and uncertainties that
may affect the business, financial condition, performance, development, and
results of operations of the Company include:
- Market acceptance of the Company's technologies, particularly the new
Synergie Lifestyle System product line and other new or re-designed
products;
<PAGE>
- The ability to hire and retain the services of trained personnel at cost-
effective rates;
- Rigorous government scrutiny or the possibility of additional government
regulation of the industry in which the Company markets its products;
- Reliance on key management personnel;
- Foreign government regulation of the Company's products and manufacturing
practices that may bar or significantly increase the expense of expanding
to foreign markets;
- Economic and political risks related to the Company's expansion into
international markets;
- Failure of the Company to sustain or manage growth including the failure to
continue to develop new products or to meet demand for existing products;
- The Company's reliance on information technology;
- The timing and extent of research and development expenses;
- The Company's ability to keep pace with technological advances, which can
occur rapidly;
- The loss of product market share to competitors;
- Potential adverse effect of taxation;
- The ability of the Company to obtain required financing to meet changes
or other risks described above; or
- The cost of litigation associated with the LPG USA lawsuits.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 17, 1999, LPG USA, Inc. filed a civil complaint against the Company
in the United States District Court for the Southern District of Florida,
Northern Division (Civil No. 98-6602). The complaint, as subsequently
amended, alleges causes of action for false advertising, as well as tort and
statutory claims related to the appearance of LPG's products in newscast
included in a promotional video shown to certain distributors of the Company.
Discovery has been completed and the Company has filed a motion for summary
judgment on all causes of action raised in the complaint. The court has not
yet ruled on the Company's motion. Dynatronics believes that the allegations
<PAGE>
made by LPG in its complaint are wholly without merit and the Company intends
to vigorously oppose LPG's claims. However, there can be no assurance that
the Company's defense will be successful.
On June 7, 1999, Dynatronics filed a lawsuit in the United States District
Court for the District of Utah, Central Division (Civil No. 2:99CV 0423C).
The Company's complaint names LPG USA, Inc. as defendant and alleges causes
of action based on deceptive and unfair trade practices, product and trade
disparagement, defamation, interference with business relations and unfair
competition. Discovery is ongoing in this proceeding. As part of its plea
for relief, the Company has also made a motion for a temporary restraining
order and permanent injunction against LPG from further violations. LPG has
filed a motion to dismiss this case and to change venue of this action to
Florida. A hearing on the Company's motion for injunctive relief and the
defendant's motion to change venue has been held, but the court has not yet
issued a ruling on either motion.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
--- -----------
10.3 Loan Agreement
27. Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DYNATRONICS CORPORATION
---------------------------
Registrant
Date 2/14/00 /s/ Kelvyn H. Cullimore, Jr.
--------------------- ---------------------------
Kelvyn H. Cullimore, Jr.
President, Chief Executive Officer
and Principal Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 93,196
<SECURITIES> 0
<RECEIVABLES> 3,132,859
<ALLOWANCES> 131,935
<INVENTORY> 4,316,784
<CURRENT-ASSETS> 8,111,644
<PP&E> 4,777,669
<DEPRECIATION> 1,389,869
<TOTAL-ASSETS> 13,409,064
<CURRENT-LIABILITIES> 3,862,259
<BONDS> 2,855,660
0
0
<COMMON> 2,315,423
<OTHER-SE> 4,375,722
<TOTAL-LIABILITY-AND-EQUITY> 13,409,064
<SALES> 6,892,760
<TOTAL-REVENUES> 6,892,760
<CGS> 4,215,297
<TOTAL-COSTS> 4,215,297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18,000
<INTEREST-EXPENSE> 194,065
<INCOME-PRETAX> (57,549)
<INCOME-TAX> (21,868)
<INCOME-CONTINUING> (35,681)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,681)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
FIFTH AMENDMENT TO LOAN AGREEMENT
This Fifth Amendment to Loan Agreement (the "Amendment") is executed this 11th
day of January, 2000, by and between DYNATRONICS CORPORATION ("Borrower") and
ZIONS FIRST NATIONAL BANK (the "Lender").
WHEREAS, Borrower and Lender entered into that certain Loan Agreement
dated February 23, 1995, which was subsequently amended on several occasions and
provides, among other things, for Lender to extend a Revolving Line of Credit in
the maximum principal amount of Three Million Five Hundred Thousand Dollars
($3,500,000.00) (the "Loan Agreement"); and
WHEREAS, Borrower has requested Lender to increase and renew the
Revolving Line of Credit and amend certain covenants; and
WHEREAS, Lender has agreed to such request provided, among other
things, Borrower executes and delivers this Amendment.
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Borrower and Lender hereby amend the Loan
Agreement as follows:
1. The Revolving Line of Credit is hereby increased from Three
Million Five Hundred Thousand Dollars ($3,500,000.00) to Three
Million Seven Hundred Fifty Thousand Dollars ($3,750,000.00)
2. The section titled Borrowing Base, is hereby deleted in its
entirety and replaced with the following:
Borrowing Base. The words "Borrowing Base" mean, as determined by
Lender from time to time, the lesser of (a) $3,750,000.00; or (b) the
sum (i) 80.00% of the aggregate amount of Eligible Accounts, plus (ii)
40.00% of the aggregate amount of Eligible Inventory, not to exceed
$1,650,000.00.
3. The section titled Eligible Inventory, subsection (d) is
hereby deleted in its entirety.
4. The reference to the maturity date of the Revolving Line of
Credit is hereby deleted in its entirety.
5. A new section entitled Losses, is hereby added to the Loan
Agreement as follows:
Losses. Borrower's losses for the quarterly periods ending December 31,
1999 and March 31, 2000 shall not exceed $ 100,000.00 for either
quarter. Thereafter, Borrower shall not incur losses for two
consecutive quarters.
Except as amended herein, all other terms and conditions of the Loan
Agreement remain in full force and effect and are applicable to this Agreement.
first above written.
IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment as
of the date and year
Borrower: Lender:
DYNATRONICS CORPORATION ZIONS FIRST NATIONAL BANK
By: /s/ Kelvyn H. Cullimore, Jr. By: /s/ David Dransfield
----------------------------- -----------------------
Kelvyn H. Cullimore, Jr., David Dransfield
President/CEO Vice President
RECORDATION REQUESTED BY:
ZIONS FIRST NATIONAL BANK
#1 SOUTH MAIN STREET
P.O. BOX 25822
SALT LAKE CITY, UT 84125
WHEN RECORDED MAIL TO:
ZIONS FIRST NATIONAL BANK
#1 SOUTH MAIN STREET
P.O. BOX 25822
SALT LAKE CITY, UT 84125 SPACE ABOVE THIS LINE IS FOR RECORDER'S USE ONLY
REVOLVING CREDIT DEED OF TRUST
THIS DEED OF TRUST IS DATED JANUARY 11, 2000, among DYNATRONICS CORPORATION,
with vesting a! follows, DYNATRONICS LASER CORPORATION, a Utah Corporation, now
known as DYNATRONICS CORPORATION, whose address is 7030 PARK CENTRE DRIVE, SALT
LAKE CITY, UT 84121 (referred to below as "Trustor"); ZIONS FIRST NATIONAL BANK,
whose address is #1 SOUTH MAIN STREET, P.O. BOX 25822, SALT LAKE CITY, UT 84125
(referred to below sometimes as "Lender" and sometimes as "Beneficiary"); and
ZIONS FIRST NATIONAL BANK, whose address is #1 SOUTH MAIN STREET SLC, UT. 84111
(referred to below as "Trustee").
CONVEYANCE AND GRANT. For valuable consideration, Trustor Irrevocably grants
and conveys to Trustee In trust, with power of sale, for the benefit of Lender
as Beneficiary, all of Trustor's right, tide, and interest in and to the
following described real property, together with all existing or subsequently
erected or affixed buildings, improvements and fixtures; all easements,
rights of way, and appurtenances; all water, water rights and ditch rights
(including stock in utilities with ditch or irrigation rights); and all other
rights, royalties, and profits relating to the real property, including
without limitation all minerals, oil, gas, geothermal and similar matters,
located in SALT LAKE County, State of Utah (the 'Real Property"):
SEE ATTACHED SCHEDULE "A"
The Real Property or its address is commonly known as 7030 PARK CENTRE DRIVE,
SALT LAKE CITY, UT, 84121. The Real Property tax identification number is
22-28-103-001-000.
Trustor presently assigns to Lender (also known as Beneficiary in this Deed of
Trust) all of Trustor's right, title, and interest in and to all present and
future leases of the Property and all Rents from the Property. In addition,
Trustor grants Lender a Uniform Commercial Code security interest in the Rents
and the Personal Property defined below.
DEFINITIONS. The following words shall have the following meanings when used in
this Deed of Trust. Terms not otherwise defined in this Deed of Trust 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.
Beneficiary. The word "Beneficiary" means MONS FIRST NATIONAL BANK,
its successors and assigns. MONS FIRST NATIONAL BANK also is referred
to as "Lender" in this Deed of Trust.
Deed of Trust. The words "Deed of Trust" mean this Deed of Trust among
Trustor, Lender, and Trustee, and includes without limitation all
assignment and security interest provisions relating to the Personal
Property and Rents. Existing Indebtedness. The words "Existing
Indebtedness" mean the indebtedness described below in the Existing
Indebtedness section of this Deed of Trust.
Guarantor. The word "Guarantor" means and includes without limitation
any and all guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Improvements. The word "Improvements" means and includes without
limitation all existing and future improvements, buildings, structures,
mobile homes affixed on the Real Property, facilities, additions,
replacements and other construction on the Real Property.
Indebtedness. The word "Indebtedness' means all principal and interest
payable under the Note and any amounts expended or advanced by Lender
to discharge obligations of Trustor or expenses incurred by Trustee or
Lender to enforce obligations of Trustor under this Deed of Trust,
together with interest on such amounts as provided in this Deed of
Trust.
