SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No. 0-12595
MicroENERGY, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 36-3262274
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
350 Randy Road
Carol Stream, Illinois 60188
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (708) 653-5900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Series A Cumulative Preferred Stock
Class A Preferred Stock Purchase Warrants
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirement for the past 90
days.
Yes X No
EXHIBIT INDEX IS AT PAGE 44
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date
within 60 days prior to the date of filing. (See definition of
affiliate in Rule 405).
On September 3, 1996, the bid and ask prices for the Registrant's
Common Stock, $.01 par value, on the OTC Bulletin Board Market, were
$3.25 and $5.25 per share; for the Series A Cumulative Preferred
Stock, on the NASDAQ Small Cap Market, were $6.50 and $8.75 per share.
Based upon the average of the bid and ask price quoted for the two
securities, the aggregate market value, as of September, 3, 1996 of
the two securities, held by non-affiliates was $4,750,026. The prices
referred to represent prices between dealers and do not include retail
mark-up, mark-down, or commissions. They do not represent actual
transactions. "Non-affiliates" includes all shareholders of the
Registrant other than its officers, directors and owners of more than
ten percent of its outstanding Common Stock.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock and preferred stock, as of the latest
practicable date.
As of September 3, 1996, there were outstanding 421,477
shares of Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1 BUSINESS
MicroENERGY, Inc., was incorporated in Delaware on
November 30, 1983. The Company designs and manufactures high-
frequency power supplies and DC-to-DC converters for OEM custom-
ers who are engaged in the telecommunications, computer, and
instrumentation segments of the electronics industry. The
Company currently offers single and multiple output switching
power supplies and DC-to-DC converters in the power output range
of 25 watts to 800 watts. All of the Company's products are
customized to satisfy the unique requirements of each customer's
application.
A power supply is a component of electrically-powered
products which converts alternating current ("AC"), the
generally-available form of electricity, into direct current
("DC"), which is required for electronic circuits to function. A
DC-to-DC converter converts direct current of one value into
direct current of another value. The power supply or converter
regulates the DC voltage to a constant so as to make the
performance of electronic circuits predictable. A conventional
linear power supply regulates the DC output by throwing-off
excess input power as heat. A switching power supply regulates
the DC output by briefly turning off the input power when the
voltage becomes excessive. In this way the switching power
supply saves energy and operates more efficiently than a linear
power supply.
Because of emerging technology, the size and growth of
the market, and the unique design requirements of each customer,
the market is fragmented. There are approximately 300 companies
which identify switching power supplies in their product line
portfolio, and no company dominates the market. Switchers are
divided in two basic market categories: standardized switchers
and custom designs. The Company competes only in the
custom-design market at this time. In that market the principal
method of competing is by emphasis on design ability,
manufacturing quality, and timely delivery. Regarding the
manufacturing quality, the Company in August 1995, subjected its
quality system to audit, and at that time achieved ISO 9001
registration.
MicroENERGY's product/market strategy began with the
development of AC-to-DC products in the 75 to 300 watt output
range. Later in 1984 the Company added DC-to-DC converters to
its product line. The switching frequencies at which the
transformers operate range from 80 Khz-250 Khz depending on the
application. The generic product series are modifiable to meet a
wide variety of specific customer requirements.
The Company's Research and Development effort is
located in Longwood Florida. The Company's research and
development efforts include ament will continue to focus on these
items. During the fiscal year ended June 30, 1996 the Company
spent $1,174,322 on Company-sponsored research and development.
During the fiscal years ended June 30, 1995 and 1994, the Company
spent $949,002 and $920,391 on Company-sponsored research and
development. The Company has no material patents, but does
rely on trade secret protection.
The Company principally markets its products through
independent manufacturers representatives. At the present time,
the Company's products are offered by nine representatives, whose
territories include all or part of thirty-three states. In
fiscal 1996 the Company had two customers who were each
responsible for over 10% of the Company's sales. These customers
accounted for approximately 40% and 13% of the total sales.
However, the first major customer is comprised of four autonomous
purchasing units. if considered separately, one unit would be
considered a major customer with 30% of total sales. The
principal focus of the Company's marketing efforts continues to
be to expand the customer base, so as to make the Company less
dependent on a small group of customers.
In the fiscal year ended June 30, 1996, export sales
amounted to approximately 48% of the Company's total revenues,
compared to 36% in 1995 and 38% in 1994. All export sales are
denominated in U.S. $. Due to the custom nature of the products
exported and the time involved in developing these products,
short-term foreign currency fluctuations have no adverse impact.
Any long-term strengthening of the dollar may have an adverse
impact on the Company's revenues.
As of September 13, 1996, MicroENERGY had a backlog of
released orders of $6,046,000. These orders constitute a firm
commitment to take delivery of the Company's product. Delivery
of products and receipt of revenues from these production orders
will extend well into the current fiscal year. MicroENERGY had a
backlog of released orders of $4,043,000, in the prior year.
The raw materials for the Company's products are
primarily standardized components which are readily available
from an adequate number of suppliers. Those raw materials which
must be customized for the Company are also readily available
from a number of qualified component manufacturers. Currently,
the Company has two vendors from which it purchases more than 10%
of its total purchases. Purchases from these two vendors
approximate 17.7% and 12.6% of total purchases. While the
material is readily available, a change in these suppliers could
cause a delay in manufacturing. During fiscal 1989, the Company
acquired all of the capital stock of Tru-Way, Inc., an Illinois
corporation engaged in the business of manufacturing fabricated
metal parts used in the Company's principal product.
The Company currently has 203 full-time employees
(including 156 production employees), two of whom are officers of
the Company. During the remainder of fiscal 1997 the Company
expects no substantial increases in the Company's non-direct
labor force.
The company expects no negative effect from current
environmental laws or regulations.
Item 2 PROPERTY
The Company currently has five locations. The
Company's general offices are located in a 3,150 square foot
office facility in Carol Stream, IL. The lease on this facility
terminates December 31, 1997. The Company's manufacturing
operations are located in a leased facility in Quincy, Illinois
and an owned facility in Memphis, Mis and 9,600 square feet in
Memphis Missouri. The lease on the Quincy facility terminates
August 31, 2001. The Quincy and Memphis facilities are located
in a good labor market and are large enough to meet the expected
capacity requirements of the Company for the foreseeable future.
The Longwood Florida facility, which contains the Research and
Development center is a 10,129 square foot leased facility. The
term of the lease expires June 30, 2002. The metal fabrication
business conducted by the Company's subsidiary, Tru-Way, Inc., is
located in a 10,800 square foot facility in Northlake, Illinois.
The lease on this facility terminates on July 30, 1998. The
lessor of the Northlake facility is ARQUBE. ARQUBE is a
partnership of the Company's two officers. See "Item 13 -
Certain Relationships and Related Transactions."
Item 3 LEGAL PROCEEDINGS
Not Applicable.
Item 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
A Special Meeting of the Shareholders of MicroEnergy,
Inc. was convened on April 23, 1996, the meeting was adjourned
until May 7, at the Company's headquarters. At the reconvened
meeting the proposal for a reverse split of the common stock of
1-for-360 and a change of the par value to $.01 from $.001 was
approved with 81,443,032 votes for, 4,020,810 votes against and
180,016 abstentions. The second proposal was to amend the
Certificate of Incorporation to increase the number of authorized
shares of Common Stock from the post-split number of 500,000 to
4,000,000 and the Preferred Stock from 800 to 4,000,000, and the
Preferred Stock to be issued with such voting powers,
designations, preferences, rights, qualifications, limitations,
and restrictions as may be fixed by the Company's Board of
Directors. This second proposal was approved by a vote of
81,295,816 for; 4,063,293 against; and 287,749 abstentions. The
final proposal to adopt the 1996 Incentive Stock option Plan,
which reserved 50,000 post-split shares of Common Stock for
issuance was approved by a vote of 80,801,016 for; 4,260,260
against; and 582,582 abstentions.
PART II
Item 5 MARKET FOR THE COMPANY'S
COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Company's Common Stock is traded in the over-the-
counter market and is on the OTC Bulletin Board. The market
price ranges during the quarterly periods from July 1, 1994
through June 30, 1996,(restated for the 1-for-360 split as of May
7, 1996) as reported by the OTC Bulletin Board, were as follows:
Fiscal 1996 Fiscal 1995
High Low High Low
Quarter Ending Bid Bid Bid Bid
September 30 $16.20 $ .90 $7.20 $1.80
December 31 18.00 1.80 5.40 .36
March 31 8.10 .36 1.80 1.08
June 30 7.20 4.00 2.88 .36
The foregoing quotations represent prices between dealers and do
not include retail mark-up, mark-down, or commissions, and may
not necessarily represent actual transactions.
The closing high bid and low asked prices of Common
Stock on September 3, 1996 as reported by OTC Bulletin Board,
were $3.25 and $5.25, respectively. The closing high bid and low
asked prices of the Series A Preferred Stock on September 3,
1996, as reported by the SmallCap Market of NASDAQ were $6.50 and
$8.75, respectively.
On September 3, 1996 the number of shareholders of
record of the Common Stock was 3,085 and the number of
shareholders of record of the Series A Preferred Stock was 3.
Based upon information provided by the recordholders of the
Series A Preferred Stock, the Company believes that there are at
least 300 holders of the Series A Preferred Stock, and all such
stock is held in street name accounts.
No dividends have been paid by the Company. For the
foreseeable future the Company intends that it will not pay any
dividends on the Common Stock. The Series A Preferred Stock
includes a dividend which is cumulative from the date of issuance
and is payable semi-annually at a rate of 8% per annum. The
Company, at is sole discretion may pay each dividend in either
cash or in shares of Common Stock valued at the average closing
bid price for the ten days preceding the record date for the
dividend or in a combination of cash and Common Stock.
SELECTED FINANCIAL DATA
($ s in thousands except share data)
Fiscal Yr Fiscal yr Fiscal yr
Operating Ended Ended Ended
Summary 6/30/96 6/30/95 6/30/94
Sales $14,386 $14,589 $12,771
Interest & Other Income 2 1 1
Total Income 14,388 14,590 12,772
Cost of Manufacturing
and Facility 11,913 11,567 10,054
Research & Development 1,174 949 920
Selling, G&A 1,529 1,492 1,370
Interest & other
Expenses 420 332 223
Total Expenses 15,036 14,340 12,567
Net Earnings/(loss)
before extraordinary-
item (648) 250 205
Extraordinary item-
gain on debt
restructuring 1,000 - --
Net Earnings/(loss) 352 250 205
Net Earnings/(loss)per
share: before
Extraordinary item (1.80) .79 .64
Extraordinary item 2.78 - --
Total per share .98 .79 .64
Weighted Average # of
shares outstanding 360,088 316,768 319,754
Balance sheet Summary
Working Capital $(1,604) 443 273
Total Assets 7,279 6,149 6,302
Capitalized Lease 682 581 767
Long-Term Debt 874 3,514 3,954
Total Liabilities 7,516 7,144 7,641
Shareholders Equity/
(Deficit) (237) (995) (1,339)
SELECTED FINANCIAL DATA
($ s in thousands except share data)
Fiscal yr Fiscal yr
Operating Ended Ended
Summary 6/30/93 6/30/92
Sales $15,886 $20,197
Interest & Other Income 3 5
Total Income 15,889 20,202
Cost of Manufacturing
and Facility 12,475 17,289
Research & Development 1,247 2,279
Selling, G&A 1,731 2,027
Interest & other
Expenses 395 799
Total Expenses $15,848 $22,394
Net Earnings/(loss)
before extraordinary-
item 41 (2,192)
Extraordinary item-
gain on debt
restructuring - --
Net Earnings/(loss) 41 (2,192)
Net Earnings/(loss)per
share: before
Extraordinary item .13 (6.93)
Extraordinary item - --
Total per share .13 (6.93)
Weighted Average # of
shares outstanding 318,180 316,327
Balance sheet Summary
Working Capital 412 (2,262)
Total Assets 6,090 8,916
Capitalized Lease 232 326
Long-Term Debt 3,945 1,542
Total Liabilities 7,665 10,594
Shareholders Equity/
(Deficit) (1,575) (1,678)
Item 7 MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Year ended June 30, 1996 vs. Year ended June 30, 1995
Net sales for the twelve months ended June 30,1996 were
$14,386,323, not significantly different from sales of
$14,588,844 recorded in fiscal 1995. By the fourth quarter of
fiscal 1996, however, the Company had made significant increases
in fixed costs from the 1995 level in anticipation of
substantially increased sales. this led to a significant
disparity between revenues and costs in the fourth quarter of
1996, as the greater part of the anticipated sales did not begin
to materialize until after June 30, 1996. the sales increase was
delayed primarily due to the delay in completion of the Company's
public offering from its planned closing date in April until its
actual closing date in July, 1996. Certain of the Company's
customers delayed placing firm orders until the offering
completed to assure themselves of the Company's ability to
deliver products. other sales were delayed by the Company's
inability to satisfy its debts to raw materials vendors until the
offering was completed, which led to shortages in materials and
consequent delays in production in the fourth quarter of 1996.
Although Management was aware that the level of sales in the
fourth quarter of fiscal 1996 did not justify the level of fixed
costs being carried, Management decided not to reduce its fixed
costs, as such a tactic could put future revenues at risk. There
resulted a loss from operations for the 1996 fiscal year of
$648,053, compared to earnings from operations of $249,894 in
fiscal 1995. Management believes, however, that with the
offering now completed and several major customer buying programs
now being initiated, its decision to sustain the Company's
operational capacity at the level necessary for the new programs
has positioned the Company well fordinaryith one of the Company's
major debtholders. The debtholder agreed to accept payment of
$1,332,000 for a debt with a remaining balance of $2,332,000. The
amount was paid at the time of the offering closing in July,
1996, subsequent to the fiscal year end. The prior terms of the
note had the $2.3 million being paid out in monthly payments
until December 31, 2001.
Manufacturing costs increased to 82.8% of revenues as compared
to 79.3% the prior year. This increase was primarily due to
product mix, and the effect of the lower than anticipated sales
in the fiscal fourth quarter. In the non-direct cost areas,
Research & Development increased by $225,000 or 24%. the reason
for the increase was the investment in the development of new
programs for both existing customers and new customers. The
Company expects revenue to grow as a result of these new
programs. This is evident in the growth of the customer backlog
to $6 million currently as compared to $4 million the prior
year. Sales & marketing declined by $120,000 as the Company
directed the resources to its R&D portion of the business.
Interest cost increased by $10,000 to $342,000 over the prior
year. A portion of the proceeds of the public offering
completed in July, 1996 will be used to reduce debt, the Company
expects interest costs to be reduced in the next fiscal year.
There were no significant changes in the type of expenses
incurred by the Company in fiscal 1996 versus fiscal 1995. The
Company does not expect significant increases in the indirect
cost areas of the Company.
Year ended June 30, 1995 vs. Year ended June 30, 1994
Net sales for the twelve month ended June 30, 1995, were
$14,588,844 versus sales of $12,771,067 in the fiscal year ending
June 30, 1994. This represents a 14% increase in revenues on a
year to year basis. The primary reason for the increase was a
$1.8 Million increase in sales to AT&T, the Company's largest
customer, whose orders represented 18% of sales in fiscal 1994
and 29% of sales in fiscal 1995.
Operating income in fiscal 1995 increased by $155,266 from
$426,419 to $518,685, representing an increase of 36%. The
primary reason for the increase was the fact that research and
development expense increased by 3% while sales increased by 14%.
The reason for the small relative increase in research and
development expense was the Company's lack of cash resources to
devote to research and development, and does not represent
Company policy. The Company intends to expand its research and
development activities as its business expands to insure that it
remains in the forefront of power supply technology.
The increase in operating income was also due in part to the
relatively small increase in general and administrative expense,
which rose only 5% between fiscal 1994 and fiscal 1995. The
small increase relative to net sales is attributable to the fact
that the Company has established its management and accounting
systems and other corporate infrastructure, and is capable of
handling expanded operations without a significant expansion of
infrastructure.
The other elements of operating expense necessarily increased
in proportion to the increase in net sales. Facility,
preproduction and production expenses in fiscal 1995 were 79.3%
of net sales in that year, as compared to 78.7% of net sales in
the prior year. The change was primarily due to product mix and
to a smaller extent, increased costs in the electronic component
cost areas, especially semiconductors. Selling & marketing
expenses increased by 18% from $418,830 TO $494,392. This
increase was due to the increased commissions paid to the
Company's independent manufacturers representatives as a result
of the higher sales level.