1
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01-11-2000 DEED OF TRUST Page 2
(Continued)
Specifically, this Deed of Trust secures a revolving line of credit,
which obligates Lender to make advances to Trustor so long as Trustor
complies with all the terms of the Note.
Lender. The word "Lender" means ZIONS FIRST NATIONAL BANK, its
successors and assigns.
Note. The word "Note" means the Note dated January 11, 2000, in the
principal amount of $3,750,000.00 from Trustor to Lender, together with
all renewals, extensions, modifications, refinancings, and
substitutions for the Note.
NOTICE TO TRUSTOR: THE NOTE CONTAINS A VARIABLE INTEREST RATE.
Personal Property. The words "Personal Property" mean all equipment,
fixtures, and other articles of personal property now or hereafter
owned by Trustor, and now or hereafter attached or affixed to the Real
Property; together with all accessions, parts, and additions to, all
replacements of, and all substitutions for, any of such property; and
together with all proceeds (including without limitation all insurance
proceeds and refunds of premiums) from any sale or other disposition of
the Property.
Property. The word "Property" means collectively the Real Property and
the Personal Property.
Real Property. The words "Real Property" mean the property, interests
and rights described above in the "Conveyance and Grant" section.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deed of trust, and all other instruments, agreements and
documents, wether now or hereafter existing, executed in connection
with the indebtedness.
Rents. The word "Rents" means all present and future rents, revenues,
income, issues, royalties, profits, and other benefits derived from the
Property.
Trustee. The word "Trustee" means ZIONS FIRST NATIONAL BANK and any
substitute or successor trustee.
Trustor. The word "Trustor" means any and all persons and entities
executing this Deed of Trust, including without limitation all Trustors
named above.
THIS DEED OF TRUST, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST
IN THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO SECURE (1) PAYMENT OF THE
INDEBTEDNESS AND (2) PERFORMANCE OF ANY AND ALL OBLIGATIONS OF TRUSTOR UNDER THE
NOTE, THE RELATED DOCUMENTS, AND THIS DEED OF TRUST. THIS DEED OF TRUST IS GIVEN
AND ACCEPTED ON THE FOLLOWING TERMS:
PAYMENT AND PERFORMANCE. Except as otherwise provided in this Deed of Trust,
Trustor shall pay to Lender all amounts secured by this Deed of Trust as they
become due, and shall strictly and in a timely manner perform all of Trustor's
obligations under the Note, this Deed of Trust, and the Related Documents.
POSSESSION AND MAINTENANCE OF THE PROPERTY. Trustor agrees that Trustor's
possession and of the Property shall be governed by the following provisions:
Possession and Use. Until the occurrence of an Event of Default,
Trustor may (a) remain in possession and control of the Property, (b)
use, operate or manage the Property, and (c) collect any Rents from the
Property. The following provisions relate to the use of the Property or
to other limitations on the Property. This instrument is a Trust Deed
executed in conformity with the Utah Trust Deed Act, UCA 57-1-19, et
seq.
Duty to Maintain. Trustor shall maintain the Property in tenantable
condition and promptly perform all repairs, replacements, and
maintenance necessary to preserve its value.
2
<PAGE>
01-11-2000 DEED OF TRUST Page 3
(Continued)
Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in
this Deed of Trust, shall have the same meanings as set forth in the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No.
99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
The terms "hazardous waste" and "hazardous substance" shall also
include, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos. Trustor represents and warrants to
Lender that: (a) During the period of Trustor's ownership of the
Property, 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 the Property;
(b) Trustor has no knowledge of, or reason to believe that there has
been, except as previously disclosed to and acknowledged by Lender in
writing, (i) any use, generation, manufacture, storage, treatment,
disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the Property by any prior owners or
occupants of the Property or (ii) any actual or threatened litigation
or claims of any kind by any person relating to such matters; and (c)
Except as previously disclosed to and acknowledged by Lender in
writing, (i) neither Trustor nor any tenant, contractor, agent or other
authorized user of the Property shall use, generate, manufacture,
store, treat, dispose of, or release any hazardous waste or substance
on, under, about or from the Property and (ii) 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. Trustor
authorizes Lender and its agents to enter upon the Property to make
such inspections and tests, at Trustor's expense, as Lender may deem
appropriate to determine compliance of the Property with this section
of the Deed of Trust. Any inspections or tests made by Lender shall be
for Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Trustor or to any
other person. The representations and warranties contained herein are
based on Trustor's due diligence in investigating the Property for
hazardous waste and hazardous substances. Trustor hereby (a) releases
and waives any future claims against Lender for indemnity or
contribution in the event Trustor 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 Deed of Trust 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 Deed of Trust, including the obligation to indemnify,
shall survive the payment of the indebtedness and the satisfaction and
reconveyance of the lien of this Deed of Trust and shall not be
affected by Lender's acquisition of any interest in the Property,
whether by foreclosure or otherwise.
Nuisance, Waste. Trustor shall not cause, conduct or permit any
nuisance or commit, permit, or suffer any stripping of or waste on or
to the Property or any portion of the Property. Without limiting the
generality of the foregoing, Trustor will not remove, or grant to any
other party the right to remove any timber, minerals (including oil and
gas), soil, gravel or rock products without the prior written consent
of Lender.
Removal of Improvements. Trustor shall not demolish or remove any
Improvements from the Real Property without the prior written consent
of Lender. As a condition to the removal of any Improvements, Lender
may require Trustor to make arrangements satisfactory to Lender to
replace such Improvements with Improvements of at least equal value.
Notwithstanding the foregoing, Trustor may make any changes deemed
necessary in the ordinary course of business without Lender's prior
approval.
Compliance with Governmental Requirements. Trustor shall promptly
comply with all laws, ordinances, and regulations, now or hereafter in
effect of all governmental authorities applicable to the use or
occupancy of the Property, including without limitation, the Americans
With Disabilities Act. Trustor may contest in good faith any such law,
ordinance, or regulation and withhold compliance during any proceeding,
including appropriate appeals so long as Trustor has notified Lender in
writing prior to doing so and so long as, in Lender's sole opinion,
Lender's interests in the Property are not jeopardized. Lender may
require Trustor to post adequate security or a surety bond, reasonably
satisfactory to Lender, to protect Lender's interest.
Duty to Protect. Trustor agrees neither to abandon nor to leave
unattended the Property. Trustor shall do all other acts, in addition
to those acts set forth above in this section, which from the
character and use of the Property are reasonably necessary to protect
and preserve the Property.
DUE ON SALE - CONSENT BY LENDER. Lender may at its option, declare immediately
due and payable all sums secured by this Deed of Trust the sale or transfer,
without the Lenders' prior written consent of all or any part of the Real
Property, or any interest in the Real Property.
3
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01-11-2000 DEED OF TRUST Page 4
(Continued)
A "sale or transfer" means the conveyance of Real Property or any right, title
or interest therein; whether legal, beneficial or equitable; whether voluntary
or involuntary; whether by outright sale, deed, installment sale contract, land
contract, contract for deed, leasehold interest with a term greater than three
(3) years, lease-option contract, or by sale, assignment, or transfer of any
beneficial interest in or to any land trust holding title to the Real Property,
or by any other method of conveyance of Real Property interest. A transfer
shall include any merger or acquisition in which there is a greater than 50%
change in ownership of Trustor, if such merger or acquisition has not been
approved in writing by Lender.
TAXES AND LIENS. The following provisions relating to the taxes and liens on the
Property are a part of this Deed of Trust. Payment. Trustor shall pay when due
(and in all events prior to delinquency) all taxes, special taxes, assessments,
charges (including water and sewer), fines and impositions levied against or on
account of the Property, and shall pay when due all claims for work done on or
for services rendered or material furnished to the Property. Trustor shall
maintain the Property free of all liens having priority over or equal to the
interest of Lender under this Deed of Trust, except for the lien of taxes and
assessments not due, except for the existing indebtedness referred to Wow, and
except as otherwise provided in this Deed of Trust.
Right To Contest. Trustor may withhold payment of any tax, assessment,
or claim in connection with a good faith dispute over the obligation to
pay, so long as Lender's interest in the Property is not jeopardized.
If a lien arises or is filed as a result of nonpayment, Trustor shall
within fifteen (15) days after the lien arises or, if a lien is filed,
within fifteen (15) days after Trustor has notice of the filing, secure
the discharge of the lien, or if requested by Lender, deposit with
Lender cash or a sufficient corporate surety bond or other security
satisfactory to Lender in an amount sufficient to discharge the lien
plus any costs and reasonable attorneys' tees or other charges that
could accrue as a result of a foreclosure or sale under the lien. In
any contest, Trustor shall defend itself and Lender and shall satisfy
any adverse judgment before enforcement against the Property. Trustor
shall name Lender as an additional obligee under any surety bond
furnished in the contest proceedings.
Evidence of Payment. Trustor shall upon demand furnish to Lender
satisfactory evidence of payment of the taxes or assessments and shall
authorize the appropriate governmental official to deliver to Lender at
any time a written statement of the taxes and assessments against the
Property.
Notice of Construction. Trustor shall notify Lender at least fifteen
(15) days before any work is commenced, any services are furnished, or
any materials are supplied to the Property, if any mechanic's lien,
materialmens lien, or other lien could be asserted on account of the
work, services, or materials. Trustor will upon request of Lender
furnish to Lender advance assurances satisfactory to Lender that
Trustor can and will pay the cost of such improvements. Construction
deemed to be in the ordinary course of business shall not be subject to
this provision.
PROPERTY DAMAGE INSURANCE. The following provisions relating to insuring the
Property are a part of this Deed of Trust.
Maintenance of Insurance. Trustor shall procure and maintain policies
of fire insurance with standard extended coverage endorsements on a
replacement basis for the full insurable value covering all
Improvements on the Real Property in an amount sufficient to avoid
application of any coinsurance clause, and with a standard mortgagee
clause in favor of Lender. Trustor shall also procure and maintain
comprehensive general liability insurance in such coverage amounts as
Lender may request with trustee and Lender being named as additional
insureds in such liability insurance policies. Additionally, Trustor
shall maintain such other insurance, including but not limited to
hazard, business interruption, and boiler insurance, as Lender may
reasonably require. Policies shall be written in form, amounts,
coverages and basis reasonably acceptable to Lender and issued by a
company or companies reasonably acceptable to Lender. Trustor, 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 Trustor or any other person.
Should the Real Property at any time become located in an area
designated by the Director of the Federal Emergency Management Agency
as a special flood hazard area, Trustor agrees to obtain and maintain
Federal Flood Insurance for the full unpaid principal balance of the
loan and any prior liens on the property securing the loan, up to the
maximum policy limits set under the National Flood Insurance Program,
or as otherwise required by Lender, and to maintain such insurance for
the term of the loan.
Application of Proceeds. Trustor shall promptly notify Lender of any
loss or damage to the Property. Lender may make proof of loss it
Trustor fails to do so within fifteen (15) days of the casualty.
Whether or not Lender's security is impaired, Lender may, at its
election, receive and retain the proceeds of any insurance and apply
the proceeds to the reduction of the Indebtedness, payment of any lien
affecting the Property, or Me restoration and repair of the Property.
If Lender elects to apply the proceeds to restoration and repair,
Trustor shall repair or replace the damaged or destroyed Improvements
in a manner satisfactory to Lender.
4
<PAGE>
01-11-2000 DEED OF TRUST Page 5
(Continued)
Lender shall, upon satisfactory proof of such expenditure, pay or
reimburse Trustor from the proceeds for the reasonable cost of repair
or restoration it Trustor is not in default under this Deed of Trust.
Any proceeds which have not been disbursed within 180 days after
their receipt and which Lender has not committed to the repair or
restoration of the Property shall be used first to pay any amount owing
to Lender under this Deed of Trust, then to pay accrued interest,
and the remainder, if any, shall be applied to the principal balance
of the Indebtedness. If Lender holds any proceeds after payment in
full of the Indebtedness, such proceeds shall be paid to Trustor as
Trustor's interests may appear.
Unexpired Insurance at Sale. Any unexpired insurance shall inure to the
benefit of, and pass to, the purchaser of the Property covered by this
Deed of Trust at any trustee's sale or other sale held under the
provisions of this Deed of Trust, or at any foreclosure sale of such
Property.
Compliance with Existing Indebtedness. During the period in which any
Existing Indebtedness described below is in effect, compliance with the
insurance provisions contained in the instrument evidencing such
Existing Indebtedness shall constitute compliance with the insurance
provisions under this Deed of Trust, to the extent compliance with the
terms of this Deed of Trust would constitute a duplication of insurance
requirement. If any proceeds from the insurance become payable on loss,
the provisions in this Deed of Trust for division of proceeds shall
apply only to that portion of the proceeds not payable to the holder of
the Existing Indebtedness.
Trustor's Report on Insurance. Upon request of Lender, however not more
than once a year, Trustor shall furnish to Lender a report on each
existing policy of insurance showing: (a) the name of the insurer; (b)
the risks insured; (c) the amount of the policy; (d) the property
insured, the then current replacement value of such property, and the
manner of determining that value; and (e) the expiration date of the
policy. Trustor shall, upon request of Lender, have an independent
appraiser satisfactory to Lender determine the cash value replacement
cost of the Property.
EXPENDITURES BY LENDER. If Trustor fails to comply with any provision of this
Deed of Trust, including any obligation to maintain Existing Indebtedness in
good standing as required below, or if any action or proceeding is commenced
that would materially affect Lender's interests in the Property, Lender on
Trustor's behalf may, but shall not be required to, take any action that Lender
deems appropriate. Any amount that Lender expends in so doing will bear interest
at the rate provided for in the Note from the date incurred or paid by Lender to
the date of repayment by Trustor. All such expenses, 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 Deed of Trust also will secure
payment of these amounts. The rights provided for in this paragraph shall be in
addition to any other fights or any remedies to which Lender may be entitled on
account of the default. Any such action by Lender shall not be construed as
curing the default so as to bar Lender from any remedy that it otherwise would
have had. Notwithstanding the foregoing, Lender agrees to give Trustor 15 days
written notice prior to incurring any such expenditure as described above on
behalf of Trustor.
WARRANTY; DEFENSE OF TITLE. The following provisions relating to ownership of
the Property are a part of this Deed of Trust.
Title. Trustor warrants that: (a) Trustor holds good and marketable
tide of record to the Property in fee simple, free and clear of all
liens and encumbrances other than those set forth in the Real Property
description or in the Existing Indebtedness section below or in any
title insurance policy, title report, or final title opinion issued in
favor of, and accepted by, Lender in connection with this Deed of
Trust, and (b) Trustor has the full right, power, and authority to
execute and deliver this Deed of Trust to Lender.
Defense of Title. Subject to the exception in the paragraph above,
Trustor warrants and will forever defend the title to the Property
against the lawful claims of all persons. In the event any action or
proceeding is commenced that questions Trustor's title or the interest
of Trustee or Lender under this Deed of Trust, Trustor shall defend the
action at Trustor's expense. Trustor may be the nominal party in such
proceeding, but Lender shall be entitled to participate in the
proceeding and to be represented in the proceeding by counsel of
Lender's own choice, and Trustor will deliver, or cause to be
delivered, to Lender such instruments as Lender may request from time
to time to permit such participation.
Compliance With Laws. Trustor warrants that the Property and Trustor's
use of the Property complies with all existing applicable laws,
ordinances, and regulations of governmental authorities.
EXISTING INDEBTEDNESS. The following provisions concerning existing indebtedness
(the "Existing Indebtedness") are a part of this Deed of Trust.
5
<PAGE>
01-11-2000 DEED OF TRUST Page 6
(Continued)
Existing Lien. The lien of this Deed of Trust securing the Indebtedness
may be secondary and inferior to an existing lien. Trustor expressly
covenants and agrees to pay, or see to the payment of, the Existing
Indebtedness and to prevent any default on such indebtedness, any
default under the instruments evidencing such indebtedness, or any
default under any security documents for such indebtedness.
Default. If the payment of any installment of principal or any interest
on the Existing Indebtedness is not made within the time required by
the note evidencing such indebtedness, or should a default occur under
the instrument securing such indebtedness and not be cured during any
applicable grace period therein, then, at the option of Lender, the
Indebtedness secured by this Deed of Trust shall become immediately due
and payable, and this Deed of Trust shall be in default.
No Modification. Trustor shall not enter into any agreement with the
holder of any mortgage, deed of trust, or other security agreement
which has priority over this Deed of Trust by which that agreement is
modified, amended, extended, or renewed without the prior written
consent of Lender. Trustor shall neither request nor accept any future
advances under any such security agreement without the prior written
consent of Lender.
CONDEMNATION. The following provisions relating to condemnation proceedings are
a part of this Deed of Trust.
Application of Net Proceeds. If all or any part of the Property is
condemned by eminent domain proceedings or by any proceeding or
purchase in lieu of condemnation, Lender may at its election require
that all or any portion of the net proceeds of the award be applied to
the Indebtedness or the repair or restoration of the Property. The net
proceeds of the award shall mean the award after payment of all
reasonable costs, expenses, and attorneys' fees incurred by Trustee or
Lender in connection with the condemnation.
Proceedings. If any proceeding in condemnation is filed, Trustor shall
promptly notify Lender in writing, and Trustor shall promptly take such
steps as may be necessary to defend the action and obtain the award.
Trustor may be the nominal party in such proceeding, but Lender shall
be entitled to participate in the proceeding and to be represented in
the proceeding by counsel of its own choice, and Trustor will deliver
or cause to be delivered to Lender such instruments as may be requested
by it from time to time to permit such participation.
IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES. The following
provisions relating to governmental taxes, fees and charges are a part of this
Deed of Trust:
Current Taxes, Fees and Charges. Upon request by Lender, Trustor shall
execute such documents in addition to this Deed of Trust and take
whatever other action is requested by Lender to perfect and continue
Lender's lien on the Real Property. Trustor shall reimburse Lender for
all taxes, as described below, together with all expenses incurred in
recording, perfecting or continuing this Deed of Trust, including
without limitation all taxes, fees, documentary stamps, and other
charges for recording or registering this Deed of Trust.
Taxes. The following shall constitute taxes to which this section
applies: (a) a specific tax upon this type of Deed of Trust or upon all
or any part of the Indebtedness secured by this Deed of Trust; (b) a
specific tax on Trustor which Trustor is authorized or required to
deduct from payments on the Indebtedness secured by this type of Deed
of Trust; (c) a tax on this type of Deed of Trust chargeable against
the Lender or the holder of the Note; and (d) a specific tax on all or
any portion of the Indebtedness or on payments of principal and
interest made by Trustor.
Subsequent Taxes. If any tax to which this section applies is enacted
subsequent to the date of this Deed of Trust, this event shall have the
same effect as an Event of Default (as defined below), and Lender may
exercise any or all of its available remedies for an Event of Default
as provided below unless Trustor either (a) pays the tax before it
becomes delinquent, or (b) contests the tax as provided above in the
Taxes and Liens section and deposits with Lender cash or a sufficient
corporate surety bond or other security satisfactory to Lender.
SECURITY AGREEMENT; FINANCING STATEMENTS. The following provisions relating to
this Deed of Trust as a security agreement are a part of this Deed of Trust.
Security Agreement. This instrument shall constitute a security
agreement to the extent any of the Property constitutes fixtures or
other personal property, and Lender shall have all of the rights of a
secured party under the Uniform Commercial Code as amended from time to
time.
Security Interest. Upon request by Lender, Trustor shall execute
financing statements and take whatever other action is requested by
Lender to perfect and continue Lender's security interest in the Rents
and Personal Property.