Net income for the fiscal year ended June 30, 1995 was
$249,894, a 22% increase over the $204,845 recognized in fiscal
1994. In fiscal 1994, however, the Company's net income had been
increased by $100,000 due to the reversal in 1994 of a reserve
taken in 1992 in connection with the Company's investment in an
Indian power supply manufacturer. Accordingly, the increase in
net income from fiscal 1994 to fiscal 1995, excluding the
nonrecurring item relating to the India investment, totalled
$145,049 or 138%.
Liquidity and Capital Resources
Year ended June 30, 1996 vs. Year ended June 30, 1995
At June 30, 1996, the Company had negative working
capital of $1,604,125, as compared to a positive working capital
of $443,359 at the end of the prior fiscal year period. This
negative amount of working capital was the result of recognizing
certain loans and portions of certain loans as current.
Specifically, 1) the remaining balance of $1,332,000 on the note
payable relating to the acquisition in 1991, 2) $70,000 portion
of the Note payable to the State of Illinois, 3) $53,772 balance
due on a note to Boatmen's Bank, and 4) the $187,000 Bridge
Financing, would all be paid at the time of the closing of the
offering and bank refinancing in July 1996.
On July 16, 1996, the Company successfully completed a
public offering of 494,500 shares of Series A Cumulative
Preferred Stock, at $7.00 per share, and 247,250 Redeemable Class
A Warrants for Series A Preferred Stock, at $ .10 per warrant.
The Company in July, 1996, obtained approximately $2.7 million of
net proceeds from this offering. The Series A Cumulative
Preferred Stock has a dividend which is cumulative from the date
of issue, payable semi-annually at a rate of 8% per annum.
The primary bank lender as of the end of the fiscal
year, Comerica Bank, had an asset based loan facility of up to
$2,200,000 dependent on predetermined formulas relative to
accounts receivable and inventories. The balance outstanding as
of the end of the 1996 fiscal year was $1,875,373. The total
amount available to borrow at that date was $1,921,807. In
conjunction with the public offering that was completed in July,
the Company at that time began a new banking relationship with
Marquette National Bank which included a revolving line of
credit, with a maturity date of November 1998. The amount
available on the line is dependent on predetermined formulas
relative to accounts receivable and inventories, of up to
$3,000,000. In addition to the line of credit, at the time of
the offering closing in July 1996, the Company also obtained a
five year term note of $800,000, refinancing its fixed assets.
The Company's accounts receivable balance at the end
of the year was $1,601,989 as compared to $1,193,995. The
increase was the direct result of one customer's change in
payment terms. This foreign customer in the prior year paid in
ten days taking advantage of a discount. However, this year the
mode of shipment was changed to ocean freight as opposed to air
shipments and the customer, not being able to take advantage of
the discount, paid in approximately forty days. The Company has
not currently experienced and does not expect to incur any bad
debt expense.
The inventory balance increased by $650,000. This
increase was in good part due to the lower than anticipated sales
in the fourth fiscal quarter, and also the build up of materials
for the new programs that are scheduled to begin in the first
half of the next fiscal year.
The Company expects that the funds from its public
offering completed in July, 1996, available borrowings from the
new asset based line of credit and the new term loan when
combined with thompany s debt and fund operations for the
following fiscal year.
Item 8 FINANCIAL STATEMENTS AND
SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS
Financial Statements: Page
Report of Independent Auditors. . . . . . . . . . . . . . 11
Consolidated Balance Sheets at June 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 12
Consolidated Statements of Operations for the
three years ended June 30, 1996. . . . . . . . . . . . . 13
Consolidated Statements of Changes in Stock-
holders' Equity for the three years ended
June 30, 1996. . . . . . . . . . . . . . . . . . . . . . 14
Consolidated Statements of Cash Flows for the
three years ended June 30, 1996. . . . . . . . . . . . . 15
Notes to Consolidated Financial Statements. . . . . . . . 17
Seldon, Fox and Associates, Ltd.
CERTIFIED PUBLIC ACCOUNTANTS
619 ENTERPRISE DRIVE
OAK BROOK, ILLINOIS 60521-8835
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Shareholders of MicroENERGY, Inc.
We have audited the accompanying consolidated balance sheet
of MicroENERGY, Inc. and Subsidiary as of June 30, 1996 and 1995,
and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for the years ended
June 30, 1996, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstate-
ment. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of MicroENERGY, Inc. and its Subsidiary at
June 30, 1996 and 1995, and the results of their operations and
cash flows for the years ended June 30, 1996, 1995 and 1994, in
conformity with generally accepted accounting principles.
Seldon, Fox and Associates
Certified Public Accountants
September 6, 1996
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1996 and 1995
ASSETS 1996 1995
Current assets:
Cash $ 19,615 $ 113,227
Accounts receivable 1,601,989 1,193,995
Inventories 3,364,846 2,712,224
Other current assets 51,543 53,725
Total current assets 5,037,993 4,073,171
Property and equipment 5,113,120 4,390,516
Accumulated depreciation (3,201,432) (2,604,333)
1,911,688 1,786,183
Other assets, net 329,674 289,177
$ 7,279,355 $ 6,148,531
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Notes payable $ 1,875,373 $ 1,165,211
Current portion of long-term
obligations 2,341,020 858,808
Accounts payable 1,918,524 1,149,587
Cash overdraft 70,883 -
Amounts due related parties 127,750 -
Accrued expenses 308,568 456,206
Total current liabilities 6,642,118 3,629,812
Long-term obligations 874,475 3,514,009
Total liabilities 7,516,593 7,143,821
Commitments
Stockholders' deficit:
8% cumulative Series A preferred stock,
$.01 par value - 4,000,000 shares
authorized
Common stock, $.01 par value - 4,000,000
shares authorized; 421,477 shares
issued in 1996 and 316,560 in 1995 4,215 3,166
Additional paid-in capital 5,842,616 5,789,714
Accumulated deficit (5,004,208) (5,356,650)
Unearned restricted stock compensation (1,401,550) (1,455,550)
Preferred stock subscription 250,000 -
Preferred stock warrants 88,000 -
Common stock purchase warrants 75 75
Treasury stock, at cost, 683,159 shares ( 16,386) ( 16,386)
Unrealized gain on marketable securities - 40,341
Total stockholders' deficit ( 237,238) ( 995,290)
$ 7,279,355 $ 6,148,531
See accompanying notes.
<PAGE>
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1996, 1995 and 1994
1996 1995 1994
Net sales $ 14,386,323 $ 14,588,844 $ 12,771,067
Expenses:
Facility, preproduction
and production 11,912,736 11,566,567 10,054,423
Research and development 1,174,322 949,002 920,391
Selling and marketing 375,099 494,392 418,830
General and administrative 1,153,781 997,198 951,004
14,615,938 14,007,159 12,344,648
Operating income (loss)( 229,615) 581,685 426,419
Interest expense, net 341,578 331,791 321,574
Foreign investment (income)
loss 76,860 - ( 100,000)
Income (loss) before
extraordinary item ( 648,053) 249,894 204,845
Extraordinary item-gain on
debt restructuring 1,000,495 - -
Net income$ 352,442 $ 249,894 $ 204,845
Net income (loss) per share:
Before extraordinary item$ (1.7997) .7889 .6406
Extraordinary item 2.7785 - -
Total $ .9788 $ .7889 $ .6406
Weighted average number
of shares of common
stock outstanding 360,088 316,768 319,754
See accompanying notes.
<PAGE>
MICROENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCHOLDERS EQUITY (DEFICIT)
For the years ended June 30, 1996, 1995 and 1994
Additional
Common Paid-in Accumulated
Stock Capital Deficit
Net balance at 6/30/93 $116,111 $5,866,154 $(5,811,389)
Amortization of - - -
restricted stock awards
Forfeiture of restricted
stock award (2,000) (187,235) -
Net income - - 204,845
Net balance at 6/30/94 114,111 5,678,919 (5,606,544)
Amortization of
restricted stock awards - - -
cancellation of
150,000 shares (150) - -
Net income - - 249,894
Change in unrealized gain
on investment - - -
Net balance at 6/30/95 113,961 5,678,919 (5,356,650)
Restate for 1 for 360
reverse stock split (110,795) 110,795 -
Net balance at 6/30/95,
as restated 3,166 5,789,714 (5,356,650)
Amortization of
restricted stock awards - - -
Proceeds from preferred
stock subscription - - -
Issuance of 880,000
preferred stock
warrants @ $.1 0 - - -
Exercise of common stock
Class D warrants 972 42,779 -
Exercise of employee
stock options 21 7,679 -
Exercise of nonemployee
stock options 56 2,444 -
Net income - - 352,442
Change in unrealized
gain on investment - - -
Net balance at 6/30/96 $ 4,215 $5,842,6 $(5,004,208)
(cont'd)
MICROENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCHOLDERS EQUITY (DEFICIT)
For the years ended June 30, 1996, 1995 and 1994
Unearned Common
Restricted Preferred Preferred Stock
Stock Stock Stock Purchase
Compensation Subscription Warrants Warrants
Net balance
at 6/30/93 $(1,730,099) $ - $ - $ 75
Amortization of
restricted stock awards 54,000 - - -
Forfeiture of restricted
stock award 166,549 - - -
Net income - - - -
Net balance at 6/30/94 (1,509,550) - - 75
Amortization of
restricted stock awards 54,000 - - -
cancellation of
150,000 shares - - - -
Net income - - - -
Change in unrealized gain
on investment - - - -
Net balance at 6/30/95 (1,455,550) - - -
Restate for 1 for 360
reverse stock split - - - -
Net balance at 6/30/95,
as restated (1,455,550) - - 75
Amortization of
restricted stock awards 54,000 - - -
Proceeds from preferred
stock subscription - 250,000 - -
Issuance of 880,000
preferred stock
warrants @ $.10 - - 88,000 -
Exercise of common stock
Class D warrants - - - -
Exercise of employee
stock options - - - -
Exercise of nonemployee
stock options - - - -
Net income - - - -
Change in unrealized
gain on investment - - - -
Net balance at 6/30/96 $(1,401,550) $250,000 $88,000 $ 75
(cont'd)
MICROENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCHOLDERS EQUITY (DEFICIT)
For the years ended June 30, 1996, 1995 and 1994
Unrealized Stockholders
Treasury Gain On Total Equity
Stock Investments (Deficit)
Net balance
at 6/30/93 $ (16,386) $ - (1,575,534)
Amortization of
restricted stock awards - - 54,000
Forfeiture of restricted
stock award - - (22,686)
Net income - - 204,845
Net balance at 6/30/94 (16,386) - (1,339,375)
Amortization of
restricted stock awards - - 54,000
cancellation of
150,000 shares - - (150)
Net income - - 249,894
Change in unrealized gain
on investment - 40,341 40,341
Net balance at 6/30/95 (16,386) 40,341 (995,290)
Restate for 1 for 360
reverse stock split - - -
Net balance at 6/30/95,
as restated (16,386) 40,341 (995,290)
Amortization of
restricted stock awards - - 54,000
Proceeds from preferred
stock subscription - - 250,000
Issuance of 880,000
preferred stock
warrants @ $.10 - - 88,000
Exercise of common stock
Class D warrants - - 43,751
Exercise of employee
stock options - - 7,700
Exercise of nonemployee
stock options - - 2,500
Net income - - 352,442
Change in unrealized
gain on investment - (40,341) (40,341)
Net balance at 6/30/96 $(16,386) $ - $(237,238)
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating
activities:
Net income $ 352,442 $ 249,894 $ 204,845
Adjustments to reconcile net
income to net cash from
operating activities:
Gain on debt restructuring (1,000,495) - -
Depreciation 597,099 572,481 536,121
Property and equipment
write-off - - 7,194
Amortization - - 16,052
Foreign investment income (loss) 76,860 - ( 100,000)
Compensation paid in common
stock, net of forfeiture 59,301 53,850 31,315
Changes in assets and
liabilities:
Accounts receivable ( 407,994) 59,624 494,487
Inventories ( 652,622) ( 117,675) ( 306,271)
Other current assets 2,182 12,767 ( 24,399)
Other assets 19,273 ( 33,946) 2,206
Accounts payable 768,937 346,034 121,658
Cash overdraft 70,883 - -
Accrued expenses ( 19,888) ( 61,630) ( 74,585)
Net cash from
operating activities ( 134,022) 1,081,399 908,623
Cash flows from
investing activities:
Additions to property and
equipment ( 353,944) ( 173,133)( 152,392)
Increase in foreign investment - ( 59,000) -
Net cash from
investing activities ( 353,944) ( 232,133) ( 152,392)
Cash flows from financing
activities:
Proceeds from stock subscription 250,000 - -
Proceeds from bridge financing 275,000 - -
Payment of public offering fees( 176,971) - -
Proceeds from other stock plans 48,650 - -
Issuance of long-term obligations 145,478 - -
Payment of long-term obligations( 857,965) ( 746,193) ( 498,432)
Net change in notes payable 710,162 ( 35,638) ( 265,741)
Net cash from
financing activities 394,354 ( 781,831) ( 764,173)
Net increase (decrease)
in cash ( 93,612) 67,435 ( 7,942)
Cash at beginning of year 113,227 45,792 53,734
Cash at end of year $ 19,615 $ 113,227 $ 45,792
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont'd)
Supplemental schedule of non-cash investing
and financing activities:
Capital Leases
In 1996, the Company entered into capital leases for certain
equipment. In connection with the capital leases, the
Company recorded equipment and long-term obligations of
$368,660. In 1994, the Company entered into capital leases
for a building and certain equipment. In connection with the
capital leases, the Company recorded property, equipment and
long-term obligations of $889,861 in 1994 (see Note 6).
Other Supplemental Disclosures
Actual interest payments were $339,040, $331,667 and $357,218
for the years ended June 30, 1996, 1995 and 1994,
respectively.
See accompanying notes.
MicroENERGY, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
MicroENERGY, Inc. (MicroENERGY) designs, manufactures and
markets high frequency power supplies which are used as
components in the electronics systems market. All of the
Company's products are customized to satisfy the unique
requirements of each customer's application.
2. Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial
statements include the accounts of MicroENERGY and its
wholly-owned subsidiary, Tru-Way, Inc. All significant
intercompany balances and transactions have been eliminated
in consolidation.
Cash and Cash Equivalents - MicroENERGY considers all short-
term deposits with initial maturities of three months or less
to be cash equivalents.
Accounts Receivable - Accounts receivable for sales to
customers are unsecured and consist of the following:
1996 1995
Accounts receivable $ 1,651,989 $ 1,243,995
Less allowance for
doubtful accounts ( 50,000) ( 50,000)
$ 1,601,989 $ 1,193,995
There were no changes to the allowance for doubtful accounts
during 1996 and 1995. For the year ended June 30, 1994, the
allowance was reduced by $49,914.
Inventories - Inventories are stated at the lower of cost
or market. Cost is determined using the first-in, first-
out method. The components of inventories are:
1996 1995
Raw materials $ 2,368,798 $ 1,852,373
Work in process 937,228 937,533
Finished goods 509,356 372,854
3,815,382 3,162,760
Less excess and obsolete
reserve ( 450,536) ( 450,536)
$ 3,364,846 $ 2,712,224
There were no changes to the excess and obsolete reserve
during 1996 and 1995. For the year ended June 30, 1994,
the reserve was reduced by $49,328.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
2. Summary of Significant Accounting Policies (cont'd)
Property and Equipment - Property and equipment is stated at
cost. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets for
financial reporting purposes and the accelerated cost
recovery methods for tax reporting purposes. Expenditures
for repairs and maintenance are expensed as incurred. The
components of property and equipment are:
1996 1995
Land $ 24,500 $ -
Building and improvements 72,161 -
Machinery and equipment 3,327,417 3,072,601
Leasehold improvements 388,963 386,496
Capitalized leases:
Building 216,780 216,780
Equipment 1,083,299 714,639
$ 5,113,120 $ 4,390,516
Research and Development - Expenditures for research and
development activities are charged to expense as incurred.
Income Taxes - MicroENERGY uses the asset-liability approach
of accounting for income taxes (Note 9).
Earnings Per Share - Earnings per common share are computed
based on the weighted average number of common shares
outstanding during each period plus the dilutive effect, if
any, of outstanding common stock equivalents.
Pervasiveness of Estimates - The preparation of financial
statements in accordance with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities and operations and the related disclosures at the
date of the financial statements and during the reporting
period. Actual results could differ from those estimates.