6
<PAGE>
01-11-2000 DEED OF TRUST Page 7
(Continued)
In addition to recording this Deed of Trust in the real property
records, Lender may, at any time and without further authorization
from Trustor, file executed counterparts, copies or reproductions of
this Deed of Trust as a financing statement. Trustor shall reimburse
Lender for all expenses incurred in perfecting or continuing this
security interest. Upon default, Trustor shall assemble the Personal
Property in a manner and at a place reasonably convenient to Trustor
and Lender and make it available to Lender within three (3) days after
receipt of written demand from Lender.
Addresses. The mailing addresses of Trustor (debtor) and Lender
(secured party), from which information concerning the security
interest granted by this Deed of Trust may be obtained (each as
required by the Uniform Commercial Code), are as stated on the first
page of this Deed of Trust.
FURTHER ASSURANCES; ATTORNEY-IN-FACT. The following provisions relating to
further assurances and attorney-in-fact are a part of this Deed of Trust.
Further Assurances. At any time, and from time to time, upon request of
Lender, Trustor will make, execute and deliver, or will cause to be
made executed or delivered, to Lender or to Lender's designee, and when
requested by Lender, cause to be filed, recorded, refiled, or
rerecorded, as the case may be, at such times and in such offices and
places as Lender may deem appropriate, any and all such mortgages,
deeds of trust, security deeds, security agreements, financing
statements, continuation statements, instruments of further assurance,
certificates, and other documents as may, in the sole opinion of
Lender, be necessary or desirable in order to effectuate, complete,
perfect, continue, or preserve (a) the obligations of Trustor under the
Note, this Deed of Trust, and the Related Documents, and (b) the liens
and security interests created by this Deed of Trust on the Property,
whether now owned or hereafter acquired by Trustor. Unless prohibited
by law or agreed to the contrary by Lender in writing, Trustor shall
reimburse Lender for all costs and expenses incurred in connection with
the matters referred to in this paragraph
Attorney-in-Fact. If Trustor fails to do any of the things referred to
in the preceding paragraph, Lender may do so for and in the name of
Trustor and at Trustor's expense. For such purposes, Trustor hereby
irrevocably appoints Lender as Trustor's attorney-in-fact for the
purpose of making, executing, delivering, filing, recording, and doing
all other things as may be necessary or desirable, in Lender' sole
opinion, to accomplish the matters referred to in the preceding
paragraph. Lender agrees to provide 15 days written notice prior to
taking any action on behalf of Trustor under the terms of this
section.
FULL PERFORMANCE. If Trustor pays all the Indebtedness when due, terminates the
line of credit, and otherwise performs all the obligations imposed upon Trustor
under this Deed of Trust, Lender shall execute and deliver to Trustee a request
for full reconveyance and shall execute and deliver to Trustor suitable
statements of termination of any financing statement on file evidencing Lender's
security interest in the Rents and the Personal Property. Any reconveyance fee
required by law shall be paid by Trustor, if permitted by applicable law.
DEFAULT. Each of the following, at the option of Lender, shall constitute an
event of default ('Event of Default") under this Deed of Trust:
Default on Indebtedness. Failure of Trustor to make any payment when
due on the Indebtedness.
Default on Other Payments. Failure of Trustor within the time required
by this Deed of Trust to make any payment for taxes or insurance, or
any other payment necessary to prevent filing of or to effect discharge
of any lien.
Compliance Default. Failure of Trustor to comply with any other term,
obligation, covenant or condition contained in this Deed of Trust, the
Note or in any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Trustor under this Deed of
Trust, 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 Deed of Trust or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
Insolvency. The dissolution or termination of Trustor's existence as a
going business, the insolvency of Trustor, the appointment of a
receiver for any part of Trustor's property, any assignment for the
benefit of creditors, any " of creditor workout, or the commencement of
any proceeding under any bankruptcy or insolvency laws by or against
Trustor.
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01-11-2000 DEED OF TRUST Page 8
(Continued)
Foreclosure, Forfeiture, etc. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or
any other method, by any creditor of Trustor or by any governmental
agency against any of the Property. However, this subsection shall not
apply in the event of a good faith dispute by Trustor as to the
validity or reasonableness of the claim which is the basis of the
foreclosure or forfeiture proceeding, provided that Trustor gives
Lender written notice of such claim and furnishes reserves or a surety
bond for the claim satisfactory to Lender.
Adverse Change. A material adverse change occurs in Trustor's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
Insecurity. Lender in good faith deems Itself insecure.
Existing Indebtedness. A default shall occur under any Existing
Indebtedness or under any instrument on the Property securing any
Existing Indebtedness, or commencement of any suit or other action to
foreclose any existing lien on the Property.
Right to Cure. If such a failure is curable and if Trustor has not been
given a notice of a breach of the same provision of this Deed of Trust
within the preceding twelve (12) months, it may be cured (and no Event
of Default will have occurred) if Trustor, after Lender sends written
notice demanding cure of such failure: (a) cures the failure within
fifteen (15) days; or (b) if the cure requires more than fifteen (15)
days, immediately initiates steps sufficient to cure the failure and
thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default and
at any time thereafter, Trustee or Lender, at its option, may exercise any one
or more of the following rights and remedies, in addition to any other rights or
remedies provided by law:
Accelerate Indebtedness. Lender shall have the right at its option
without notice to Trustor to declare the entire Indebtedness
immediately due and payable, including any prepayment penalty which
Trustor would be required to pay.
Foreclosure. With respect to all or any part of the Real Property, the
Trustee shall have the right to foreclose by notice and sale, and
Lender shall have the right to foreclose by judicial foreclosure, in
either case in accordance with and to the full extent provided by
applicable law.
UCC Remedies. With respect to all or any part of the Personal Property,
Lender shall have all the rights and remedies of a secured party under
the Uniform Commercial Code.
Collect Rents. Lender shall have the right, without notice to Trustor,
to take possession of and manage the Property and collect the Rents,
including amounts past due and unpaid, and apply the net proceeds, over
and above Lender's costs, against the Indebtedness. In furtherance of
this right, Lender may require any tenant or other user of the Property
to make payments of rent or use fees directly to Lender. If the Rents
are collected by Lender, then Trustor irrevocably designates Lender as
Trustor's attorney-in-fact to endorse instruments received in payment
thereof in the name of Trustor and to negotiate the same and collect
the proceeds. Payments by tenants or other users to Lender in response
to Lender's demand shall satisfy the obligations for which the payments
are made, whether or not any proper grounds for the demand existed.
Lender may exercise its rights under this subparagraph either in
person, by agent, or through a receiver.
Appoint Receiver. Lender shall have the right to have a receiver
appointed to take possession of all or any part of the Property, with
the power to protect and preserve the Property, to operate the Property
preceding foreclosure or sale, and to collect the Rents from the
Property and apply the proceeds, over and above the cost of the
receivership, against the Indebtedness. Trustor hereby waives any
requirement that the receiver be Impartial and disinterested as to all
of the parties and agrees that employment by Lender shall riot
disqualify a person from serving as a receiver.
8
<PAGE>
01-11-2000 DEED OF TRUST Page 9
(Continued)
Tenancy at Sufferance. If Trustor remains in possession of the Property
after the Property is sold as provided above or Lender otherwise
becomes entitled to possession of the Property upon default of Trustor,
Trustor shall become a tenant at sufferance of Lender or the purchaser
of the Property and shall, at Lender's option, either (a) pay a
reasonable rental for the use of the Property, or (b) vacate the
Property immediately upon the demand of Lender.
Other Remedies. Trustee or Lender shall have any other right or remedy
provided in this Deed of Trust or the Note or by law.
Notice of Sale. Lender shall give Trustor reasonable notice of the time
and place of any public sale of the Personal Property or of the time
after which any private sale or other intended disposition of the
Personal Property is to be made. Reasonable notice shall mean notice
given at least ten (10) days before the time of the sale or
disposition. Any sale of Personal Property may be made in conjunction
with any sale of the Real Property.
Sale of the Property. To the extent permitted by applicable law,
Trustor hereby waives any and all rights to have the Property
marshaled. In exercising its rights and remedies, the Trustee or Lender
shall be free to sell all or any part of the Property together or
separately, in one sale or by separate sales. Lender shall be entitled
to bid at any public sale on all or any portion of the Property.
Waiver; Election of Remedies. A waiver by any party of a breach of a
provision of this Deed of Trust shall not constitute a waiver of or
prejudice the party's rights otherwise to demand strict compliance with
that provision or any other provision. Election by Lender to pursue any
remedy provided in this Deed of Trust, the Note, in any Related
Document, or provided by law shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to
perform an obligation of Trustor under this Deed of Trust after failure
of Trustor to perform shall not affect Lender's right to declare a
default and to exercise any of its remedies.
Attorneys' Fees; Expenses. If Lender institutes any suit or action to
enforce any of the terms of this Deed of Trust, Lender shall be
entitled to recover such sum as the court may adjudge reasonable as
attorneys' fees at trial and on any appeal. Whether or not any court
action is involved, all reasonable expenses incurred by Lender which in
Lender's opinion are necessary at any time for the protection of its
interest or the enforcement of its rights shall become a part of the
Indebtedness payable on demand and shall bear interest at the Note rate
from the date of expenditure until repaid. Expenses covered by this
paragraph include, without limitation, however subject to any limits
under applicable law, Lender's reasonable attorneys' fees whether or
not there is a lawsuit, including reasonable attorneys' fees for
bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals and any anticipated
post-judgment collection services, the cost of searching records,
obtaining title reports (including foreclosure reports), surveyors'
reports, appraisal fees, title insurance, and fees for the Trustee, to
the extent permitted by applicable law. Trustor also will pay any court
costs, in addition to all other sums provided by law.
Rights of Trustee. Trustee shall have all of the rights and duties of
Lender as set forth in this section.
POWERS AND OBLIGATIONS OF TRUSTEE. The following provisions relating to the
powers and obligations of Trustee are part of this Deed of Trust.
Powers of Trustee. In addition to all powers of Trustee arising as a
matter of law, Trustee shall have the power to take the following
actions with respect to the Property upon the written request of Lender
and Trustor: (a) join in preparing and filing a map or plat of the Real
Property, including the dedication of streets or other rights to the
public; (b) join in granting any easement or creating any restriction
on the Real Property; and (c) join in any subordination or other
agreement affecting this Deed of Trust or the interest of Lender under
this Deed of Trust.
Obligations to Notify. Trustee shall not be obligated to notify any
other party of a pending sale under any other trust deed or lien, or of
any action or proceeding in which Trustor, Lender, or Trustee shall be
a party, unless the action or proceeding is brought by Trustee.
Trustee. Trustee shall meet all qualifications required for Trustee
under applicable law. In addition to the rights and remedies set forth
above, with respect to all or any part of the Property, the Trustee
shall have the right to foreclose by notice and sale, and Lender shall
have the right to foreclose by judicial foreclosure, in either case in
accordance with and to the full extent provided by applicable law.
Successor Trustee. Lender, at Lender's option, may from time to time
appoint a successor Trustee to any Trustee appointed hereunder by an
instrument executed and acknowledged by Lender and recorded in the
office of the recorder of SALT
9
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01-11-2000 DEED OF TRUST Page 10
(Continued)
LAKE County, Utah. The instrument shall contain, in addition to all
other matters required by state law, the names of the original Lender,
Trustee, and Trustor, the book and page where this Deed of Trust is
recorded, and the name and address of the successor trustee, and the
instrument shall be executed and acknowledged by Lender or its
successors in interest. The successor trustee, without conveyance of
the Property, shall succeed to all the title, power, and duties
conferred upon the Trustee in this Deed of Trust and by applicable law.
This procedure for substitution of trustee shall govern to the
exclusion of all other provisions for substitution.
NOTICES TO TRUSTOR AND OTHER PARTIES. Unless otherwise provided by applicable
law, any notice under this Deed of Trust or required by law shall be in
writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered in accordance with the law
or with this Deed of Trust,, or when deposited with a nationally recognized
overnight courier, or, if mailed, shall be deemed effective when deposited in
the United States mail first class, certified or registered mail, postage
prepaid, directed to the addresses shown near the beginning of this Deed of
Trust. Any party may change its address for notices under this Deed of Trust by
giving formal written notice to the other parties, specifying that the
purpose of the notice is to change the party's address. All copies of notices
of foreclosure from the holder of any lien which has priority over this Deed of
Trust shall be sent to Lenders address, as shown near the beginning of this
Deed of Trust. For notice purposes, Trustor agrees to keep Lender and Trustee
informed at all times of Trustor's current address. Notwithstanding any other
provisions of this Deed of Trust, all notices given under Utah Code Ann. Section
57-1-26 shall be given as required therein.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Deed of Trust:
Amendments. This Deed of Trust, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Deed of Trust. No alteration of or amendment to this Deed of Trust
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. Annual Reports. If
the Property is used for purposes other than Trustor's residence, Trustor shall
furnish to Lender, upon request, a certified statement of net operating income
received from the Property during Trustor's previous fiscal year in such form
and detail as Lender shall require. "Net operating income" shall mean all cash
receipts from the Property less all cash expenditures made in connection with
the operation of the Property.
ARBITRATION DISCLOSURES:
1. ARBITRATION IS FINAL AND BINDING ON THE PARTIES AND SUBJECT TO ONLY
VERY LIMITED REVIEW BY A COURT.
2. IN ARBITRATION THE PARTIES ARE WAIVING THEIR RIGHT TO LITIGATE IN
COURT, INCLUDING THEIR RIGHT TO A JURY TRIAL.
3. DISCOVERY IN ARBITRATION IS MORE LIMITED THAN DISCOVERY IN COURT.
4. ARBITRATORS ARE NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL
REASONING IN THEIR AWARDS. THE RIGHT TO APPEAL OR TO SEEK MODIFICATION
OF ARBITRATORS' RULINGS IS VERY LIMITED.
5. A PANEL OF ARBITRATORS MIGHT INCLUDE AN ARBITRATOR WHO IS OR WAS
AFFILIATED WITH THE BANKING INDUSTRY.
6. IF YOU HAVE QUESTIONS ABOUT ARBITRATION, CONSULT YOUR ATTORNEY OR THE
AMERICAN ARBITRATION ASSOCIATION.
(a) Any claim or controversy ("Dispute") between or among the parties
and their assigns, including but not limited to Disputes arising out of
or relating to this agreement, this arbitration provision ("arbitration
clause"), or any related agreements or instruments relating hereto or
delivered in connection herewith ('Related Documents"), and including
but not limited to a Dispute based on or arising from an alleged tort,
shall at the request of any party be resolved by binding arbitration in
accordance with the applicable arbitration rules of the American
Arbitration Association (the "Administrator"). The provisions of this
arbitration clause shall survive any termination, amendment, or
expiration of this agreement or Related Documents. The provisions of
this arbitration clause shall supersede any prior arbitration agreement
between or among the parties. If any provision of this arbitration
clause should be determined to be unenforceable, all other provisions
of this arbitration clause shall remain in full force and effect.
(b) The arbitration proceedings shall be conducted in Salt Lake City,
Utah, at a place to be determined by the Administrator.
10
<PAGE>
01-11-2000 DEED OF TRUST Page 11
(Continued)
The Administrator and the arbitrator(s) shall have the authority to the
extent practicable to take any action to require the arbitration
proceeding to be completed and the arbitrator(s)' award issued within
one hundred fifty (150) days of the filing of the Dispute with the
Administrator. The arbitrator(s) shall have the authority to impose
sanctions on any party that fails to comply with time periods imposed
by the Administrator or the arbitrator(s), including the sanction of
summarily dismissing any Dispute or defense with prejudice. The
arbitrator(s) shall have the authority to resolve any Dispute regarding
the terms of this agreement, this arbitration clause or Related
Documents, including any claim or controversy regarding the
arbitrability of any Dispute. All limitations periods applicable to any
Dispute or defense, whether by statute or agreement, shall apply to any
arbitration proceeding hereunder and the arbitrator(s) shall have the
authority to decide whether any Dispute or defense is barred by a
limitations period and, if so, to summarily enter an award dismissing
any Dispute or defense on that basis. The doctrines of compulsory
counterclaim, res judicata, and collateral estoppel shall apply to any
arbitration proceeding hereunder so that a party must state as a
counterclaim in the arbitration proceeding any claim or controversy
which arises out of the transaction or occurrence that is the subject
matter of the Dispute. The arbitrator(s) may in the arbitrator(s)'
discretion and at the request of any party: (1) consolidate in a single
arbitration proceeding any other claim or controversy involving another
party that is substantially related to the Dispute where that other
party is bound by an arbitration clause with the Lender, such as
borrowers, guarantors, sureties, and owners of collateral; (2)
consolidate in a single arbitration proceeding any other claim or
controversy that is substantially similar to the Dispute; and (3)
administer multiple arbitration claims or controversies as class
actions in accordance with the provisions of Rule 23 of the Federal
Rules of Civil Procedure.
(c) The arbitrator(s) shall be selected in accordance with the rules of
the Administrator from panels maintained by the Administrator. A single
arbitrator shall have expertise in the subject matter of the Dispute.
Where three arbitrators conduct an arbitration proceeding, the Dispute
shall be decided by a majority vote of the three arbitrators, at least
one of whom must have expertise in the subject matter of the Dispute
and at least one of whom must be a practicing attorney. The
arbitrator(s) shall award to the prevailing party recovery of all costs
and fees (including attorneys' fees and costs, arbitration
administration fees and costs, and arbitrator(s)' fees). The
arbitrator(s), either during the pendency of the arbitration proceeding
or as part of the arbitration award, also may grant provisional or
ancillary remedies, including but not limited to an award of injunctive
relief, foreclosure, sequestration, attachment, replevin, garnishment,
or the appointment of a receiver.
(d) Judgment upon an arbitration award may be entered in any court
having jurisdiction, subject to the following limitation: the
arbitration award is binding upon the parties only if the amount does
not exceed Four Million Dollars ($4,000,000.00); if the award exceeds
that limit, either party may demand the right to a court trial. Such a
demand must be filed with the Administrator within thirty (30) days
following the date of the arbitration award; if such a demand is not
made within that time period, the amount of the arbitration award shall
be binding. The computation of the total amount of an arbitration award
shall include amounts awarded for attorneys' fees and costs,
arbitration administration fees and costs, and arbitrator(s)' fees.
(e) No provision of this arbitration clause, nor the exercise of any
rights hereunder, shall limit the right of any party to: (1) judicially
or non-judicially foreclose against any real or personal property
collateral or other security; (2) exercise self-help remedies,
including but riot limited to repossession and setoff rights; or (3)
obtain from a court having jurisdiction thereover any provisional or
ancillary remedies, including but riot limited to injunctive relief,
foreclosure, sequestration, attachment, replevin, garnishment, or the
appointment of a receiver. Such rights can be exercised at any time,
before or during initiation of an arbitration proceeding, except to the
extent such action is contrary to the arbitration award. The exercise
of such rights shall not constitute a waiver of the right to submit any
Dispute to arbitration, and any claim or controversy related to the
exercise of such rights shall be a Dispute to be resolved under the
provisions of this arbitration clause. Any party may initiate
arbitration with the Administrator; however, if any party initiates
litigation and another party disputes any allegation in that
litigation, the disputing party--upon the request of the initiating
party--must file a demand for arbitration with the Administrator and
pay the Administrator's filing fee. The parties may serve by mail a
notice of an initial motion for an order of arbitration.
(f) Notwithstanding the applicability of any other law to this
agreement, the arbitration clause, or Related Documents between or
among the parties, the Federal Arbitration Act, 9 U.S.C. Section 1 et
seq., shall apply to the construction and interpretation of this
arbitration clause.