Certain significant estimates used in the preparation of
these financial statements include the following:
MicroENERGY has estimated that a $50,000 allowance for
uncollectible accounts is adequate. This conclusion is based
on the current status and age of accounts receivable.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
2. Summary of Significant Accounting Policies (cont'd)
MicroENERGY has estimated a reserve for excess and
obsolete inventory of $450,536. This conclusion if
based on the current status and age of inventories and
estimates of future orders.
As discussed in Note 3, MicroENERGY has an investment in
a foreign entity that is recorded at fair value. The
ultimate realization of this investment is based upon
future operations of the entity.
For each of the aforementioned estimates, it is
reasonably possible that the recorded amounts or related
disclosures could significantly change in the near
future as new information is available.
3. Foreign Investment
In July 1988, MicroENERGY entered into an agreement with
MicroENERGY (India) Limited (INDIA), a Private Limited
Company registered under the Indian Companies Act.
MicroENERGY was to provide the technical and manu-
facturing knowledge and training with regards to the
manufacture of power supply products in exchange for
$150,000. MicroENERGY was to purchase a 20% equity
interest in INDIA with $50,000 of the proceeds. The net
amount of $100,000 had been recorded as a receivable
from INDIA in 1989 and a $100,000 reserve was recorded
in 1992 as no activity under the agreement had yet taken
place.
On January 14, 1994, MicroENERGY entered into a revised
agreement with INDIA to again provide the technical and
manufacturing knowledge and training in exchange for
$150,000 to be received when certain stipulations had
taken place. The proceeds were to be used to purchase a
7.9% equity interest after the public offering of the
stock of INDIA. The public offering took place in
August 1994 and the issue was oversubscribed. Coincident
with the agreement, the allowance on the original
$100,000 INDIA receivable, had been eliminated and
income from foreign investment was recorded during 1994.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
3. Foreign Investment (cont'd)
During 1995, MicroENERGY received 5,007,000 shares of
stock at a purchase price of $159,000. This investment,
included in noncurrent other assets, is classified as an
available for sale security and accordingly recorded at
fair value of $199,341 at June 30, 1995. The gross
unrealized gain of $40,341 was recorded as a separate
component of stockholders' equity (deficit). At
June 30, 1996, the fair value of this investment
declined to $82,140. During 1996, little production
has taken place. Accordingly, the $76,860 unrealized
loss has been recorded as a permanent decline in the
statement of operations.
Once production commences, MicroENERGY will be paid a
commission of 5% of the export sales of INDIA or 3% of
their total sales, whichever is greater. During 1995,
MicroENERGY received $74,000 of revenue for consulting
services performed for INDIA.
4. Notes Payable and Long-term Obligations
Notes Payable - MicroENERGY has a line of credit
agreement with a bank at an interest rate of prime
(8.25% at June 30, 1996) plus 1.75%. In 1995, the
interest rate was at prime (9% at June 30, 1995) plus
2.5%. The weighted average interest rates for the years
ended June 30, 1996, 1995 and 1994 were 11.0%, 11.1% and
9.7%, respectively. The agreement permits the Company
to borrow the lesser of defined percentages of
outstanding accounts receivable and inventory or
$2,200,000. Borrowings under the line of credit at June
30, 1996 and 1995 aggregated $1,875,373 and $1,165,211,
respectively. At June 30, 1996, $46,434 was available
to borrow. The line of credit is payable on demand, and
secured by a primary interest in accounts receivable and
inventory and a subordinate interest in all other
assets.
Subsequent to year end, this line of credit agreement
was cancelled (Note 7).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
4. Notes Payable and Long-term Obligations (cont d)
Long-term Obligations - The components of debt
obligations are as follows:
June 30,
1996 1995
Note payable to bank with
interest at prime plus 2%,
originally due in quarterly
installments of $31,500,
including interest, through
March 1995. During 1994, the
terms were renegotiated to
monthly payments of interest
through December 15, 1993 and
monthly payments of $5,250
principal plus interest from
January 15, 1994 through
December 15, 1998. The note is
secured by a primary interest
in certain machinery and
equipment and a subordinate
interest in accounts receivable
and inventories and all other
equipment. The City of Quincy,
Illinois has guaranteed the
lesser of $230,000 or 36.5% of
the indebtedness.
$157,500 $220,500
Note payable to bank with interest
at prime plus 2%, originally due
in monthly installments of $5,000,
plus interest. During 1994, the
terms were renegotiated to monthly
payments of $2,000 principal plus
interest through December 15, 1993
and $5,000 principal plus interest
from January 15, 1994 through
April 15, 1996. A new note dated
April 15, 1996 has final payment
due July 1996. The note is secured
by a primary interest in certain
machinery and equipment and a
subordinate interest in accounts
receivable, inventories and all
other equipment. 10,000 65,000
(cont d)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
4. Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1996 1995
3% note payable to the City of
Quincy, Illinois, originally due
in quarterly installments of
$27,015, including interest.
During 1994, the terms were
renegotiated to monthly interest
payments through December 31,
1993, and monthly principal and
interest payments of $4,660 from
January 1, 1994 through Decem-
ber 1, 1998. The note is secured
by a subordinate interest in
accounts receivable, inventories
and equipment. $ 134,522 $ 185,572
3% note payable to the City of
Quincy, Illinois, originally due
in monthly installments of $4,625,
including interest. During 1994,
the terms were renegotiated to
monthly interest payments through
December 31, 1993, and monthly
principal and interest payments
of $4,265 from January 1, 1994
through December 1, 1988. The
note is secured by a subordinate
interest in accounts receivable,
inventories and equipment. 123,127 169,852
3% note payable to the City of
Quincy, Illinois, originally due
in monthly installments of $7,187,
including interest. During 1994,
the terms were renegotiated to
monthly interest payments through
December 31, 1993 and monthly
principal and interest payments of
$6,516 from January 1, 1994 through
December 1, 1998. The note is
secured by a subordinate interest
in accounts receivable, inventories
and equipment and guaranteed by
certain shareholders. 188,109 259,495
(cont d)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
4. Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1996 1995
Note payable to the State of Illinois,
originally due in monthly installments
of $17,842, including interest at 15%,
through August 21, 1996. During 1994,
the terms were renegotiated to add
$50,577 of accrued interest to the
loan balance and decrease the interest
rate to 5%. Monthly payments of
principal and interest of $13,053 were
due with a balloon payment of $446,711
due in 1995. In May 1995, the balloon
payment was renegotiated to be paid
over two years at monthly payments of
$19,997 which includes interest at 9.5%
for the first year and then at prime
rate. In June 1996, an agreement was
made to pay $70,000 at time of finan-
cing (Note 7) and continue normal
payments until January 1997. The
note is secured by a subordinate
interest in accounts receivable,
inventories and equipment and
guaranteed by certain shareholders. $ 209,864 $ 418,970
Note payable to bank at prime plus
2%, due in monthly installments of
$3,833 principal plus interest, through
June 25, 1997, secured by a primary
interest in certain equipment and the
assignment of certain rents and leases
paid to the Quincy landlord. Paid
subsequent to year end (Note 7). 53,772 99,772
Notes payable, acquisition of power
systems division. MicroENERGY had
an oral agreement for the note to be
non-interest bearing with monthly
payments of $41,042 for a five year
period beginning in August 1993.
However, final documents had not been
received and no payments were made
during 1994. On September 20, 1994,
the repayment terms were again
renegotiated to payments of $10,000
(cont d)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
4. Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1996 1995
per month from October 1, 1994 through
June 1, 1998; $37,824 per month from
July 1, 1998 through September 1, 2002
and $27,824 per month from October 1,
2002 through December 1, 2002. The
notes remain non-interest bearing.
Amendment dated January 31, 1996
requires a final payment of $1,332,000
by July 1996 (Note 7) with $1,000,495
of debt forgiven. Accordingly, the
entire balance is classified as
current and the gain from debt
restructuring recorded during 1996.
The notes are secured by equipment
purchased from the creditor and a
subordinate interest in inventory
and other equipment. $ 1,332,000 $ 2,372,495
Note payable to bank at 5%, due
in monthly principal and interest
payments of $1,200. Final balloon
payment due in December 2000. The
note is secured by real estate
located in Memphis, Missouri. 100,320 -
Note payable to bank at 5%, due
in monthly principal and interest
payments of $472. Final balloon
payment due in January 2001. The
note is secured by all equipment
located in Memphis, Missouri. 23,139 -
Note payable to bank at 9.5%, due
in monthly principal and interest
payments of $497. Final balloon
payment due in February 1999. The
note is secured by a certain
vehicle. 13,972 -
(cont d)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
4. Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations cont'd)
June 30,
1996 1995
Bridge notes payable at 8%.
Principal and accrued interest
due at financing closing in
July 1996 (Note 7). $ 187,000 $ -
Capital lease obligations 682,170 581,161
Total debt 3,215,495 4,372,817
Less current portion (2,341,020) ( 858,80 )
Long-term obligations $ 874,475 $ 3,514,009
Future maturities of debt obligations are as follows:
Year Ending
June 30 Amount
1997 $ 2,341,020
1998 570,328
1999 225,389
2000 16,443
2001 62,315
$ 3,215,495
5. Leased Property
Capital Leases - MicroENERGY has capital lease arrangements
for certain property, machinery and equipment, including
certain leases for its Tru-Way manufacturing facility,
machinery and equipment that are with a partnership consisting
of officers of the Company.
The 1994 agreement for building and certain equipment is
leased from the partnership over a five-year term. Minimum
monthly lease payments for the real estate and equipment total
$16,500. In addition, another equipment lease was entered
into with the partnership in December 1993 for a three year
term with minimum monthly lease payments of $3,025.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
5. Leased Property (cont'd)
Capital Leases (cont'd)
Actual payments to the partnership totalled $106,550 in 1996
and $351,587 in 1995. At June 30, 1996, $127,750 was due to
the partnership under these lease agreements.
Property and equipment and related accumulated depreciation
under these capital leases was $1,300,079 and $588,518,
respectively, at June 30, 1996 and $931,419 and $374,115,
respectively, at June 30, 1995. Amortization charges related
to capitalized assets are included in depreciation expense.
Operating Leases - MicroENERGY leases its main manufacturing
facility space under a ten year operating lease and its office
space under two five year operating leases.
Total rent expense under operating lease agreements
approximated $384,773, $377,128, and $355,534 in 1996, 1995
and 1994, respectively.
Future minimum lease payments under capital and operating
leases with commitments beyond one year are as follows:
Capital Operating
Year Ending June 30, Leases Leases
1997 $ 349,983 $ 358,188
1998 334,857 338,059
1999 86,078 317,252
2000 - 317,252
2001 - 317,252
Thereafter - 139,794
Total minimum lease payments 770,918 $ 1,787,797
Imputed interest ( 88,748)
$ 682,170
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
6. Stockholders' Equity
Reverse Stock Split - Effective May 13, 1996, the Company
consummated a 1-for-360 reverse stock split. Each share of
common stock issued and outstanding immediately prior to the
reverse split date was reclassified and changed into .00278
of a share of common stock with a new par value of .01 per
share. Prior to the reverse split date, the Company had
180,000,000 shares of common stock authorized with a par
value of .001 per share. Accordingly, the number of shares
issued in 1995 as reflected in the accompanying consolidated
balance sheet and the weighted average number of shares
outstanding for 1995 and 1994 with related per share
information as reflected in the accompanying consolidated
statement of operations has been restated to reflect the 1-
for-360 reverse stock split.
In addition, all share information in the following
descriptions of the Company's stock plans have been restated
to reflect the 1-for-360 reverse stock split.
Restricted Stock Grant Program - The Company maintains a
restricted stock grant program. In 1990, certain key
employees received 58,333 shares of restricted stock of the
Company. The restricted stock vests ratably beginning
July 1, 1993 through 2026. The restrictions lapse in the
event of the key employee's death, permanent disability
or termination of employment by the Company without good
reason, or a change in control of the Company (as
defined). The total market value of the shares awarded
under the plan as of the grant date aggregating
$1,968,750 was recorded as unearned restricted stock
award compensation and reported as a separate component
of stockholders' equity. 5,556 shares were forfeited in
1994 as one of the employees resigned.
Compensation expense is being amortized over the period in
which participants perform services and the restrictions on
the stock awards lapse.
Stock Purchase Warrants - Stock purchase warrants were issued
to certain officers of the Company in consideration for
personal guarantees provided on certain debt. On April 10,
1991, MicroENERGY issued Class C warrants which give certain
officers the right to convert such warrants to 56,944 shares
of common stock at an exercise price ($22.68) approximating
market value at the date of grant. The warrants became
exercisable on April 10, 1992, and expire April 10, 1998.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
6. Stockholders' Equity (cont'd)
Stock Purchase Warrants (cont'd)
In addition, the Company entered into a contingent loan
agreement with the warrant holders pursuant to which the
Company will lend the holders funds necessary to exercise the
Class C warrants in the event that a person or group acquired
10% of the Company's common stock. None of the warrants have
been exercised to date.
On December 13, 1994, MicroENERGY issued Class D warrants
which give certain officers the right to convert such
warrants to 97,222 shares of common stock at an exercise
price of $.45, which approximated 125% of market value at
date of grant. The warrants become exercisable on December
13, 1995 and expire December 13, 2001. During 1996, all of
these warrants were exercised.
Stock Option Plans - The stockholders of MicroENERGY have
approved four Incentive Stock Option Plans (the "plans").
Options granted under these plans are intended to qualify as
"incentive stock options," as defined by the Internal Revenue
Code. Two of these plans have expired, however options
remain outstanding under those plans. A total of 63,889
shares of common stock are reserved for issuance upon
exercise of options granted under the plans. Options for
5,319, 7,736 and 4,875 shares were outstanding at June 30,
1996, 1995 and 1994, respectively. During 1996, no options
were granted, 2,139 options exercised and 278 options were
cancelled. During 1995, options for 3,111 shares were
granted, no options were exercised and 250 options were
cancelled. During 1994, options for 694 shares were
cancelled. The options have exercise prices ranging from
$3.60 to $16.20, with an average price of $5.25. Options
granted under the plans are not exercisable until one year
after the date of the grant, vest ratably over a five year
period and may only be exercised while the holder is an
employee of MicroENERGY. Options expire no later than ten
years after the date of grant. At June 30, 1996, 5,319
shares are exercisable.
On November 12, 1990, the Board of Directors of the Company
also approved a nonqualified stock option plan which granted
an outside Director the option to purchase up to 5,556 shares
of common stock at an exercise price of $.45. The options
were exercisable upon award and expire ten years from the
date of grant. During 1996, all of these options were
exercised.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
6. Stockholders' Equity (cont'd)
Preferred Stock Subscription - In January 1996, the Company
received $250,000 from certain officers of the Company as a
preferred stock subscription. The subscription is for 350,000
shares of Series A Cumulative Preferred Stock and will be
identical to the terms of the preferred stock described in
Note 7, except that the officers have agreed to waive the
semi-annual dividends in excess of $.40 per share.
Preferred Stock Warrants - In March 1996, the Company
obtained bridge financing from six lenders in the amount of
$275,000 in anticipation of a secondary public offering.
The lenders are the individuals identified in the
Prospectus as "Selling Securityholders" (Note 7). In
exchange for the $275,000, the Company gave the Selling
Securityholders non-negotiable promissory notes in the
aggregate principal amount of $187,000 (Note 4), plus
880,000 Redeemable Class A Preferred Stock Warrants at $.10
per warrant. The Redeemable Class A Warrants acquired by
the Selling Securityholders in the bridge financing are
identical to those described in Note 7.
7. Subsequent Events
Securities Offering - Effective July 10, 1996, the Company
offered 494,500 shares of Series A Cumulative Preferred
Stock. $.01 par value, and 247,250 Redeemable Class A
Warrants for Series A Preferred Stock.
The Preferred Stock is not convertible into any other
security. Dividends on the Preferred Stock are cumulative
from the issue date and are payable semi-annually at the rate
of 8% per annum. At the Company's option, the dividends may
be paid in whole or in part, either in cash or in shares of
the Company's Common Stock valued at the average closing bid
price for the ten days preceding the dividend payment date.
Each Class A Warrant entitles the holder to purchase one
share of the Company's Series A Preferred Stock at an
exercise price of $7.00, subject to adjustment, from July 10,
1997 through July 9, 2000. At any time the Class A Warrants
are exercisable, the Warrants are also subject to redemption
by the Company on not less than 30 days notice at $.01 per
Warrant, provided the closing bid price of the Preferred
Stock exceeds $9.00 per share for five consecutive trading
days ending fifteen days prior to the date notice is sent.
The net receipts from this offering after underwriter
commissions and secondary offering direct expenses totalled
$2,694,334.