Applicable Law. This Deed of Trust has been delivered to Lender and accepted by
Lender In the State of Utah. Subject to the provisions on arbitration, this Deed
of Trust shall be governed by and construed In accordance with the laws of the
State of Utah.
Caption Headings. Caption headings in this Deed of Trust are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Deed of Trust.
Merger. There shall be no merger of the interest or estate created by this Deed
of Trust with any other interest or estate in the Property at any time held by
or for the benefit of Lender in any capacity, without the written consent
of Lender.
11
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01-11-2000 DEED OF TRUST Page 12
(Continued)
Multiple Parties; Corporate Authority. All obligations of Trustor under this
Deed of Trust shall be joint and several, and all references to Trustor shall
mean each and every Trustor. This means that each of the persons signing below
is responsible for all obligations in this Deed of Trust.
Severability. If a court of competent jurisdiction finds any provision of this
Deed of Trust 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 Deed of Trust in all other respects shall
remain valid and enforceable.
Successors and Assigns. Subject to the limitations stated in this Deed of Trust
on transfer of Trustor's interest, this Deed of Trust shall be binding upon and
inure to the benefit of the parties, their successors and assigns. If ownership
of the Property becomes vested in a person other than Trustor, Lender, without
notice to Trustor, may deal with Trustor's successors with reference to this
Deed of Trust and the Indebtedness by way of forbearance or extension without
releasing Trustor from the obligations of this Deed of Trust or liability under
the Indebtedness.
Time Is of the Essence. Time is of the essence in the performance of this Deed
of Trust.
Waivers and Consents. Lender shall not be deemed to have waived any rights under
this Deed of Trust (or under the Related Documents) unless such waiver is 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 any party of a provision of this Deed of Trust shall not constitute
a waiver of or prejudice the party's right otherwise to demand strict compliance
with that provision or any other provision. No prior waiver by Lender, nor any
course of dealing between Lender and Trustor, shall constitute a waiver of any
of Lender's rights or any of Trustor's obligations as to any future
transactions. Whenever consent by Lender is required in this Deed of Trust, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is required.
Waiver of Homestead Exemption. Trustor hereby releases and waives all
rights and benefits of the homestead exemption laws of the State of
Utah as to all Indebtedness secured by this Deed of Trust.
EACH TRUSTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS DEED OF TRUST,
AND EACH TRUSTOR AGREES TO ITS TERMS.
TRUSTOR:
DYNATRONICS CORPORATION
By: /s/ KELVYN H. CULLIMORE JR.
--------------------------------------
KELVYN H. CULLIMORE JR., PRESIDENT
- - --------------------------------------------------------------------------------
CORPORATE ACKNOWLEDGMENT
STATE OF UTAH )
-------------------------------------------
) ss [Notary Seal]
COUNTY OF SALT LAKE )
------------------------------------------
On this 17 day of January, 2000 , before me, the undersigned Notary Public,
personally appeared KELVYN H. CULLIMORE, JR., PRESIDENT of DYNATRONICS
CORPORATION, and known to me to be an authorized agent of the corporation that
executed the, Deed of Trust and acknowledged the Deed of Trust to be the free
and voluntary act and deed of the corporation, by authority of its Bylaws or
by resolution of its board of directors, for the uses and purposes therein
mentioned, and on oath stated that he or she is authorized to execute this
Deed of Trust and in fact executed the Deed of Trust on behalf of the
corporation.
12
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01-11-2000 DEED OF TRUST Page 13
(Continued)
By Shelley Plant Residing at Salt Lake County
--------------------------------- ----------------------------
Notary Public In and for the State of Utah My commission expires 3/11/01
--------- ----------
- - --------------------------------------------------------------------------------
REQUEST FOR FULL RECONVEYANCE
(To be used only when obligations have been paid in full)
To: , Trustee
---------------------------------------------------
The undersigned is the legal owner and holder of all Indebtedness secured by
this Deed of Trust. All sums secured by this Deed of Trust have been fully paid
and satisfied. You are hereby directed, upon payment to you of any sums owing to
you under the terms of this Deed of Trust or pursuant to any applicable statute,
to cancel the Note secured by this Deed of Trust (which is delivered to you
together with this Deed of Trust), and to reconvey, without warranty, to the
parties designated by the terms of this Deed of Trust, the estate now held by
you under this Deed of Trust. Please mail the reconveyance and Related Documents
to:
- - -------------------------------------------------------------------------------.
Date: Beneficiary:
------------------- ----------------------------
By:
----------------------------
Its:
----------------------------
- - --------------------------------------------------------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off.., Ver. 3.28 (c) 2000 CFI ProServices, Inc.
All rights reserved. [UT-G01 DYNAT.LN)
13
<PAGE>
01-11-2000 DEED OF TRUST Page 14
(Continued)
SCHEDULE A
DESCRIPTION
A part of the Northwest quarter of Section 28 and Southwest quarter of Section
21, Township 2 South, Range I East, Salt Lake Base and Meridian, more
particularly described as follows:
Beginning at the Northwest corner of Section 28, Township 2 South,
Range 1East, Salt Lake Base and Meridian; and running thence along the
section line North 00(degree)41'24" West 151.50 feet; thence North
89(degree)18'36" East 477.75 feet; thence South 04(degree)04'00" West
192.22 feet; thence Southwesterly 555.51 feet along the arc of a 370.00
foot radius curve to the right (chord bears South 47(degree)04'42" West
504.79 feet; thence North 89(degree)54'37" West 93.06 feet; thence
Northwesterly 0.15 feet along the arc of a 685.00 foot radius curve to
the right (chord bears North 89(degree)54'15" West 0.15 feet); thence
along the Section line North 00(degree)05'23" East 378.11 feet to the
point of beginning,
Excepting therefrom the following:
A part of the Northwest quarter of Section 28 and the Southwest quarter
of Section 21, Township 2 South, Range 1 East, Salt Lake Base, and
Meridian, U.S. Survey:
Beginning at the Northwest; corner of Section 28, Township 2 South,
Range 1 East, Salt Lake Base and Meridian; and running thence along the
Section line North 0(degree)41'24" West 151.50 feet; thence North
89(degree)18'36" East 477.75 feet; thence South 4(degree)04'00" West
192.22 feet; thence Southwesterly 20.56 feet: along the arc of a 370.00
foot radius curve to the right (chord bears South 5(degree)39'30" West
20.56 feet); thence North 89(degree)52'24" West 460.32 feet; thence
along the Section line North 0(degree)5'23" East 53.93 feet to the
point of beginning.
The above described property also known by the street address of:
7030 South Park Center Drive, Salt Lake City, Utah 84121
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,750,000.00 01-11-2000 12/01/2000 9001 C 7380 2999005 79969
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: DYNATRONICS CORPORATION Lender: ZIONS FIRST NATIONAL BANK
7030 PARK CENTRE DRIVE HEAD OFFICE/COMMERCIAL BANKING
SALT LAKE CITY, UT 84121 #1 SOUTH MAIN STREET
SALT LAKE CITY, UT 84125
LOAN TYPE. This is a Variable Rate (at ZIONS FIRST NATIONAL BANK PRIME RATE,
making an initial rate of 8.500%), Revolving Line of Credit Loan to a
Corporation for $3,750,000.00 due on December 1, 2000. This is a secured renewal
of the following described indebtedness: The Promissory Note from Dynatronics
Corporation to Lender dated October 21, 1998 in the original principal amount of
$3,500,000.00.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
| | Personal, Family, or Household Purposes or Personal
- Investment.
|X| Business (including Real Estate Investment).
-
SPECIFIC PURPOSE. The specific purpose of this loan is: TO RENEW AND INCREASE
LINE OF CREDIT USED FOR SHORT-TERM WORKING CAPITAL NEEDS.
FLOOD INSURANCE. As reflected on Flood Map No. 490102 dated 12-18-1985, for the
community of 490102 0313B, the property that will secure the loan is not located
in an area that has been identified by the Director of the Federal Emergency
Management Agency as an area having special flood hazards. Therefore, although
flood insurance may be available for the property, no special flood hazard
insurance is required by law for this loan.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $3,750,000.00 as follows:
Undisbursed Funds: $1,330,046.58
Amount paid to others on Borrower's behalf: $2,410,083.42
$2,410,083.42 RENEW LOAN #2999005-9001
Other Charges Financed: $495.00
$200.00 Preliminary Report
$35.00 Recording
$225.00 Loan Documentation Fee
$35.00 Future Reconveyance
Total Financed Prepaid Finance Charges: $9,375.00
$9,375.00 Loan Fees
Note Principal: $3,750,000.00
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid In Cash: $0.00
Other Charges Paid In Cash: $41,993.78
$41,993.78 Interest Due thru 01/11/00
------------
Total Charges Paid In Cash: $41,993.78
FINAL AGREEMENT. Borrower understands that the loan documents signed in
connection with this loan are the final expression of the agreement between
Lender and Borrower and may not be contradicted by evidence of any alleged oral
agreement.
DISBURSEMENT AUTHORIZATION. BORROWER HEREBY AUTHORIZES LENDER TO DISBURSE ANY
FUNDS PURSUANT TO FACSIMILE WIRE INSTRUCTIONS WHICH BEARS THE SIGNATURE OF ANY
AUTHORIZED SIGNER.
1
<PAGE>
01-11-2000 DISBURSEMENT REQUEST AND AUTHORIZATION Page 2
(Continued)
ALLOCATION OF PROCEEDS. THE PROCEEDS OF THIS LOAN WILL BE USED TO RENEW A
REVOLVING LINE OF CREDIT. THE CURRENT OUTSTANDING BALANCE AND THE AMOUNT
AVAILABLE ARE DESCRIBED ABOVE IN THE SECTION ENTITLED AMOUNT PAID TO OTHERS ON
BORROWER'S BEHALF.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED JANUARY 11, 2000.
BORROWER:
DYNATRONICS CORPORATION
By: /s/ KELVYN H. CULLIMORE, JR.
---------------------------------------
KELVYN H. CULLIMORE, JR., PRESIDENT
LASER PRO, Reg. U.S. Pat. & T.M. Off.., Ver. 3.28 (c) 2000 CFI ProServices, Inc.
All rights reserved. [UT-I20 DYNAT.LN)
AGREEMENT TO PROVIDE INSURANCE
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,750,000.00 01-11-2000 12/01/2000 9001 C 7380 2999005 79969
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: DYNATRONICS CORPORATION Lender: ZIONS FIRST NATIONAL BANK
7030 PARK CENTRE DRIVE HEAD OFFICE/COMMERCIAL BANKING
SALT LAKE CITY, UT 84121 #1 SOUTH MAIN STREET
SALT LAKE CITY, UT 84125
INSURANCE REQUIREMENTS. DYNATRONICS CORPORATION ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Lender. These
requirements are set forth in the security documents. The following
minimum insurance coverages must be provided on the following described
collateral (the "Collateral"):
Collateral: Real Estate at 7030 PARK CENTRE DRIVE, SALT LAKE CITY, UT 84121.
Type. Fire and extended coverage.
Amount. Full insurable value.
Basis. Replacement value.
Endorsements. Standard mortgagee's clause with stipulation
that coverage will not be cancelled or diminished without a
minimum of ten (10) days' prior written notice to Lender, and
without disclaimer of the insurer's liability for failure to
give such notice.
Collateral: All Inventory.
Type. All risks, including fire, theft and liability.
Amount. Full insurable value.
Basis. Replacement value.
Endorsements. Lender's loss payable clause with stipulation
that coverage will not be cancelled or diminished without a
minimum of ten (10) days' prior written notice to Lender.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender.
FLOOD INSURANCE. Flood Insurance for property given as security for this loan
is described as follows:
Real Estate at 7030 PARK CENTRE DRIVE, SALT LAKE CITY, UT 84121.
Should the Collateral at any time be deemed to be located in an area
designated by the Director of the Federal Emergency Management Agency
as a special flood hazard area and should Federal Flood Insurance
covering the Collateral ever become available, Grantor agrees to obtain
and maintain Federal Flood Insurance, for the full unpaid principal
balance of the loan and any prior liens on the property securing the
loan, up to the maximum policy limits set under the National Flood
Insurance Program, or as otherwise required, and to maintain such
insurance for the term of the loan.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to purchase and maintain any
required flood insurance within 45 days following notice given by Lender.
Additionally, Grantor agrees to deliver to Lender, fifteen (15) days from the
date of this Agreement, evidence of all other required insurance as provided
above, with an effective date of January 11, 2000, or earlier. Grantor
acknowledges and agrees that if Grantor fails to provide any required insurance
or fails to continue such insurance in force, Lender may do so at Grantor's
expense as provided in the applicable security document The cost of any such
insurance, at the option of Lender, shall be payable on demand or shall be added
to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES
THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE
LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE
OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JANUARY 11, 2000.
GRANTOR:
DYNATRONICS CORPORATION
By: /s/ KELVYN H. CULLIMORE, JR.
-----------------------------------
KELVYN H. CULLIMORE, JR., PRESIDENT
1
<PAGE>
FOR LENDER USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
------------------------------ -------------------------------
AGENT'S NAME:
-------------------------------------------------------------------
INSURANCE COMPANY:
--------------------------------------------------------------
POLICY NUMBER:
------------------------------------------------------------------
EFFECTIVE DATES:
----------------------------------------------------------------
COMMENTS:
-----------------------------------------------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off.., Ver. 3.28 (c) 2000 CFI ProServices, Inc.
All rights reserved. [UT-I10 DYNAT.LN)
2
PROMISSORY NOTE
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,750,000.00 01-11-2000 12/01/2000 9001 C 7380 2999005 79969
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: DYNATRONICS CORPORATION Lender: ZIONS FIRST NATIONAL BANK
7030 PARK CENTRE DRIVE HEAD OFFICE/COMMERCIAL BANKING
SALT LAKE CITY, UT 84121 #1 SOUTH MAIN STREET
SALT LAKE CITY, UT 84125
Principal Amount:$3,750,000.00 Initial Rate:8.500% Date of Note:January 11, 2000
PROMISE TO PAY. DYNATRONICS CORPORATION ("Borrower") promises to pay to ZIONS
FIRST NATIONAL BANK ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Three Million Seven Hundred Fifty
Thousand & 00/100 Dollars ($3,750,000.00) 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 1, 2000. In addition, Borrower will
pay regular monthly payments of accrued unpaid interest beginning February 2,
2000, 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 ZIONS FIRST NATIONAL BANK
PRIME RATE (the "Index"). "PRIME RATE" MEANS AN INDEX WHICH IS DETERMINED DAILY
BY THE PUBLISHED COMMERCIAL LOAN VARIABLE RATE INDEX HELD BY ANY TWO OF THE
FOLLOWING BANKS: CHASE MANHATTAN BANK, WELLS FARGO BANK N.A., AND BANK OF
AMERICA N.T. & S.A. IN THE EVENT NO TWO OF THE ABOVE BANKS HAVE THE SAME
PUBLISHED RATE, THE BANK HAVING THE MEDIAN RATE WILL ESTABLISH LENDERS' PRIME
RATE. IF, FOR ANY REASON BEYOND THE CONTROL OF LENDER, ANY OF THE AFOREMENTIONED
BANKS BECOMES UNACCEPTABLE AS A REFERENCE FOR THE PURPOSE OF DETERMINING THE
PRIME RATE USED HEREIN, LENDER MAY, FIVE DAYS AFTER POSTING NOTICE IN LENDERS
OFFICES, SUBSTITUTE ANOTHER COMPARABLE BANK FOR THE ONE DETERMINED UNACCEPTABLE.
AS USED IN THIS PARAGRAPH, 'COMPARABLE BANK' SHALL MEAN ONE OF THE TEN LARGEST
COMMERCIAL BANKS HEADQUARTERED IN THE UNITED STATES OF AMERICA. THIS DEFINITION
OF PRIME RATE IS TO BE STRICTLY INTERPRETED AND IS NOT INTENDED TO SERVE ANY
PURPOSE OTHER THAN PROVIDING AN INDEX TO DETERMINE THE VARIABLE INTEREST RATE
USED HEREIN IT IS NOT THE LOWEST RATE AT WHICH LENDER MAY MAKE LOANS TO ANY OF
ITS CUSTOMERS, EITHER NOW OR IN THE FUTURE. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender may
make loans based on other rates as well. The interest rate change will not occur
more often than each DAY. The Index currently is 8.500% per annum. The Interest
rate to be applied to the unpaid principal balance of this Note will be at a
rate equal to the Index, resulting In an Initial rate of 8.500% per annum.
1
<PAGE>
01-11-2000 PROMISSORY NOTE Page 2
(Continued)
NOTICE: Under no circumstances will the interest rate on this Note be more than
the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will riot, 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.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant ' or condition contained in this Note .
(c) 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. (d) Borrower becomes insolvent, a receiver is
appointed for any part of Borrowers 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. (e) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(f) (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 3.000
percentage points over the Index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
reasonable attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services. If
not prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender In the State of Utah. If there Is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of SALT LAKE County, the State of Utah. Subject to the provisions on
arbitration, this Note shall be governed by and construed In accordance with the
laws of the State of Utah.
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,
2
<PAGE>
01-11-2000 PROMISSORY NOTE Page 3
(Continued)
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. Lender agrees not to exercise its right of setoff unless
an event of default continues to exist (15) fifteen days after Lender's
notification of default has been received in writing by Borrower.
COLLATERAL. This Note is secured by, in addition to any other collateral, a
Deed of Trust dated January 11, 2000, to a trustee in favor of Lender on real
property located in Salt Lake County, State of Utah and a Commercial Security
Agreement dated February 23, 1995, all the terms and conditions of which are
hereby incorporated and made a part of this Note.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally 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: KELVIN H. CULLIMORE, JR., PRESIDENT; and
Terry Atkinson, Controller. 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'sinternal records, including daily
computer print-outs. Lender will have no obligation to advance funds under
this Note if: (a) Borrower is in default under the terms of this Note ,
including any agreement made in connection with the signing of this Note; (b)
Borrower ceases doing business or is insolvent; (c) ; (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.
ARBITRATION DISCLOSURES:
1. ARBITRATION IS FINAL AND BINDING ON THE PARTIES AND SUBJECT TO ONLY
VERY LIMITED REVIEW BY A COURT.
2. IN ARBITRATION THE PARTIES ARE WAIVING THEIR RIGHT TO LITIGATE IN COURT,
INCLUDING THEIR RIGHT TO A JURY TRIAL.
3. DISCOVERY IN ARBITRATION IS MORE LIMITED THAN DISCOVERY IN COURT.
1. ARBITRATORS ARE NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL
REASONING IN THEIR AWARDS. THE RIGHT TO APPEAL OR TO SEEK MODIFICATION OF
ARBITRATORS' RUUNGS IS VERY LIMITED.
2. A PANEL OF ARBITRATORS MIGHT INCLUDE AN ARBITRATOR WHO IS OR WAS AFFILIATED
WITH THE BANKING INDUSTRY.
3. IF YOU HAVE QUESTIONS ABOUT ARBITRATION, CONSULT YOUR ATTORNEY OR THE
AMERICAN ARBITRATION ASSOCIATION.
3
<PAGE>
01-11-2000 PROMISSORY NOTE Page 4
(Continued)
(a) Any claim or controversy ("Dispute") between or among the parties
and their assigns, including but not limited to Disputes arising out of or
relating to this agreement, this arbitration provision ("arbitration clause"),
or any related agreements or instruments relating hereto or delivered in
connection herewith ("Related Documents"), and including but not limited to a
Dispute based on or arising from an alleged tort, shall at the request of any
party be resolved by binding arbitration in accordance with the applicable
arbitration rules of the American Arbitration Association (the "Administrator").