7. Subsequent Events (cont'd)
Debt Financing - On July 17, 1996, the Company entered into a
new financing agreement with a bank. The revolving line of
credit agreement is at an interest rate of prime plus .25%.
The agreement permits the Company to borrow a maximum
of the lesser of $3,000,000 or the borrowing base.
The borrowing base is defined as the sum of a.) an
eighty-five percent advance against eligible
receivables that are ninety days or less from date of
invoice, and b.) a forty percent advance against
eligible inventory as defined, not to exceed
$1,000,000. The line of credit agreement is due and
payable on November 1, 1998. The line is secured by
a primary interest in all assets , wherever located.
This first position security interest only pertains
to those assets not pledged under duly authorized and
validly perfected purchase money equipment leases
already existing. Under these lease scenarios, the
bank's security interest would be subject to the
existing lessor's interest. In addition, two stock-
holders of the Company have guaranteed the debt,
limited to $300,000 each. This revolving line of
credit agreement replaced the line of credit
agreement discussed in Note 4.
The new financing agreement also allows for a term loan with
a maximum advance of $800,000. Principal payments of $13,333
plus interest at prime rate plus .25% is payable monthly.
Full payment of amounts due are payable on July 1, 2001. The
term loan is secured and guaranteed under the same terms as
the aforementioned line of credit agreement.
The proforma effect of the securities offering and new bank
financing on the June 30, 1996 balance sheet is as follows:
Securities Bank
Actual Offering Financing Proforma
Cash $ 19,615$ 291,803 $(70,883) $ 240,535
Other assets 329,674 (176,970) - 152,704
Notes payable (1,875,373) 1,875,373 - -
Current portion
of long-term
debt (2,341,020) 842,772 640,000 (858,248)
Cash overdraft (70,883) - 70,883 -
Accrued expenses (308,568) (138,644) - (447,212)
Long-term debt (874,475) - (640,000) (1,514,475)
Preferred stock (250,000)(2,672,824) - (2,922,824)
Preferred stock
Warrants (88,000) (21,510) - (109,510)
Total equity 237,238 (2,694,334) - (2,457,096)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
8. Employee Benefit Plan
The Company sponsors the MicroENERGY, Inc. Savings and
Investment Plan, a defined contribution 401(k) plan covering
all full-time employees who meet certain age and length of
service requirements. Employer matching contributions are at
the Company's sole discretion. Employer contributions
expensed for the year ended June 30, 1996, 1995 and 1994
totaled $24,504, $26,211 and $22,326, respectively.
9. Income Taxes
During 1994, the Company adopted FASB Statement Number 109,
"Accounting for Income Taxes". The statement requires the
use of an asset and liability approach for financial
accounting and reporting for income taxes. A valuation
allowance is recognized if it is more likely than not that a
deferred tax asset will not be realized. The adoption of
this statement had no effect on 1994 net income, nor was
there a cumulative effect of a change in accounting because
no provision had been recorded for federal or state income
taxes for the years ended June 30, 1993 and 1992 due to net
operating losses incurred in those years.
The following is a reconciliation of income taxes at the
federal statutory rate:
For the Year Ended
June 30,
1996 1995
Computed income taxes
at federal statutory rate of 34% $ 119,830 $ 84,964
State taxes, net of federal benefit 9,535 16,872
Effect of graduated rates 3,521 ( 469)
Permanent differences 11,525 9,373
Temporary differences for which
deferred taxes had not been
recognized 20,814 24,868
Benefit of tax loss carryforward (175,225) (135,808)
Total provision for income taxes $ - $ -
Provision for income taxes -
current:
Loss before extraordinary item $ (322,195) $ 135,808
Extraordinary item 497,420 -
Total 175,225 135,808
Benefit of tax loss carryforward (175,225) (135,808)
$ - $ -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
9. Income Taxes (cont'd)
At June 30, 1996, the cumulative net operating loss carry-
forward available to MicroENERGY for income tax purposes was
approximately $3,265,000. If not used to offset future
taxable income, the net operating loss carryforwards will
expire in various years beginning in 2000 and continuing
through 2008. In addition, the Company has investment tax
credit, research and development credit and AMT credit
carryforwards of approximately $18,000, $203,000 and
$15,500, respectively, at June 30, 1996. If not used to
offset future taxes, the carryforwards expire in years
beginning in 1999 and continuing through 2006. A deferred
tax asset for these carryforwards of approximately
$1,514,000 at June 30, 1996 and $1,660,000 at June 30, 1995
has been offset by a valuation allowance in an equal amount.
The Company's ability to utilize the carryforwards would be
restricted upon the occurrence of an "ownership change"
within the meaning of section 382 of the Internal Revenue
Code of 1986. Although the determination of whether an
ownership change has occurred is subject to factual and
legal uncertainties, the Company believes that an ownership
change occurred at the closing of the securities offering as
discussed in Note 7. As a result of the ownership change,
the Company will generally be permitted to utilize net
operating loss carryforwards in any year thereafter to
reduce its income to the extent that the amount of such
income does not exceed the product of (i) the fair market
value of the Company's equity at the time of the ownership
change (reduced by the amount of certain capital
contributions such as those received pursuant to this
Offering) and (ii) a long-term tax-exempt rate published by
the Internal Revenue Service (currently 5.78% for ownership
changes occurring in July 1996). Further, the Company's
ability to utilize its ITC, RDC and AMT carryforwards will
also be limited as a result of the ownership change in an
amount determined by reference to the Section 382 limit. As
a result, the Company does not expect to utilize its full
NOL and tax credit carryforwards to offset future taxable
income and tax liability. This limitation could have a
materially adverse effect on the Company's net income if the
Company were to generate taxable income (or tax liability)
materially in excess of the limitations.
In addition to the benefit of tax carryforward items,
deferred taxes are also recorded based upon temporary
differences between the financial statement and tax basis
of assets and liabilities.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
9. Income Taxes (cont'd)
Temporary differences as of June 30, 1996 and 1995 are as
follows:
June 30,
1996 1995
Total Deferred Total Deferred
Amount Tax Amount Tax
Current:
Inventory:
Uniform
capitalization $ 558,800$218,800$ 391,300$151,300
Obsolescence
and excess
reserve 515,000 201,600 732,600 283,300
Allowance for bad
debts 50,000 19,600 50,000 19,300
Accrued expenses 93,000 36,400 132,800 51,300
Long-term:
Foreign investment 76,900 30,100 - -
Depreciation (86,500)(33,900)(105,200) (40,700)
Capital lease 45,500 17,800 44,500 17,200
Stock benefit
plans 378,000 148,000 324,000 125,300
$1,630,700$638,400$1,570,000 $607,000
The deferred tax assets totalling $638,400 at June 30, 1996
and $607,000 at June 30, 1995 have been offset by a valuation
allowance in an equal amount.
10.Significant Concentrations
Customers - Revenues are generated from sales to OEM customers
who are engaged in the telecommunications, computer, and
instrumentation segments of the electronics industry.
During 1996, net sales to two customers was 40% and 13%,
respectively, of total net sales. However, the first major
customer is comprised of four autonomous purchasing units. If
considered separately, one unit would be considered a major
customer with 30% of total net sales.
During 1995, net sales to one customer was 28% of total
net sales. However, the major customer is comprised of
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
10.Significant Concentrations (cont d)
five autonomous purchasing units. If considered separately,
one unit would be considered a major customer with 26% of
total net sales.
During 1994, net sales to two customers were 19% and 11%,
respectively. However the first major customer is comprised
of ten autonomous purchasing units. If considered separately,
one unit would be considered a major customer with 14% of
total net sales. Accounts receivable from these customers
totaled $470,341 and $470,341 at June 30, 1996 and 1995,
respectively.
Export Sales - During 1996, 1995 and 1994, export sales,
principally to Europe and Canada, were 48%, 36% and 38%,
respectively, of total net sales. Of the 48% in 1996, sales
to the United Kingdom and Canada were 32% and 16%,
respectively.
Vendors - The Company currently buys certain production
material from two vendors. Purchases from these two companies
approximated 17.7% and 12.6% of total material purchases for
the year ended June 30, 1996. A change in suppliers could
cause a delay in manufacturing and a possible loss of sales,
which could adversely affect operating results.
11. Fair Value of Financial Instruments
Cash, Accounts Receivable and Accounts Payable - The carrying
amounts approximate fair value because of the short maturity
of those instruments.
Foreign Investment (Note 3) - The investment is recorded at
its fair value based on the quoted market price and the
foreign currency exchange rate as of the balance sheet date.
Notes Payable - The carrying amount approximates fair value
because of the short maturity and the interest rate floats
with the prime rate.
Long-term Debt - The fair value of long-term debt is estimated
by discounting expected cash flows at the rates currently
offered to the Company for debt of the same remaining
maturities, as advised by the Company's various lenders. The
carrying value of all long-term debt approximates fair value
at the balance sheet date.
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Name, Age Business Experience
and Positions during past 5 years
and Offices and principal
Held With Occupations Director
Registrant Since
Robert G. Gatza,
Age 54 1983-Present: President 1983
Chairman of the Board and Chief Executive
President Officer of Microenergy
Robert J. Fanella, 1983 - Present 1987
Age 46 Chief Financial Officer
Executive Vice Presi- of MicroEnergy
dent, Secretary,
Treasurer, Director
George M. Bradshaw 1983-Present: 1988
Age 50 Practicing Attorney
Director in areas of corporate
law, real estate, and
Commercial law
Compliance With Section 16(a) of the Exchange Act
During the 1996 fiscal year no directors,
officers or beneficial owners of more than 10 percent of the
Company's common stock failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act.
Item 11 EXECUTIVE COMPENSATION
Table I on the following page sets forth all
compensation awarded to, earned by, or paid by the Company to the
following persons for service rendered in all capacities during
each of the fiscal years ended June 30, 1996 ,1995, and 1994:
(1) the Registrant's Chief Executive Officer (CEO), and (2) each
of the other executive officers whose total salary and bonus for
the fiscal year ended June 30, 1996 exceeded $100,000.
Table II on the following page sets forth certain
information on stock options or warrants held by Officers of the
Company on June 30, 1996.
There were no stock options or warrants acquired by
the officers of the Company during the year ended June 30, 1996.
I. SUMMARY COMPENSATION TABLE
Name and Principal Fiscal Option All oth
Position Year Salary Bonus Shares Comp *
Robert G. Gatza 1996 $275,134 -- -- $ 750
CEO 1995 $210,001 -- -- $1,500
1994 $212,281 -- -- $1,500
Robert J. Fanella 1996 $269,112 -- -- $ 750
1995 $204,301 -- -- $1,500
1994 $201,150 -- -- $1,500
* Represents Company matching contribution to 401(K) Plan
II. AGGREGATED FISCAL YEAR OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal at Fiscal Year-End ($)
Year-End (#)
Robert G. Gatza 38,333 Exercisable $ 0
Robert J. Fanella 18,611 Exercisable $ 0
Compensation Plans
The Company has no compensation plans, other than 401K
and life and medical plans which are available to all employees.
Restricted Stock Grant Program
On May 19, 1989, the shareholders of the Company
adopted a Restricted Stock Grant Program (the "Program"),
pursuant to which 58,333 shares of common stock were reserved for
issuance. On July 3, 1989, the reserved shares were issued to
two "Grantees", namely Robert G. Gatza (34,722 shares)and Robert
J. Fanella (18,056 shares). Messrs. Gatza and Fanella are the
Company's officers and directors.
The shares issued under the terms of the Program are
subject to the following restrictions:
1. The shares granted under the Program cannot be
sold, assigned, pledged, transferred or hypothecated in any
manner, by operation of law or otherwise, other than by writ or
the laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. This restriction shall
lapse, with respect to 3 1/3% of the number of shares granted
under the Program, and those shares will become unrestricted
stock, on the last day of the Company's 1997 fiscal year. The
restriction shall lapse with respect to each additional 3 1/3% of
such number of shares on the last day of each successive fiscal
year of the Company, until the final year which will have
13 1/3%.
2. The restriction shall also lapse as to all shares
granted to a Grantee on the first to occur of (i) the termination
of that Grantee's employment with the Company by reason of his
disability, (ii) the Grantee's death, (iii) termination of the
Grantee's employment by the Company without good reason, or (iv)
a change of control of the Company. The Program defines "Change
of Control" as an acquisition by a person or group of more than
50% of the Company's outstanding shares, a transfer of the
Company's property to an entity of which the Company does not own
at least 50%, or the election of directors constituting a
majority of the Board who have not been approved by the existing
Board.
3. Shares which have not become unrestricted under the
circumstances referred to in Item 1 or Item 2 above shall be
forfeited to the Vcompany upon termination of the Grantee's
employment with the Company.
4. During any tax year in which a Grantee realizes
taxable income by reason of the lapse of the restrictions on the
shares granted under the Program, the Company shall pay to such
Grantee a "Gross-Up Bonus" in cash equal to the aggregate of (i)
the additional federal, state and local income taxes incurred by
Grantee as a result of realization of such taxable income, and
(ii) the federal, state and local income tax incurred by the
Grantee as a result of the Gross-Up Bonus. In no event shall the
Gross-Up Bonus exceed the aggregate of (i) the amount of the tax
deduction for which the Company receives a benefit for the tax
year of the Company beginning during the tax year of the Grantee
in which he realizes taxable income by virtue of the lapse of the
restrictions referred to in Item 1 above, and (ii) the amount of
the tax deduction for which the Company receives a benefit for
such tax year of the Company by virtue of the Gross-Up Bonus.
Incentive Stock Option Plans
On December 6, 1984 the shareholders of the Company
approved the 1984 Incentive Stock Option Plan and the 1985
Incentive Stock Option Plan for 8,333 shares (the number of
shares in this section all reflect the 1-for-360 reverse stock
split of May 7, 1996); and on February 24,1992 the share holders
of the Company approved the 1992 Incentive Stock Option Plan for
5,556 shares; and on May 7, 1996 the shareholders of the Company
approved the 1996 Incentive Stock Option Plan for 50,000 shares.
Options granted under the Plans are intended to qualify as
"incentive stock options", as defined in Section 422A of the
Internal Revenue Code. The 1984 and 1985 plans expired with
options for 5,319 shares outstanding. There were 278 shares not
granted under the expired 1984 and 1985 plans and they will not
be eligible for grant under terms of the two plans. A total of
5,556 shares of common stock are reserved for issuance upon
exercise of options granted under the 1992 Plan. A total of
50,000 shares of common stock are reserved for issuance upon
exercise of options granted under the 1996 Plan. Options for a
total of 8,056 shares have been granted to employees of the
Company under the 1984 and 1985 Plans. Options for 2,736 shares
have been exercised to date at an average purchase price of
$10.16. No options have been issued to any person who is
currently an officer or director of the Company. The average
exercise price of the options which are outstanding is $5.25.
Other Compensation
The two persons who were officers of the Company during
the last fiscal year did not receive non-cash compensation
exceeding in aggregate 10 percent of their aggregate cash
compensation.
Compensation of Directors
During the fiscal year ended June 30, 1996, the
Company paid no fees or other cash compensation to directors for
service on the Board. Mr. George M. Bradshaw, a member of the
Board of Directors, received $19,477 for legal services rendered
to the Company.
On November 12, 1990, the Board of Directors granted
to George M. Bradshaw, a member of the Board of Directors, a non-
qualified option to purchase up to 5,556 shares of the Company's
common stock at any time prior to November 12, 2000. These
options were exercised during the fiscal year ending June 30,
1996.
Item 12 SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the equity securities of
the Company beneficially owned by any person who, to the
knowledge of the Company, owned beneficially more than 5% of
either class of voting stock as of September 3, 1996, by all
directors of the Company, and by the directors and officers of
the Company as a group. The table also indicates the number of
votes to which each person would be entitled in the event of a
shareholders meeting and the percentage of the total voting power
represented thereby. None of the persons identified below owns
any securities of the Company other than the Common Stock and the
Series A preferred Stock listed below.
Name and Amount and
Address of Nature of Percentage
Title of Beneficial Beneficial Percentage of Voting
Class Owner Ownership of Class Votes Power(1)
Common Robert G. 134,407 29.3% 134,407 10.3%
Stock Gatza(4) shares of
record(2)(3)
Series A Robert G. 175,000 20.7% 175,000 13.4%
Preferred Gatza(4) shares of
Stock record
Common Robert J. 87,662 19.9% 87,662 6.8%
Stock Fanella(4) shares of
record(2)
Series A Robert J. 175,000 20.7% 175,000 13.6%
Preferred Fanella(4) shares of
record
Common George M. 7,699 1.8% 7,699 0.6%
Stock Bradshaw(5) shares of
record
Common All officers 229,767 48.0% 229,767 17.4%
Stock and directors shares of
as a group record(2)
(3 persons)
Series A All officers 350,000 41.4% 350,000 26.5%
Preferred and directors shares of
Stock as a group record(2)
(3 persons)
(1) In determining the percentage of outstanding
shares or the percentage of voting power, all presently
exercisable options owned by the shareholder or the group are
treated as having been exercised.
(2) Includes shares of Common Stock issued pursuant to
the Restricted Stock Grant program as follows: Robert G. Gatza-
34,722 shares, Robert J. Fanella-18,056 shares. Also includes
Class C Warrants to purchase shares of Common stock at $22.68 per
share as follows: Robert G. Gatza-38,333 shares, Robert J.
Fanella-18,611.
(3) Does not include 18,192 shares owned by Carol Ann
Gatza, Mr. Gatza's wife. Mr. Gatza does not share voting power
with respect to those shares and, accordingly, disclaims
beneficial ownership of them.
(4) The business address of Messrs. Gatza and Fanella
is c/o MicroENERGY, Inc., 350 Randy Road, Carol Stream, Illinois
60188.
(5) The business address of Messr. Bradshaw is c/o
Huck, Bouma, Martin, Charlton, & Bradshaw P.C., 1755 S.
Naperville Rd., Suite 200, Wheaton, Illinois 60187.
Item 13 CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Transactions Relating to Tru-Way, Inc.
On December 30, 1988, Robert Gatza and Robert Fanella,
who are directors and officers of the Company, (together referred
to as the "Partners") formed an Illinois Partnership called
ARQUBE. Under the terms of their partnership agreement, the
ownership interest of the Partners in ARQUBE is as follows:
Robert Gatza - 66 2/3%
Robert Fanella - 33 1/3%
ARQUBE was formed for the purpose of acquiring the
land and fixed assets owned by Tru-Way, Inc. an Illinois
corporation engaged in the business of manufacturing fabricated
metal parts used in the Company's principal product. The assets
purchased by ARQUBE included all the machinery and equipment and
an industrial building in Stone Park, Illinois. The total
purchase price was $350,000. ARQUBE obtained a loan for the
amount of $350,000 and the loan was personally guaranteed by the
Partners. The land and industrial building were placed in trust
and also secure ARQUBE's obligation.
Subsequent to ARQUBE's acquisition of Tru-Way's land
and fixed assets, the Company purchased all of the outstanding
shares of stock of Tru-Way, Inc.
On July 22, 1993 the Stone Park facility was sold
and a larger facility in Northlake, Illinois (10,800 square feet
versus 5,100 square feet) was purchased. At this date the
operations of Tru-Way were consolidated into this larger
facility, the July 1, 1990 lease between ARQUBE and Tru-Way was
terminated and new leases for the facility and equipment were
entered into. The lease for the facility is for a five year
period, with monthly rental payments of $4,500, and the equipment
lease is for a five year period, with monthly payments of
$12,000. The two leases expire July 30, 1998.
On December 1, 1993, a lease for additional metal
fabricating equipment was entered into. The terms of this lease
were $3,025 per month, for a period of three years.
The Company has recorded these three leases as capital
leases. The Company believes that the terms of these leases are
equivalent to those available in arms-length transactions.
Transactions Relating to Debt Renegotiation
The Company was required to renegotiate the terms of
all of its term debt due to cash flow considerations. The
renegotiation included the debt to the City of Quincy and the
Illinois Department of Commerce and Community Affairs ("DCCA"),
both of which were personally guaranteed by Messrs. Gatza and
Fanella. The City of Quincy loan payout was extended
approximately two years and the DCCA loan one year beyond the
original term. The total amount outstanding at the time of
renegotiation was $357,000 for the City of Quincy loan and
$435,000 for the DCCA loan. As part of the renegotiations, the
personal guarantees needed to be extended for the additional
time.
In order to induce Messrs. Gatza and Fanella to
provide the extension of the personal guarantees, the Board of
Directors granted to Mr. Gatza a Class D Warrant to purchase up
to 58,333 shares of common stock between December 13, 1995 and
December 13, 2001, and granted to Mr. Fanella a Class D warrant
to purchase up to 38,889 shares of common stock during the same
period. The Class D Warrants were exercisable at $.00125 per
share which was 125% of the market bid price on December 13,
1994, the date of grant. The market value at the date of grant
was equal to approximately 6% of the amount guaranteed at the
time of renegotiation. The warrants were exercised during the
fiscal year ending June 30, 1996.
Transactions Relating to Debt Compromise
In January, 1996 the Company reached agreement with
its major creditor to compromise a long-term debt of $2,332,000
by the immediate payment of $1,332,000. The compromise was
intended to improve the Company's financial condition, and to
increase the net worth of the Company sufficiently that upon the
completion of the Series A Preferred Stock Offering the Company
was eligible to have the securities sold in that Offering listed
on the NASDAQ SmallCap Market.
In order to obtain the funds needed to finance the
debt compromise, the Company sold 350,000 shares of Series A
Preferred Stock in equal parts to Messrs. Gatza and Fanella in
exchange for their cash payment of $250,000 and their agreement
to give personal guarantees on a loan of $800,000. The Series A
Preferred Stock issued to Messrs. Gatza and Fanella is identical
to that which was sold in the offering. Messrs. Gatza and
Fanella have agreed, however, that while they hold the Series A
Preferred Stock they will waive the semi-annual dividends in
excess of $.40 per share (the Series A preferred Stock will pay
$.56 per share).
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT
SCHEDULE AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Financial statements and financial statement schedules
(a) The Financial Statements of MicroENERGY, Inc. and
the Independent Auditors' Report of Selden, Fox and
Associates, Ltd. are set forth in the index to Item
8.
(b) Financial Statement Schedules: The supplemental
financial information listed in the index to Item 8
is filed as part of this 10-K and should be read in
conjunction with the financial statements.
Schedules not included with this additional
information have been omitted either because they
are not applicable or because the required
information is shown in the financial statements or
notes thereto.
(b) 8-K Reports -none filed
(c) Exhibits:
3(a) Certificate of Incorporation, as amended has
been filed as an Exhibit to the Company's S-18 Registration
Statement dated February 2, 1984 and is incorporated by reference
herein as an exhibit hereto.
3(a)(1) Certificate of Amendment to Certificate of
Incorporation dated February 12, 1987 - has been filed as an
Exhibit to the Company's Annual Report on Form 10K for the fiscal
year ended June 30, 1987 and is incorporated by reference as an
exhibit hereto.
3(a)(2) Certificate of Amendment to Certificate of
Incorporation dated December 20, 1990 - filed as an exhibit to
the Company's Annual Report on form 10k for the fiscal year ended
June 30,1991 and is incorporated by reference as an exhibit
hereto.
3(a)(3) Certificate of Amendment to Certificate of
Incorporation dated May 13, 1996 and Certificate of Correction
dated June 3, 1996- filed as an exhibit to the Company's
Registration Statement on Form S-1 (333-1835) and incorporated
herein by reference.
3(a)(4) Certificate of Designation of Series A
Preferred Stock, dated July 11, 1996- filed as an exhibit to the
Company's Registration Statement on Form S-1 (333-1835) and
incorporated herein by reference.
3(b) By-laws, as amended, have been filed as an
Exhibit to the Company's Annual Report on Form 10K for the fiscal
year ended June 30, 1984 and are incorporated by reference as an
exhibit hereto.
10(a) Lease for premises at 350 Randy Road, Carol
Steam, Illinois have been filed as an Exhibit to the Company's
Annual Report on form 10K for the fiscal year ended June 30,
1993, and are incorporated by reference as an exhibit hereto.
10(b) 1992 Incentive Stock Option Plan- filed with
the Company's proxy materials used in connection with the Annual
Meeting on February 24, 1992 and incorporated herein by
reference.
10(c) 1996 Incentive Stock Option Plan- filed with
the Company's proxy materials used in connection with the Special
Meeting of shareholders on April 23, 1996 and incorporated herein
by reference.
10(d) 1985 Incentive Stock Option Plan - filed with
the Form 10K for fiscal year ended June 30, 1984 and incorporated
herein by reference.
10(e) Lease dated August 20, 1986 for premises in
Quincy, Illinois filed as an Exhibit to the Company's Report on
Form 10K for the year ended June 30, 1986 and incorporated by
reference as an exhibit hereto.
10(e)(1) Amendment to Lease for
premises in Quincy, Illinois- filed with the Form 10K for fiscal
year ended June 30, 1993 and incorporated herein by reference.
10(f) Loan and Development Agreement with Promissory
Note dated August 20, 1986 between the Company and the City of
Quincy, Illinois filed as an Exhibit to the Company's Report on
Form 10K for the year ended June 30, 1986 and incorporated by
reference as an exhibit hereto.
10(g) Promissory Note and Collateral Security
Agreement dated August 20, 1986 between the Company and Boatmen's
Bank of Quincy filed as an Exhibit to the Company's Report on
Form 10K for the year ended June 30, 1986 and incorporated by
reference as an exhibit hereto.
10(h) Credit Agreement between the Company and
Boatmen's Bank of Quincy - has been filed as an Exhibit to the
Company's Annual Report on Form 10K for the fiscal year ended
June 30, 1988 and is incorporated by reference as an exhibit
hereto.
10(i) Restricted Stock Grant Program - filed with the
Company's proxy materials used in connection with the Annual
Meeting on May 19, 1989 and is incorporated herein by reference.
10(j). Asset Purchase Agreement between the Company
and NCR Corporation dated July 1, 1990 - filed as an Exhibit to
the Company's Annual Report on Form 10k for the fiscal year ended
June 30, 1991 and is incorporated by reference as an exhibit
hereto.
10(j)(1) Amendment to Agreement with
NCR relating to the Debt and License Agreement contained in the
Asset Purchase Agreement.- filed with the Form 10K for fiscal
year ended June 30, 1993 and incorporated herein by reference.
10(j)(2) Amendment to exhibit 10(j)(1),
relating to payment terms of outstanding debt.- filed as an
exhibit to the Company's Annual report on Form 10K for the fiscal
year ended June 30, 1994, and is incorporated herein by
reference.
10(j)(3) Amendment to Asset Purchase
Agreement with NCR relating to payment terms of outstanding
debt.- filed as an exhibit to the Company's Registration
Statement on Form S-1 (333-1835) and incorporated herein by
reference.
10(k). 1991 financing documents related to the State
of Illinois, City of Quincy, and Comerica Bank - filed as an
exhibit to the Company's Annual Report on Form 10k for the fiscal
year ended June 30,1991 and is incorporated by reference as an
exhibit hereto.
10(k)(1). 1994 and 1995 amendments to
financing documents related to the 1991 State of Illinois and the
City of Quincy loan agreements. -filed as an exhibit to the
Company's Annual Report on Form 10K for the fiscal year ended
June 30, 1995 and is incorporated by reference as an exhibit
hereto.
10(l). Class C Warrants for 20,500,000 shares of
common stock issued to Robert G. Gatza and Robert J.Fanella in
return for personal guarantees on certain of the Company's debt-
filed with the Company's proxy materials used in connection with
the Annual Meeting on February 24,1992 and is incorporated herein
by reference.
10(m). Employment agreements dated February 1, 1996,
with Robert G. Gatza and Robert J. Fanella- filed as an exhibit
to the Company's Registration Statement on Form S-1 (333-1835)
and incorporated herein by reference.
10(n). Commercial Loan and Security Agreement with
Promissory Notes, dated July 17, 1996, between the Company and
Marquette National Bank.- filed herewith
10(o). Lease for premises, from ARQUBE, at Northlake,
IL; Tru-Way facility- filed with Form 10K for fiscal year ended
June 30, 1993, and incorporated herein by reference.
10(p). Equipment Lease, from ARQUBE, for Tru-Way
operations- filed with the form 10K for fiscal year ended June
30, 1993, and incorporated herein by reference.
10(q) Subscription agreements with Robert G. Gatza
and Robert J. Fanella, dated February 1, 1996- filed as an
exhibit to the Company's Registration Statement on Form S-1 (333-
1835) and incorporated herein by reference.
(22) Subsidiaries - Tru-Way, Inc., an Illinois
corporation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MicroENERGY, INC.
(Registrant)
By /s/ Robert G. Gatza
Robert G. Gatza
President
Date: September 27, 1996
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Robert G. Gatza
Robert G. Gatza
President (Principal Executive Officer), Director
Date: September 27, 1996
/s/ Robert J. Fanella
Robert J. Fanella
Treasurer (Principal Financial Officer)
(Principal Accounting Officer), Director
Date: September 27, 1996
/s/ George M. Bradshaw
George M. Bradshaw
Director
Date: September 27, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
COMMERCIAL LOAN AND SECURITY AGREEMENT
THIS COMMERCIAL LOAN AND SECURITY AGREEMENT (this
"Agreement"), is made as of July ___, 1996, by and between
MARQUETTE NATIONAL BANK ("Bank"), a national bank with its
principal place of business at 6316 South Western Avenue,
Chicago, Illinois 60636, and MICROENERGY, INC. ("Borrower"), a
Delaware corporation with its principal place of business at 350
Randy Road, Carol Stream, Illinois 60188.
Pursuant to Borrower's request, Bank, in the event
Bank accepts this Agreement in writing, will lend monies to
Borrower pursuant hereto.
NOW THEREFORE, in consideration of the promises set
forth herein, the Bank agrees to lend monies to Borrower upon the
following terms and conditions.
1. DEFINITIONS AND TERMS
1.1 The following words, terms and/or phrases shall
have the meanings set forth thereafter and such meanings shall be
applicable to the singular and plural form thereof, giving effect
to the numerical difference; whenever the context so requires,
the use of "it" in reference to Borrower shall mean Borrower as
identified at the beginning of this Agreement;
A. "Borrower's Liabilities": all obligations and
liabilities of Borrower to Bank (including without
limitation all debts, claims, and indebtedness)
whether primary, secondary, direct, contingent,
fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable,
however evidenced, created, incurred, acquired or
owing and however arising, whether under this
Agreement or the "Other Agreements" (as
hereinafter defined in Paragraph 1.1E) or
operation of law or otherwise.
B. "Charges": all national, federal, state, county,
city, municipal and/or other governmental (or any
instrumentality, division, agency, body or
department thereof including without limitation
the Pension Benefit Guaranty Corporation) taxes,
levies, assessments, charges, liens, claims or
encumbrances upon and/or relating to the
"Collateral" (as hereinafter defined in Paragraph
3.1), Borrower's Liabilities, Borrower's business,
Borrower's ownership and/or use of any of its
assets, and/or Borrower's income and/or gross
receipts.
C. "Indebtedness": (i) indebtedness for borrowed
money or for the deferred purchase price of
property or services; (ii) obligations as lessee
under leases which shall have been or should be,
in accordance with generally accepted accounting
principles, recorded as capital leases; (iii)
judgment amounts and liabilities for unpaid taxes;
(iv) obligations under direct or indirect
guaranties in respect of, and obligations
(contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against
loss in respect of, indebtedness or obligations of
others of the kinds referred to in clauses (i),
(ii) or (iii) above; and (v) liabilities in
respect of unfunded vested benefits under plans
covered by Title IV of the Employee Retirement
Income Security Act of 1974, as the same may be
amended and in effect from time to time.
D. "Obligor": any Person who is and/or may become
obligated to Borrower under or on account of
"Accounts" (as hereinafter defined in Paragraph
3.1).
E. "Other Agreements": all agreements, instruments
and documents, including without limitation
guaranties, mortgages, deeds of trust, notes,
pledges, powers of attorney consents, assignments,
contracts, notices, security agreements, leases,
financing statements and all other written matter
heretofore, now and/or from time to time hereafter
executed by and/or on behalf of Borrower and
delivered to Bank, or issued by Bank upon the
application of and on behalf of Borrower.
F. "Person": any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated
organization, association, corporation,
institution, entity, party or government (whether
national, federal, state, county, city municipal
or otherwise including without limitation, any
instrumentality, division, agency body or
department thereof).
G. "Prime Rate": the per annum rate of interest
announced from time to time by Marquette National
Bank at its principal place of business in
Chicago, Illinois as its base, prime or equivalent
rate of interest; provided, that if Marquette
National Bank ceases to use the term "Prime Rate"
in setting a prime or base rate of interest for
commercial loans then the Prime Rate herein shall
be determined by reference to the rate used by
Marquette National Bank as such a base rate. The
Prime Rate is not necessarily the lowest rate
charged by Marquette National Bank and is
established by Marquette National Bank in its sole
discretion.