The provisions of this arbitration clause shall survive any termination,
amendment, or expiration of this agreement or Related Documents. The provisions
of this arbitration clause shall supersede any prior arbitration agreement
between or among the parties. If any provision of this arbitration clause should
be determined to be unenforceable, all other provisions of this arbitration
clause shall remain in full force and effect.
(b) The arbitration proceedings shall be conducted in Salt Lake City,
Utah, at a place to be determined by the Administrator. The Administrator and
the arbitrator(s) shall have the authority to the extent practicable to take any
action to require the arbitration proceeding to be completed and the
arbitrator(s)' award issued within one hundred fifty (150) days of the filing of
the Dispute with the Administrator. The arbitrator(s) shall have the authority
to impose sanctions on any party that fails to comply with time periods imposed
by the Administrator or the arbitrator(s), including the sanction of summarily
dismissing any Dispute or defense with prejudice. The arbitrator(s) shall have
the authority to resolve any Dispute regarding the terms of this agreement, this
arbitration clause or Related Documents, including any claim or controversy
regarding the arbitrability of any Dispute. All limitations periods applicable
to any Dispute or defense, whether by statute or agreement, shall apply to any
arbitration proceeding hereunder and the arbitrator(s) shall have the authority
to decide whether any Dispute or defense is barred by a limitations period and,
if so, to summarily enter an award dismissing any Dispute or defense on that
basis. The doctrines of compulsory counterclaim, res judicata, and collateral
estoppel shall apply to any arbitration proceeding hereunder so that a party
must state as a counterclaim in the arbitration proceeding any claim or
controversy which arises out of the transaction or occurrence that is the
subject matter of the Dispute. The arbitrator(s) may in the arbitrator(s)'
discretion and at the request of any party: (1) consolidate in a single
arbitration proceeding any other claim or controversy involving another party
that is substantially related to the Dispute where that other party is bound by
an arbitration clause with tw Lender, such as borrowers, guarantors, sureties,
and owners of collateral; (2) consolidate in a single arbitration proceeding any
other claim or controversy that is substantially similar to the Dispute; and (3)
administer multiple arbitration claims or controversies as class actions in
accordance with the provisions of Rule 23 of the Federal Rules of Civil
Procedure.
(c) The arbitrator(s) shall be selected in accordance with the rules of
the Administrator from panels maintained by the Administrator. A single
arbitrator shall have expertise in the subject matter of the Dispute. Where
three arbitrators conduct an arbitration proceeding, the Dispute shall be
decided by a majority vote of the three arbitrators, at least one of whom must
have expertise in the subject matter of the Dispute and at least one of whom
must be a practicing attorney. The arbitrator(s) shall award to the prevailing
party recovery of all costs and fees (including attorneys' fees and costs,
arbitration administration fees and costs, and arbitrator(s)' fees). The
arbitrator(s), either during the pendency of the arbitration proceeding or as
part of the arbitration award, also may grant provisional or ancillary remedies,
including but not limited to an award of injunctive relief, foreclosure,
sequestration, attachment, replevin, garnishment, or the appointment of a
receiver.
(d) Judgment upon an arbitration award may be entered in any court
having jurisdiction, subject to the following limitation: the arbitration award
is binding upon the parties only if the amount does not exceed Four Million
Dollars ($4,000,000.00); if the award exceeds that limit, either party may
demand the right to a court trial. Such a demand must be filed with the
Administrator within thirty (30) days following the date of the arbitration
award; if such a demand is not made within that time period, the amount of the
arbitration award shall be binding. The computation of the total amount of an
arbitration award shall include amounts awarded for attorneys' fees and costs,
arbitration administration fees and costs, and arbitrator(s)' fees.
4
<PAGE>
01-11-2000 PROMISSORY NOTE Page 5
(Continued)
(e) No provision of this arbitration clause, nor the exercise of any
rights hereunder, shall limit the right of any party to: (1) judicially or
non-judicially foreclose against any real or personal property collateral or
other security; (2) exercise self-help remedies, including but not limited to
repossession and setoff rights; or (3) obtain from a court having jurisdiction
thereover any provisional or ancillary remedies, including but not limited to
injunctive relief, foreclosure, sequestration, attachment, replevin,
garnishment, or the appointment of a receiver. Such rights can be exercised at
any time, before or during initiation of an arbitration proceeding, except to
the extent such action is contrary to the arbitration award. The exercise of
such rights shall not constitute a waiver of the right to submit any Dispute to
arbitration, and any claim or controversy related to the exercise of such rights
shall be a Dispute to be resolved under the provisions of this arbitration
clause. Any party may initiate arbitration with the Administrator; however, If
any party Initiates litigation and another party disputes any allegation in that
litigation, the disputing party-upon the request of the initiating party-must
file a demand for arbitration with the Administrator and pay the Administrator's
filing fee. The parties may serve by mall a notice of an initial motion for an
order of arbitration.
(f) Notwithstanding the applicability of any other law to this
agreement the arbitration clause, or Related Documents between or among the
parties, the Federal Arbitration Act, 9 U.S.C. Section 1 et seq., shall apply to
the construction and interpretation of this arbitration clause.
LOAN AGREEMENT. THIS PROMISSORY NOTE IS MADE IN ACCORDANCE WITH A LOAN AGREEMENT
DATED FEBRUARY 23, 1995, AS AMENDED.
PRIOR NOTE. The Promissory Note from Dynatronics Corporation to Lender dated
October 21, 1998 in the original principal amount of $3,500,000.00.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
DYNATRONICS CORPORATION
By: /s/ KELVYN H. CULLIMORE, JR.
-----------------------------------
KELVYN H. CULLIMORE, JR., PRESIDENT
LASER PRO, Reg. U.S. Pat. & T.M. Off.., Ver. 3.28 (c) 2000 CFI ProServices, Inc.
All rights reserved. [UT-D20 DYNAT.LN)
CORPORATE RESOLUTION TO BORROW
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,750,000.00 01-11-2000 12/01/2000 9001 C 7380 2999005 79969
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: DYNATRONICS CORPORATION Lender: ZIONS FIRST NATIONAL BANK
7030 PARK CENTRE DRIVE HEAD OFFICE/COMMERCIAL BANKING
SALT LAKE CITY, UT 84121 #1 SOUTH MAIN STREET
SALT LAKE CITY, UT 84125
I, the undersigned Secretary or Assistant Secretary of DYNATRONICS CORPORATION
(the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of Utah as a corporation
for profit, with its principal office at 7030 PARK CENTRE DRIVE, SALT LAKE CITY,
UT 84121, and is duly authorized to transact business in the State of Utah.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held on November 23, 1999 at which a quorum was present and voting,
------------------
or by other duly authorized corporate action in lieu of a meeting, the following
resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
NAMES POSITION ACTUAL SIGNATURES
----- -------- -----------------
KELVYN H. CULLIMORE, JR. PRESIDENT x /s/ KELVYN H. CULLIMORE, JR.
-----------------------------
TERRY ATKINSON CONTROLLER x /S/ TERRY ATKINSON
-----------------------------
acting for and on behalf of the Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
Borrow Money. To borrow from time to time from ZIONS FIRST NATIONAL
BANK ("Lender"), on such terms as may be agreed upon between the
Corporation and Lender, such sum or sums of money as in their judgment
should be borrowed, without limitation.
Execute Notes. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accommodations of the Corporation,
on Lender's forms, at such rates of interest and on such terms as may
be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Lender, and also to execute and
deliver to Lender one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the
notes, any portion of the notes, or any other evidence of credit
accommodations.
Grant Security. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment
of any loans or credit accommodations so obtained, any promissory notes
so executed (including any amendments to or modifications, renewals,
and extensions of such promissory notes), or any other or further
indebtedness of the Corporation to Lender at any time owing, however
the same may be evidenced, any property now or hereafter belonging to
the Corporation or in which the Corporation now or hereafter may have
an interest, including without limitation all real property and all
personal property (tangible or intangible) of the Corporation. Such
property may be mortgaged, pledged, transferred, endorsed,
hypothecated, or encumbered at the time such loans are obtained or such
indebtedness is incurred, or at any other time or times, and may be
either in addition to or in lieu of any property theretofore mortgaged,
pledged, transferred, endorsed, hypothecated, or encumbered.
Execute Security Documents. To execute and deliver to Lender the forms
of mortgage, deed of trust, pledge agreement, hypothecation agreement,
and other security agreements and financing statements which may be
submitted by Lender, and which shall evidence the terms and conditions
under and pursuant to which such liens and encumbrances, or any of
them, are given; and also to execute and deliver to Lender any other
written instruments, any chattel paper, or any other collateral, of any
kind or nature, which they may in their discretion deem reasonably
necessary or proper in connection with or pertaining to the giving of
the liens and encumbrances.
Negotiate Items. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation in which the Corporation may
have an interest, and either to receive cash for the same or to cause
such proceeds to be credited to the account of the Corporation with
Lender, or to cause such other disposition of the proceeds derived
therefrom as they may deem advisable.
Further Acts. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and
things, to pay any and all fees and costs, and to execute and deliver
such other documents and agreements as they may in their discretion
deem reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions. The following person or persons
currently are authorized to request advances and authorize payments
under the line of credit until Lender receives written notice of
revocation of their authority: KELVYN H. CULLIMORE, JR., PRESIDENT; and
JOHN HALES, CHIEF FINANCIAL OFFICER.
1
<PAGE>
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation,, (d) change in the authorized signer(s), (e)
conversion of the Corporation to a new or different type of business entity, or
(0 change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been notified,
I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever. The Corporation has no corporate seal, and therefore,
no seal is affixed to this certificate.
IN TESTIMONY WHEREOF, I have hereunto set my hand on January 11, 2000 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ BOB CARDON
---------------------------------------
X Corp. Secretary
---------------------------------------
NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
LASER PRO, Reg. U.S. Pat. & T.M. Off.., Ver. 3.28 (c) 2000 CFI ProServices, Inc.
All rights reserved. [UT-C10 DYNAT.LN)
2