1.2 Except as otherwise defined in this Agreement or
the Other Agreements, all words, terms and/or phrases used herein
and therein shall be defined by the applicable definition
therefor (if any) in the Uniform Commercial Code of the State of
Illinois.
2. LOANS
2.1 Advances made by Bank to Borrower pursuant to this
Agreement shall be evidenced by notes or other instruments issued
or made by Borrower to Bank. Where such advances are not so
evidenced, such advances shall be evidenced solely by entries
upon ledgers, books, records, and/or computer records of Bank
maintained for that purpose. Except as otherwise provided in
this Agreement or in any notes executed and delivered by Borrower
to Bank in connection herewith or in the Other Agreements, the
principal portion of Borrower's Liabilities and all costs, fees
and expenses payable hereunder or under the Other Agreements,
shall be payable by Borrower to Bank on demand, at Bank's
principal place of business or such other place as Bank shall
specify from time to time in writing to Borrower.
2.2.1 Bank agrees, subject to the terms and
conditions herein contained, to make advances to Borrower, as
advances against Borrower's accounts receivable and inventory, in
an aggregate principal amount at any one time outstanding up to
but not exceeding THREE MILLION ($3,000,000.00) DOLLARS
(hereinafter referred to as the "Revolving Loan"). Within the
borrowing limits of the Revolving Loan, Borrower may borrow,
repay and reborrow at any time and from time to time from the
date hereof until November 1, 1998, at which time all of
Borrower's Liabilities, unless renewed pursuant to Paragraph 2.7
hereof, or unless otherwise sooner due and payable by Borrower to
Bank, shall be due and payable by Borrower to Bank. As evidence
of Borrower's indebtedness under the Revolving Loan, Borrower
shall execute a note in the form of the note attached hereto as
Exhibit "A" (the "Revolving Note"). The Revolving Note shall
bear interest at a daily rate equal to the daily rate equivalent
of the Prime Rate plus one-quarter (.25%) percent (the "Revolving
Note Rate"), computed on the basis of a 360-day year and charged
for actual days elapsed. The Revolving Note Rate shall fluctuate
hereafter from time to time concurrently with and in an amount
equal to each increase or decrease in the Prime Rate. Interest
on the Revolving Loan shall be due and payable by Borrower to
Bank monthly, in arrears, on the first day of each month,
commencing September 1, 1996, or as billed by Bank, at Bank's
principal place of business or at such other place as Bank shall
designate to Borrower in writing.
2.2.2 Notwithstanding anything contained in this
Agreement or the Other Agreements to the contrary, the principal
portion of Borrower's Liabilities (with respect to the Revolving
Loan) outstanding at any one time shall not exceed the lesser of
(i) THREE MILLION ($3,000,000.00) DOLLARS; or (ii) the "Borrowing
Base" (as hereinafter defined in Paragraph 2.2.3). Bank, in its
sole and absolute discretion, at any time and from time to time,
may suspend the restrictions imposed in this Paragraph.
2.2.3 Provided that an "Event of Default" (as
hereinafter defined in Paragraph 7.1) does not then exist or
would not then be created thereby or any event which with notice
or lapse of time or both would constitute an Event of Default
does not then exist, Bank shall advance to Borrower under the
Revolving Loan, upon Borrower's request, an amount (the
"Borrowing Base") equal to (i) the sum of eighty-five (85%)
percent of the face amount (less maximum discounts, credits and
allowances which may be taken by or granted to Obligors in
connection therewith) of all then existing "Eligible Accounts"
(as hereinafter defined in Paragraph 4.1) that are scheduled in
the initial Borrowing Base Certification (the initial Borrowing
Base Certification and any subsequent Borrowing Base
Certification hereinafter referred to as the "Borrowing Base
Certification") delivered to Bank, and (ii) the sum of eighty-
five (85%) percent of the face amount (less maximum discounts,
credits and allowances which may be taken by or granted to
Obligors in connection therewith) of all then existing Eligible
Accounts that are scheduled on each related subsequent Borrowing
Base Certification delivered to Bank (excepting therefrom those
Eligible Accounts theretofore scheduled to Bank on the initial
Borrowing Base Certification or on any subsequent Borrowing Base
Certification delivered to Bank theretofore). Upon Bank's
request therefor, Borrower shall attach to each Borrowing Base
Certification a true and correct copy of such invoices, delivery
receipts and such other documents relating to the Accounts
scheduled thereon, as Bank may request. Notwithstanding any
contrary provision contained herein, Bank may elect, at its sole
discretion, reasonably exercised, to at any time change the
foregoing method of calculating the Borrowing Base by reducing
advances against Eligible Accounts, or to deduct reserves from
the Borrowing Base, each upon fourteen days' prior written notice
thereof to Borrower.
2.2.4. Provided that an Event of Default does not
then exist or would not then be created thereby or any event
which with notice or lapse of time or both would constitute an
Event of Default does not then exist, Bank shall advance to
Borrower under the Revolving Loan, upon Borrower's request, an
amount up to forty (40%) percent (not to exceed $1,000,000) of
the "Value" (as hereinafter defined in this Paragraph) of
Eligible Inventory set forth in the Borrowing Base Certification
then most recently delivered by Borrower to Bank, which amount
shall be reduced by 100% of the Value of any reductions in such
Eligible Inventory made since the date of such Borrowing Base
Certification. "Value" shall mean the lesser of Borrower's cost
thereof calculated on a first-in, first-out basis or the
wholesale market value thereof. "Eligible Inventory" shall mean
any "Inventory" (as hereinafter defined in this Paragraph) which
meets each of the following requirements: (a) it is in condition
to be sold in the ordinary course of Borrower's business (and as
such excludes work in process); (b) in case of goods held for
sale, it is new and unused, or if used, it has a fair market
value equivalent to its purchase price; (c) it is subject to a
first perfected security interest in favor of Bank; (d) it is
owned by Borrower (and as such excludes consignment inventory)
and except for (i) the security interest in favor of Bank, (ii)
tax liens for taxes not past due, and (iii) warehouse liens for
warehouse charges not past due, it is not subject to any other
lien or security interest whatsoever; and (e) Bank has in good
faith determined, in accordance with Bank's customary business
practices, it is not unacceptable due to age, type, category
and/or quantity. Any Inventory which is at any time Eligible
Inventory, but which subsequently fails to meet any of the
foregoing requirements shall forthwith cease to be Eligible
Inventory. Borrower, immediately upon demand from Bank, shall
pay to Bank an amount of money equal to the monies theretofore
advanced by Bank to Borrower upon an item of Inventory that is no
longer Eligible Inventory. "Inventory" shall mean all goods held
by Borrower for sale or lease, or furnished by Borrower under
contract of service, or held by Borrower as raw materials, work
in process or materials used or consumed in a business. Amounts
determined pursuant to this Paragraph shall be deemed part of the
Borrowing Base. Notwithstanding any contrary position contained
herein, Bank may elect, at its sole discretion, reasonably
exercised, to at any time change the foregoing method of
calculating the Borrowing Base by reducing advances against
Eligible Inventory or to deduct reserves from the Borrowing Base,
each upon fourteen (14) day's prior written notice to Borrower.
2.2.5 Bank's commitment to fund the Revolving Loan
under this Agreement shall expire on the earliest of (i) November
1, 1998, unless renewed pursuant to the terms of Paragraph 2.7
hereof, or (ii) the date on which Borrower's Liabilities mature
under the terms of any note given by Borrower to Bank, or (iii)
the occurrence of an Event of Default pursuant to Paragraph 7.1
hereof.
2.3 Bank further agrees, subject to the terms and
conditions herein contained, to make a loan to Borrower, as term
credit, up to a maximum principal amount of EIGHT HUNDRED
THOUSAND ($800,000.00) DOLLARS (hereinafter referred to as the
"Term Loan"). As evidence of Borrower's indebtedness under the
Term Loan, Borrower shall execute a note in the form of the note
attached hereto as Exhibit "B" (the "Term Note"). The Term Note
shall bear interest at a daily rate equal to the daily rate
equivalent of the Prime Rate plus one quarter (.25%) percent (the
"Term Note Rate") computed on the basis of a 360-day year and
charged for actual days elapsed. The Term Note Rate shall
fluctuate from time to time concurrently with and in an amount
equal to each increase or decrease in the Prime Rate. Equal
monthly installments of principal in the amount of THIRTEEN
THOUSAND THREE HUNDRED THIRTY THREE AND 33/100THS ($13,333.33)
DOLLARS, along with interest on the Term Loan, shall be due and
payable by Borrower to Bank monthly, in arrears, on the first day
of each month, commencing September 1, 1996, or as billed by
Bank, at Bank's principal place of business or at such other
place as Bank shall designate to Borrower in writing, with the
final payment of all sums due under the Term Loan, if not sooner
due and payable by Borrower to Bank, due and payable by Borrower
to Bank on July 1, 2001.
2.4 All of Borrower's Liabilities shall constitute
one loan secured by Bank's security interest in the Collateral
and by all other security interests, liens, claims and
encumbrances heretofore, now and/or from time to time hereafter
granted by or for the benefit of Borrower to Bank.
2.5 Notwithstanding anything contained in this
Agreement or the Other Agreements to the contrary, the principal
portion of Borrower's Liabilities shall not exceed THREE MILLION
EIGHT HUNDRED THOUSAND ($3,800,000.00) DOLLARS. Bank, in its
sole and absolute discretion, at any time and from time to time,
may suspend the restrictions imposed in this Paragraph.
2.6 Each advance made by Bank to Borrower pursuant to
this Agreement or the Other Agreements shall constitute a
reaffirmation and continuing warrant and representation by
Borrower to Bank that there does not then exist an Event of
Default or any event or condition which with notice, lapse of
time and/or the making of such advance would constitute an Event
of Default.
2.7 This Agreement shall be in effect until November
1, 1998 (the "Original Term") and automatically shall be renewed
from year to year thereafter ("Renewal Term") unless terminated
(i) by either party as hereinafter provided, or (ii) by Bank upon
an Event of Default or pursuant to Paragraph 7.3 hereof.
Borrower or Bank may terminate this Agreement at the end of the
Original Term or at the end of any Renewal Term by giving the
other party written notice of such termination, by registered or
certified mail addressed to such other party at its principal
place of business, at least sixty days prior thereto; provided,
however, if Borrower elects so to terminate, on or before the
termination date, Borrower shall pay to Bank, in full, in cash or
by certified or cashier's check, Borrower's Liabilities.
3. COLLATERAL: GENERAL TERMS
3.1 To secure the prompt payment to Bank of
Borrower's Liabilities and the prompt, full and faithful
performance by Borrower of all of the provisions to be kept,
observed or performed by Borrower under this Agreement and/or the
Other Agreements, Borrower grants to Bank a security interest in
and to, and collaterally assigns to Bank, all of Borrower's
property wherever located, whether now or hereafter existing,
owned, licensed, leased (to the extent of Borrower's ownership
interest therein), arising and/or acquired, including without
limitation all of Borrower's: (a) accounts, accounts receivable,
chattel paper, contract rights, leases, leasehold interests,
letters of credit, instruments, documents, patents, copyrights,
trademarks, tradenames, beneficial interests and general
intangibles (sometimes hereinafter individually and collectively
referred to as "Accounts"), and all goods whose sale, lease or
other disposition by Borrower have given rise to Accounts and
have been returned to or repossessed or stopped in transit by
Borrower; (b) inventory, including without limitation, raw
materials, work in process, finished merchandise, supplies,
goods, incidentals, office supplies and packing materials; (c)
certificated and uncertificated securities; (d) goods, including
without limitation all its consumer goods, machinery, equipment,
vehicles, farm products, buildings, structures, fixtures and
inventory; (e) documents and instruments; (f) liens, guaranties
and other rights and privileges pertaining to any of the
Collateral; (g) monies, reserves, deposits, deposit accounts and
interest or dividends thereon, cash or cash equivalents; (h) all
property now or at any time or times hereafter in the possession
or under the control of Bank or its bailee; (i) all accessions to
the foregoing and all substitutions, renewals, improvements and
replacements of and additions to the foregoing; (j) all books,
records and computer records in any way relating to the
Collateral herein described; (k) Borrower's interest ieeds of the
foregoing, including without limitation proceeds of insurance
policies insuring the foregoing (individually and collectively
the "Collateral"). Borrower shall make appropriate entries upon
its financial statements and its books and records disclosing
Bank's security interest in the Collateral.
3.2 Borrower agrees to deliver or cause to be
delivered to Bank forthwith upon Bank's demand therefor, such
additional collateral as Bank may reasonably request from time to
time should the value of the Collateral (in Bank's sole and
exclusive opinion) decline, deteriorate, depreciate or become
impaired, or should Bank deem itself reasonably insecure for any
reason whatsoever, including without limitation a change in the
financial condition of Borrower or any party liable with respect
to Borrower's Liabilities, and does hereby grant to Bank a
continuing security interest in such other collateral, which
shall be deemed to be a part of the Collateral. Borrower shall
execute and deliver to Bank, at the request of Bank, all
agreements, instruments and documents ("Supplemental
Documentation") that Bank reasonably may request, in form and
substance acceptable to Bank, to perfect and maintain perfected
Bank's security interest in the Collateral and to consummate the
transactions contemplated in or by this Agreement and the Other
Agreements. Borrower agrees that a carbon, photographic or
photostatic copy or other reproduction, of this Agreement or of
any financing statement, shall be sufficient as a financing
statement.
3.3 Bank shall have the right, through its employees
or representatives, at any time during Borrower's usual business
hours, to inspect the Collateral and all records (and the
premises upon which it is located) and to verify the amount and
condition of or any other matter relating to the Collateral,
including without limitation appraisals and environmental audits
and field audits undertaken at Borrower's expense at Bank's
discretion by appraisers and auditors selected by Bank.
3.4 Borrower warrants and represents to and covenants
with Bank that: (a) Bank's security interest in the Collateral is
now and at all times hereinafter shall be perfected and have a
first priority; (b) the office and/or locations where Borrower
keeps the Collateral are specified at the end of this Paragraph
and Borrower shall not remove such Collateral therefrom and shall
not keep any of such Collateral at any other office or location
unless Borrower gives Bank written notice thereof at least thirty
days prior thereto and the same is within the States of Illinois,
Missouri and Florida; and (c) the addresses specified at the end
of this Paragraph include and designate Borrower's chief
executive office, chief place of business and other offices and
places of business and are Borrower's sole offices and places of
business. Borrower, by written notice delivered to Bank at least
thirty days prior thereto, shall advise Bank of Borrower's
opening of any new office or place of business or its closing of
any existing office or place of business and any new office or
place of business shall be within the States of Illinois,
Missouri and Florida. Locations of Collateral, Borrower's
principal place of business and all other offices and places of
business are as follows: 350 Randy Road, Carol Stream, Illinois;
1400 N. 30th Street, Quincy, Illinois; Rural Route 1, Memphis,
Missouri 63555; and 745 W. State Route 434, Longwood, Florida.
3.5 Borrower shall receive, as the sole and exclusive
property of Bank and as trustee for Bank, all monies, checks,
notes, drafts and all other payment for and/or proceeds of
Collateral which come into the possession or under the control of
Borrower and immediately upon receipt thereof, Borrower shall
remit the same (or cause the same to be remitted), in kind, to
Bank or at Bank's direction.
3.6 Upon demand or an Event of Default or event or
condition which with notice or lapse of time would constitute an
Event of Default, Bank may take control of, in any manner, and
may endorse Borrower's name to any of the items of payment or
proceeds described in Paragraph 3.5 above and, pursuant to the
provisions of this Agreement, Bank shall apply the same to and on
account of Borrower's Liabilities.
3.7 Bank, at its option, may at any time or times
hereafter, but shall be under no obligation to, pay, acquire
and/or accept an assignment of any security interest, lien,
encumbrance or claim asserted by any Person against the
Collateral.
3.8 Immediately upon Borrower's receipt of that
portion of the Collateral evidenced by an agreement, instrument
and/or document ("Special Collateral"), Borrower shall mark the
same to show that such Special Collateral is subject to a
security interest in favor of Bank and shall deliver the original
thereof to Bank, together with appropriate endorsement and/or
specific evidence of assignment (in form and substance acceptable
to Bank) thereof to Bank.
3.9 Regardless of the adequacy of any collateral
securing Borrower's Liabilities hereunder, any deposits or other
sums at any time credited by or payable or due from Bank to
Borrower or any monies, cash, cash equivalencies, securities,
instruments, documents or other assets of Borrower in possession
or control of Bank or its bailee for any purpose may, upon an
Event of Default or event or condition which with notice or lapse
of time would constitute an Event of Default, be reduced to cash
and applied by Bank to or setoff by Bank against Borrower's
Liabilities hereunder.
3.10 Borrower shall instruct the Obligors of its
Accounts to make payments directly to a lock box or cash
collateral account maintained by Bank in Borrower's name. Upon
an Event of Default or event or condition which with notice or
lapse of time would constitute an Event of Default, all such
collections shall be Bank's property to be applied against
Borrower's Liabilities, and not Borrower's property. Bank may
endorse Borrower's name to any of the items of payment or
proceeds described herein.
4. COLLATERAL: ACCOUNTS
4.1 An "Eligible Account" is an Account of Borrower
which meets each of the following requirements: (a) if it arises
from the sale or lease of goods, such goods have been shipped or
delivered to the Obligor thereof; (b) it is valid, legally
enforceable obligation of the Obligor thereunder and is not
subject to any offset, counterclaim or other defense on the part
of such Obligor denying liability thereunder in whole or in part;
(c) it is subject to a perfected security interest in favor of
Bank and is not subject to any other lien or security interest
whatsoever except those of Bank; (d) it is evidenced by an
invoice (dated not earlier than the date of shipment to the
Obligor or performance and having a due date not more than 30
days after the date of invoice) rendered to such Obligor and is
not evidenced by any instrument or chattel paper; (e) it is
payable in United States dollars; (f) it is not owing by any
Obligor residing, located or having its principal activities or
place of business outside the United States of America or Canada
who is not subject to service of process in the continental
United States of America or Canada except NCR Corp.; (g) it is
not owing by any Obligor involved in any bankruptcy or insolvency
proceeding; (h) it is not owing by any affiliate of Borrower; (i)
it is not unpaid more than 90 days after the date of such
invoice; (j) it is not owing by an Obligor which shall have
failed to pay more than twenty-five (25%) percent of all invoices
evidencing Accounts within 90 days after the date of such
invoices; and (k) it is not an Account as to which Bank, at any
time or times hereafter determines, in good faith, that the
prospect of payment or performance by the Obligor thereof is or
will be impaired. An Account which is at any time an Eligible
Account, but which subsequently fails to meet any of the
foregoing requirements, shall forthwith cease to be an Eligible
Account. Borrower, immediately upon demand from Bank, shall pay
to Bank an amount of money equal to the monies theretofore
advanced by Bank to Borrower upon an Account that is no longer an
Eligible Account.
4.2 With respect to Accounts, except as otherwise
disclosed by Borrower to Bank in writing, Borrower warrants and
represents to Bank that: (a) they are genuine in all respects
what they purport to be and are not evidenced by a judgment; (b)
they represent undisputed, bona fide transactions completed in
accordance with the terms and provisions contained in the
invoices and other documents delivered to Bank with respect
thereto; (c) the amounts thereof, which may be shown on any
Borrowing Base Certification and/or all invoices and statements
delivered to Bank with respect thereto, are actually and
absolutely owing to Borrower and are not contingent for any
reason; (d) no payments have been or shall be made thereon except
payments immediately delivered to Bank pursuant to this
Agreement; (e) there are no setoffs, counterclaims or disputes
existing or asserted with respect thereto and Borrower has not
made any agreement with any Obligor thereof for any deduction
therefrom except a singular discount allowed by Borrower in the
ordinary course of its business for prompt payment, (f) to the
best of Borrower's knowledge, there are no facts, events or
occurrences which in any way impair the validity or enforcement
thereof or tend to reduce the amount payable thereunder from the
amount thereof, which may be shown on any Borrowing Base
Certification and on all invoices and statements delivered to
Bank with respect thereto; (g) to the best of Borrower's
knowledge, all Obligors thereof have the capacity to contract and
are solvent; (h) the services furnished and/or goods sold giving
rise thereto are not subject to any lien, claim, encumbrance or
security interest except that of Bank; (i) Borrower has no
knowledge of any fact or circumstance which would impair the
validity or collectability thereof; (j) to the best of Borrower's
knowledge, there are no proceedings or actions which are
threatened or pending against any Obligor thereof which might
result in any material adverse change in its financial condition;
er has filed a Notice of Business Activities Report with the New
Jersey Division of Taxation or Minnesota Department of Revenue
for the then current year.
4.3 Any of Bank's officers, employees or agents shall
have the right, at any time or times hereafter in Bank's name or
in the name of a nominee of Bank, to verify the validity, amount
or any other matter relating to any Accounts by mail, telephone,
telegraph or otherwise. All costs, fees and expenses relating
thereto incurred by Bank (or for which Bank becomes obligated)
shall be part of Borrower's Liabilities, payable by Borrower to
Bank on demand.
4.4 Unless Bank notifies Borrower in writing that
Bank suspends any one or more of the following requirements,
Borrower shall (a) promptly upon Borrower's learning thereof,
inform Bank, in writing, of any material delay in Borrower's
performance of any of its obligations to any Obligor and of any
assertion of any claims, offsets or counterclaims by any Obligor
and of any allowances, credits and/or other monies granted by
Borrower to any Obligor; (b) not permit or agree to any
extension, compromise or settlement with respect to Accounts
which constitute, in the aggregate, more than five (5%) percent
of all Accounts then owing to Borrower; and (c) keep all goods
returned by any Obligor and all goods repossessed or stopped in
transit by Borrower from any Obligor segregated from other
property of Borrower, immediately notify Bank of Borrower's
possession of such goods, and hold the same as trustee for Bank
until otherwise directed in writing by Bank.
4.5 Bank shall have the right, now and at any time or
times hereafter, at its option, without notice thereof to
Borrower: (a) to notify any or all Obligors that the Accounts
and Special Collateral have been assigned to Bank and the Bank
has a security interest therein; (b) to direct the Obligors to
make all payments due from them to Borrower upon the Accounts and
Special Collateral directly to Bank; and (c) to enforce payment
of and collect, by legal proceedings or otherwise, the Accounts
and Special Collateral in the name of Bank and Borrower.
4.6 Borrower irrevocably hereby designates, makes,
constitutes and appoints Bank (and all Persons designated by
Bank) as Borrower's true and lawful attorney (and agent-in-fact),
with power upon demand or an Event of Default, or an event or
condition which with notice or lapse of time would constitute an
Event of Default, without notice to Borrower and in Borrower's or
Bank's name: (a) to enforce payment of the Accounts by legal
proceedings or otherwise; (b) to exercise all of Borrower's
rights and remedies with respect to the collection of the
Accounts; (c) to settle, adjust, compromise, discharge, release,
extend or renew the Accounts; (d) to settle, adjust or compromise
any legal proceedings brought to collect the Accounts; (e) to
sell or assign the Accounts upon such terms, for such amounts and
at such time or times as Bank deems advisable; (f) to prepare,
file and sign Borrower's name on any Notice of Lien, Assignment
or Satisfaction of Lien or similar document in connection with
the Accounts and Special Collateral; or (g) to prepare, file and
sign Borrower's name on any Proof of Claim in Bankruptcy or
similar document against any Obligor.
5. WARRANTIES, REPRESENTATIONS AND
COVENANTS: INSURANCE AND TAXES
5.1 Borrower at its sole cost and expense, shall keep
and maintain: (a) the Collateral insured for the full insurable
value against all hazards and risks ordinarily insured against by
other owners or users of such properties in similar businesses;
and (b) business interruption insurance and public liability and
property damage relating to Borrower's ownership and use of its
assets. All such policies of insurance shall be in form, with
insurers and in such amounts as may be satisfactory to Bank.
Borrower shall deliver to Bank the original (or certified) copy
of each policy of insurance, or a certificate of insurance, and
evidence of payment of all premiums for each such policy or
policies of insurance (except those of public liability and
property damage) shall contain an endorsement, in form and
substance reasonably acceptable to Bank, naming Bank as an
additional loss payee as its interest appears, and shall provide
that the insurance companies will give Bank at least thirty days
written notice before any such policy or policies of insurance
shall be altered or cancelled and that no act or default of
Borrower or any other Person shall affect the right of Bank to
recover under such policy or policies of insurance in case of
loss or damage. Borrower hereby directs all insurers under such
policies of insurance (except those of public liability and
property damage) to pay all proceeds payable thereunder directly
to Bank and hereby authorizes Bank, to make, settle and adjust
claims under such policies of insurance and endorse the name of
Borrower on any check, draft, instrument or other item of payment
for the proceeds of such policies of insurance.
5.2 Borrower shall pay promptly when due, all
Charges, and shall not permit the Charges to arise, or to remain
and will promptly discharge the same.
6. WARRANTIES, REPRESENTATIONS
AND COVENANTS: GENERAL
6.1 Borrower warrants and represents to and covenants
with Bank that: (a) Borrower has the right, power and capacity
and is duly authorized and empowered to enter into, execute,
deliver and perform this Agreement and Other Agreements; (b) the
execution, delivery and/or performance by Borrower of this
Agreement and Other Agreements shall not, by the lapse of time,
the giving of notice or otherwise, constitute a violation of any
applicable law or a breach of any provision contained in
Borrower's Articles of Incorporation, By-Laws, or similar
document, or contained in any agreement, instrument or document
to which Borrower is now or hereafter a party or by which it is
or may be bound; (c) Borrower has and at all times hereafter
shall have good, indefeasible and merchantable title to and
ownership of the Collateral, free and clear of all liens, claims,
security interests and encumbrances except those of Bank; (d)
Borrower is now and at all times hereafter, shall be solvent and
generally paying its debts as they mature and Borrower now owns
and shall at all times hereafter own property which, at a fair
valuation, is greater than the sum of its debts; (e) Borrower is
not and will not be, during the term hereof, in violation of any
applicable federal, state or local statute, regulation or
ordinance, in any respect materially and adversely affecting its
business, property, assets, operations or condition, financial or
otherwise; and (f) Borrower is not in default with respect to any
indenture, loan agreement, mortgage, deed or other similar
agreement relating to the borrowing of monies to which it is a
party or by which it or its properties is bound.
6.2 Borrower warrants and represents to and covenants
with Bank that Borrower shall not, without Bank's prior written
consent thereto: (a) grant a security interest in, assign, sell
or transfer any of the Collateral to any Person or permit, grant,
or suffer a lien, claim or encumbrance upon any of the
Collateral; (b) other than as specifically permitted in or
contemplated by this Agreement, encumber, pledge, mortgage, sell,
lease or otherwise dispose of or transfer, whether by sale,
merger, consolidation or otherwise, any of Borrower's assets; and
(c) incur Indebtedness except renewals or extensions of existing
Indebtedness and interest thereon, and except Indebtedness that
is unsecured and is to persons who execute and deliver to Bank in
form and substance acceptable to Bank and its counsel
subordination agreements subordinating their claims against
Borrower therefor to the payment of Borrower's Liabilities.
6.3 Borrower covenants with Bank that Borrower shall
furnish to Bank: (a) as soon as available but not later than
ninety (90) days after the close of each fiscal year of Borrower,
audit level financial statements of Borrower and its subsidiaries
prepared on the accrual method of accounting in accordance with
generally accepted accounting principals by certified public
accountants acceptable to Bank in its sole discretion; (b) within
thirty (30) days after the end of each fiscal quarter of
Borrower, quarterly compiled level financial statements of
Borrower and its subsidiaries prepared on the accrual method of
accounting in accordance with generally accepted accounting
principles by certified public accountants acceptable to Bank in
its sole discretion; (c) within thirty (30) days after the end of
each fiscal quarter of ARQUBE, an Illinois general partnership
("ARQUBE"), quarterly compiled level financial statements of
ARQUBE prepared on the accrual method of accounting in accordance
with generally accepted accounting principles by certified public
accountants acceptable to Bank in its sole discretion; (d) on a
monthly basis (or more frequently as Bank shall determine in its
sole discretion) within five (5) days of the end of each month, a
Borrowing Base Certification, an Inventory list and an Accounts
aging analysis; (e) as soon as available but not later than
thirty (30) days after the close of each calendar year, personal
financial statements on all individual guarantors of Borrower's
Liabilities; and (f) such other data and information (financial
and otherwise) as Bank, from time to time, may request.
6.4 To facilitate Bank's monitoring of Borrower's
financial condition and the ability of Borrower to repay the
Indebtedness and fulfill its obligations under this Agreement and
the Other Agreements and to further secure the repayment of the
Indebtedness, during the term of this Agreement, Borrower
covenants to Bank that Bank will be the primary depository and
disbursement institution for Borrower and its subsidiaries and
Borrower shall (and shall cause its subsidiaries to) maintain its
depository account and disbursement account Collateral with the
Bank.
6.5 Borrower covenants with Bank that Borrower (and
Borrower's subsidiaries) will not, during the term of this
Agreement, without Bank's prior written consent: (a) modify,
amend or supplement its articles of incorporation, by-laws or
similar documents; (b) suffer or permit any change in the record
or beneficial ownings of its stock; (c) enter into any
transaction not in the ordinary course of business which
materially and adversely affects its ability to repay its
liabilities or Indebtedness, or materially or adversely affects
any collateral pledged to Bank; (d) declare or pay dividends upon
any of its stock or make any distributions or transfers of its
property or assets except as permitted in this Agreement or the
Other Agreements (or any agreements between Bank and Borrower's
subsidiaries); and (e) make any loans, advances and/or extensions
of credit to any Person, including without limitation, it's
officers, directors and shareholders. Notwithstanding the
provisions of subparagraph (d) of this Paragraph 6.5, provided
that an Event of Default or event or condition which with notice
or lapse of time would constitute an Event of Default does not
exist, or would not then exist, and further provided, that
Borrower is in compliance with all the terms and conditions of
this Agreement, Borrower shall be allowed to declare and pay
annual dividends of $0.56 per share on its Series A Cumulative
Preferred Stock.
6.6 Borrower covenants with Bank that Borrower will
not, during the term of this Agreement, permit the ratio of its
"Net Operating Income" (as hereinafter defined in this Paragraph)
to the debt service on the sum of the current portion of its
long-term debt and capitalized leases (the "Current Portion") to
be at any time less than a ratio of 1.25 to 1.00. Net Operating
Income shall mean: the net income of Borrower after taxes, plus
depreciation and amortization, such sum to be divided by the debt
service on its Current Portion. Borrower further covenants with
Bank that Borrower will not, during the term of this Agreement,
permit the ratio of its current assets (excluding prepaid
expenses, deposits and any and all affiliated party transactions
as determined by Bank in its sole discretion) to its current
liabilities, to be at any time less than a ratio of 1.0 to 1.0,
determined pursuant to a calculation made in accordance with
generally accepted accounting principles consistently applied.
6.7 Borrower covenants with Bank that Borrower will
not, during the term of this Agreement, permit its "Tangible Net
Worth" (as hereinafter defined in this Paragraph) to be less than
$1,500,000.00. Tangible Net Worth shall mean the value
determined pursuant to a calculation made in accordance with
generally accepted accounting principles consistently applied.
6.8 Borrower covenants with Bank that Borrower will
not, during the term of this Agreement, permit the ratio of its
Indebtedness to its Tangible Net Worth to be at any time greater
than a ratio of 2.5 to 1.0.
6.9 Borrower covenants with Bank that Borrower will,
during the term of this Agreement, maintain a net income level
after taxes of at least One Thousand ($1,000.00) Dollars.
6.10 Except as disclosed to and acknowledged by Bank
in writing, Borrower represents and warrants that: (a) during the
period of Borrower's ownership or use of its properties, there
has been no use, generation, manufacture, storage, treatment,
disposal, release or threatened release of any hazardous waste or
substance by any person on, under, about or from any of its
properties; (b) Borrower has no knowledge of, or reason to
believe that there has been (i) any use, generation, manufacture,
storage, treatment, disposal, release or threatened release of
any hazardous waste or substance on, under, about or from its
properties by any prior owners or occupants of any of its
properties, or (ii) any actual or threatened litigation or claims
of any kind by any person relating to such matters; (c) neither
Borrower nor any tenant, contractor, agent or other authorized
user of any of its properties shall use, generate, manufacture,
store, treat, dispose of or release any hazardous waste or
substance on, under, about or from any of its properties; and any
such activity shall be conducted in compliance with all
applicable federal, state, and local laws, regulations, and
ordinances, including without limitation those laws, regulations
and ordinances described herein. Borrower authorizes Bank and
its agents to enter upon its properties to make such inspections
and tests as Bank may deem appropriate to determine compliance of
such properties with this Agreement. Any inspections or tests
made by Bank shall be at Borrower's expense and for Bank's
purposes only and shall not be construed to create any
responsibility or liability on the part of Bank to Borrower or to
any other person. The representations and warranties contained
herein are based on Borrower's due diligence in investigating its
properties for hazardous waste and h becomes liable for cleanup
or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Bank against any and all claims, losses,
liabilities, damages, penalties, and expenses which Bank may
directly or indirectly sustain or suffer resulting from a breach
of this Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release
occurring prior to Borrower's ownership or interest in its
properties, whether or not the same was or should have been known
to Borrower. The provisions of this section of this Agreement,
including the obligation to indemnify, shall survive the payment
of Borrower's Liabilities and the termination or expiration of
this Agreement and shall not be affected by Bank's acquisition of
any interest in any of Borrower's properties, whether by
foreclosure or otherwise. The terms "hazardous waste,"
"hazardous substance," "disposal," "release," and "threatened
release," as used in this Agreement, shall have the same meanings
as set forth in the "CERCLA," "SARA," the Hazardous Materials
Transportation Act, 49 U.S.C. Sec 1801, et seq., the Resource
Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq.,
or other applicable state or Federal laws, rules and regulations
adopted pursuant to any of the foregoing.
7. DEFAULT
7.1 The occurrence of any one of the following events
shall constitute a default ("Event of Default") by Borrower under
this Agreement: (a) if Borrower fails or neglects to perform,
keep or observe any term, provision, condition, covenant,
warranty or representation contained in this Agreement or in the
Other Agreements, which is required to be performed, kept or
observed by Borrower; (b) if Bank demands payment under any
demand note executed by Borrower and delivered to Bank; (c) if
Borrower fails to pay any of Borrower's Liabilities when due and
payable or declared due and payable; (d) if the Collateral or any
other of Borrower's assets are attached, seized, subjected to a
writ or distress warrant, or are levied upon, or become subject
to any lien, or come within the possession of any receiver,
trustee, custodian or assignee for the benefit of creditors; (e)
if Borrower or any guarantor of Borrower's Liabilities becomes
insolvent or generally fails to pay or admits in writing its
inability to pay debts as they become due, if a petition under
the United States Bankruptcy Code or any similar law or
regulation shall be filed by or against Borrower or if Borrower
shall make an assignment for the benefit of its creditors or if
any case or proceeding is filed by or against Borrower for its
dissolution or liquidation, or if Borrower is enjoined,
restrained or in any way prevented by court order from conducting
all or any material part of its business affairs; (f) if a notice
of lien, levy or assessment is filed of record or given to
Borrower with respect to all of any of Borrower's assets by any
federal, state or local department or agency; (g) if a
contribution failure occurs with respect to any pension plan
maintained by Borrower or any corporation, trade or business that
is, along with Borrower a member or a controlled group of
corporations or controlled group of tracks or businesses (as
described in Section 414(b) and (c) of the Internal Revenue Code
of 1986 or Section 4001, of the Employee RetireSection 302(f) of
ERISA; (h) if Borrower is in default in the payment of any
obligations, indebtedness or other liabilities to any third
parties and such default is declared and is not cured within the
time, if any specified therefor in any agreement governing the
same; (i) the death or incompetency of any guarantor of
Borrower's Liabilities, or the appointment of a conservator for
all or any portion of the assets of any guarantor of Borrower's
Liabilities; (j) the occurrence of a default or Event of Default
under any agreement, instrument and/or document executed and
delivered by any person or entity to Bank pursuant to which such
person or entity has guaranteed to Bank the payment or collection
of Borrower's Liabilities and/or has granted to Bank a security
interest or lien in and to some or all of such person's or
entity's real and/or personal property to secure the payment of
Borrower's Liabilities; (k) the occurrence of a default or an
Event of Default under any of the Other Agreements; (l) the
occurrence of a default or Event of Default under any agreement,
instrument and/or document executed and delivered to Bank by
ARQUBE, an Illinois general partnership, or any subsidiary of
Borrower; or (m) the reasonable insecurity of Bank.
7.2 All of Bank's rights and remedies under this
Agreement and the Other Agreements are cumulative and
non-exclusive.
7.3 Upon an Event of Default or the occurrence of any
one of the events described in Paragraph 7.1, without notice by
Bank to or demand by Bank of Borrower, Bank shall have no further
obligation to and may then forthwith cease advancing monies or
extending credit to or for the benefit of Borrower under this
Agreement and the Other Agreements. Upon an Event of Default,
without notice by Bank to or demand by Bank of Borrower,
Borrower's Liabilities shall be due and payable, forthwith.
7.4 Upon an Event of Default, Bank, in its sole and
absolute discretion, may exercise any one or more of the rights
and remedies accruing to a secured party under the Uniform
Commercial Code of the relevant state and any other applicable
law upon default by a debtor.
7.5 Upon an Event of Default, Borrower, immediately
upon demand by Bank, shall assemble the Collateral and make it
available to Bank at a place or places to be designated by Bank
which is reasonably convenient to Bank and Borrower. Borrower
recognizes that in the event Borrower fails to perform, observe
or discharge any of its obligations or liabilities under this
Agreement or the Other Agreements, no remedy of law will provide
adequate relief to Bank, and agrees that Bank shall be entitled
to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
7.6 Any notice required to be given by Bank of a
sale, lease, other disposition of the Collateral or any other
intended action by Bank, deposited in the United States mail,
postage prepaid and duly addressed to Borrower at the address
specified at the beginning of this Agreement not less than ten
(10) days prior to such proposed action, shall constitute
commercially reasonable and fair notice to Borrower thereof.
7.7 Upon an Event of Default, Borrower agrees that
Bank may if Bank deems it reasonable, postpone or adjourn any
such sale of the Collateral from time to time by an announcement
at the time and place of sale or by announcement at the time and
place of such postponed or adjourned sale, without being required
to give a new notice of sale. Borrower agrees that Bank has no
obligation to preserve rights against prior parties to the
Collateral. Further, to the extent permitted by law, Borrower
waives and releases any cause of action and claim against Bank as
a result of Bank's possession, collection or sale of the
Collateral, any liability or penalty for failure of Bank to
comply with any requirement imposed on Bank relating to notice of
sale, holding of sale or reporting of sale of the Collateral, and
any right of redemption from such sale.
7.8 Borrower hereby irrevocably authorizes and
empowers any attorney of any court of record to appear for it, in
such Court, if any amount required to be paid by Borrower
hereunder shall not be paid, and confess a judgment without
process against Borrower, in favor of Bank, for such sum as may
be required to be paid by Borrower hereunder, together with
interest, costs and reasonable attorney's fees, and to waive and
release all errors which may intervene in such proceedings and
consent to immediate execution upon such judgment, hereby
ratifying and confirming all that said attorney may do by virtue
hereof.
8. GENERAL
8.1 Borrower waives the right to direct the
application of any and all payments at any time or times
hereafter received by Bank on account of Borrower's Liabilities
and Borrower agrees that Bank shall have the continuing exclusive
right to apply and re-apply any and all such payments in such
manner as Bank may deem advisable, notwithstanding any entry by
Bank upon any of its books and records.
8.2 Borrower covenants, warrants and represents to
Bank that all representations and warranties of Borrower
contained in this Agreement and the Other Agreements shall be
true from the time of Borrower's execution of this Agreement to
the end of the Original Term and each Renewal Term hereof. All
of Borrower's warranties, representations, undertakings, and
covenants contained in this Agreement or the Other Agreements
shall survive the termination or cancellation of the same.
8.3 The terms and provisions of this Agreement and
the Other Agreements shall supersede any prior agreement or
understanding of the parties hereto, and contain the entire
agreement of the parties hereto with respect to the matters
covered hereby. This Agreement and the Other Agreements may not
be modified, altered, or amended except by an agreement in
writing signed by Borrower and Bank. Except for the provisions
of Section 2 hereof which shall terminate as provided in such
Section, this Agreement shall continue in full force and effect
so long as any portion or component of Borrower's Liabilities
shall be outstanding. Should a claim ("Recovery Claim") be made
upon the Bank at any time for recovery of any amount received by
the Bank in payment of Borrower's Liabilities (whether received
from Borrower or otherwise) and should the Bank repay all or part
of said amount by reason of (1) any judgment, decree or order of
any court or administrative body having jurisdiction over Bank or
any of its property; or (2) any settlement or compromise of any
such Recovery Claim effected by the Bank with the claimant
(including Borrower), this Agreement and the security interests
granted Bank hereunder shall continue in effect with respect to
the amount so repaid to the same extent as if such amount had
never originally been received by the Bank, notwithstanding any
prior termination of this Agreement, the return of this Agreement
to Borrower, or the cancellation of any note or other instrument
evidencing Borrower's Liabilities. Borrower may not sell, assign
of transfer this Agreement, or the Other Agreements or any
portion thereof.
8.4 Bank's failure to require strict performance by
Borrower of any provision of this Agreement shall not waive,
affect or diminish any right of Bank thereafter to demand strict
compliance and performance therewith. Any suspension or waiver
by Bank of an Event of Default by Borrower under this Agreement
or the Other Agreements shall not suspend, waive or affect any
other Event of Default by Borrower under this Agreement or the
Other Agreements, whether the same is prior or subsequent thereto
and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or the
Other Agreements and no Event of Default by Borrower under this
Agreement or the Other Agreements shall be deemed to have been
suspended or waived by Bank unless such suspension or waiver is
by an instrument in writing signed by an officer of Bank and
directed to Borrower specifying such suspension or waiver.
8.5 If any provision of this Agreement or the Other
Agreements or the application thereof to any Person or
circumstance is held invalid or unenforceable, the remainder of
this Agreement and the Other Agreements and the application of
such provision to other Persons or circumstances will not be
affected thereby and the provisions of this Agreement and the
Other Agreements shall be severable in any such instance.
8.6 This Agreement and the Other Agreements shall be
binding upon and inure to the benefit of the successors and
assigns of Borrower and Bank. This provision, however, shall not
be deemed to modify Paragraph 8.3 hereof.
8.7 Borrower hereby appoints Bank as Borrower's agent
and attorney-in-fact for the purpose of carrying out the
provisions of this Agreement and taking any action and executing
any agreement, instrument or document which Bank may deem
necessary or advisable to accomplish the purposes hereof which
appointment is irrevocable and coupled with an interest. All
monies paid for the purposes herein, and all costs, fees and
expenses paid or incurred in connection therewith, shall be part
of Borrower's Liabilities, payable by Borrower to Bank on demand.
8.8 This Agreement, or a carbon, photographic or
other reproduction of this Agreement or of any Uniform Commercial
Code financing statement covering the Collateral or any portion
thereof, shall be sufficient as a Uniform Commercial Code
financing statement and may be filed as such.
8.9 Except as otherwise provided in the Other
Agreements, if any provision contained in this Agreement is in
conflict with, or inconsistent with any provision in the Other
Agreements, the provision contained in this Agreement shall
govern and control.
8.10 Except as otherwise specifically provided in
this Agreement, Borrower waives any and all notice or demand
which Borrower might be entitled to receive by virtue of any
applicable statute of law, and waives presentment, demand and
protest and notice of presentment, protest, default, dishonor,
non-payment, maturity, release, compromise, settlement, extension
or renewal of any and all agreements, instruments or documents at
any time held by Bank on which Borrower may in any way be liable.
8.11 If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or
application of any thereof by any court or administrative or
governmental authority (including any request or policy not
having the force of law) shall impose, modify or make applicable
any taxes (except U.S. federal, state or local income or
franchise taxes imposed on Bank), reserve requirements, capital
adequacy requirements or other obligations which would (a)
increase the cost to Bank for extending or maintaining the credit
facilities to which this Agreement relates, (b) reduce the
amounts payable to Bank under this Agreement or the Other
Agreements, or (c) reduce the rate of return on Bank's capital as
a consequence of Bank's obligations with respect to the credit
facilities to which this Agreement relates, then Borrower agrees
to pay Bank such additional amounts as will compensate Bank
therefor, within five (5) days after Bank's written demand for
such payment, which demand shall be accompanied by an explanation
of such imposition or charge and a calculation in reasonable
detail of the additional amounts payable by Borrower, which
explanation and calculations shall be conclusive in the absence
of manifest error.
8.12 Until Bank is notified by Borrower to the
contrary in writing by registered or certified mail directed to
Bank's principal place of business, the signature upon this
Agreement or upon any of the Other Agreements of any partner,
manager, employee or agent of the Borrower or of any other Person
designated in writing to Bank by any of the foregoing, shall bind
Borrower and be deemed to be the duly authorized act of Borrower.
8.13 This Agreement and the Other Agreements shall be
governed and controlled by the laws of the State of Illinois.
8.14 All notices, demands and requests given
hereunder by Borrower or Bank, shall be in writing and shall be
by: (i) hand delivery to the address for notices; or (ii)
delivery by overnight courier service to the address for notices;
or (iii) by certified mail, return receipt requested, addressed
to the address for notices by United States mail, postage
prepaid. All notices shall be deemed received upon the earliest
to occur of: (i) the hand delivery of such notice to the address
for notices; or (ii) one day after the deposit of such notice
with any overnight courier service addressed to the address for
notices; or (iii) three days <PAGE>
after depositing the notice in the
United States mail as set forth in (iii) above. All notices shall be
addressed to the following addresses:
Borrower: MICROENERGY, INC.
350 Randy Road, Suite 1
Carol Stream, IL 60188
Attention: Robert Fanella
with a copy to: George M. Bradshaw, Esq.
HUCK, BOUMA, MARTIN, CHARLTON
& BRADSHAW
1755 S. Naperville Rd.,
Suite 200
Wheaton, IL 60187
Bank: MARQUETTE NATIONAL BANK
6316 South Western Avenue
Chicago, IL 60636
Attention: Peter M. Hueser
with a copy to: Edward J. Grzelakowski, Esq.
KEMP, GRZELAKOWSKI &
LORENZINI, LTD.
1900 Spring Road, Suite 500
Oak Brook, IL 60521-1495
or to such other person or at such other place as any party
hereto may by notice designate as a place for service of notice.
8.15 It is understood and agreed that the loan
evidenced by this Note is a business loan within the purview of
paragraph 4 of the Illinois Interest Act, 815 ILCS 205/4, or any
substitute, amended, or replacement statutes, transacted solely
for the purpose of carrying on or acquiring the business of
Borrower.
8.16 If at anytime or times hereafter, whether or not
Borrower's Liabilities are outstanding at such time, Bank: (a)
employs counsel for advice or other representation (i) with
respect to the Collateral, this Agreement, the Other Agreements
or the administration of Borrower's Liabilities, (ii) to
represent Bank in any litigation, arbitration, contest, dispute,
suit or proceeding or to commence, defend or intervene or to take
any other action in or with respect to any litigation,
arbitration, contest, dispute, suit or proceeding (whether
instituted by Bank, Borrower or any other Person) in any way or
respect relating to the Collateral, this Agreement, the Other
Agreements, or Borrower's affairs, or (iii) to enforce any rights
of Bank against Borrower or any other Person which may be
obligated to Bank by virtue of this Agreement or the Other
Agreements, including, without limitation, any Obligor; (b) takes
any action with respect to administration of Borrower's
Liabilities or to protect, collect, sell, liquidate or otherwise
dispose of the Collateral; and/or (c) attempts to or enforces any
of Bank's rights or remedies under this Agreement or the Other
Agreements, including without limitation, Bank's rights or
remedies with respect to the Collateral; the reasonable costs and
expenses incurred by Bank in any manner or way with respect to
the foregoing, shall be part of Borrower's Liabilities, payable
by Borrower to Bank on demand.
8.17 BORROWER IRREVOCABLY AGREES THAT SUBJECT TO
BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN
ANY MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO THIS
AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL SHALL BE
LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE COUNTIES OF COOK
OR DUPAGE, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT
LOCATED WITHIN SAID COUNTIES AND STATE. BORROWER HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY
LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH
THIS PARAGRAPH.
8.18 BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY
RIGHTS UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH
MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (ii)
ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR
RELATED TO THIS AGREEMENT OR ANY SUCH AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, this Agreement has been duly
executed as of the day and year set forth hereinabove.
BORROWER:
MICROENERGY, INC.,
a Delaware corporation
By:_________________________________________
Name: Robert Gatza
Title: President
ACCEPTED July ___, 1996, at Bank's principal place of
business in Chicago, Illinois.
MARQUETTE NATIONAL BANK, a national bank
By:_________________________________________
Name: Peter M. Hueser
Title: Vice President
<PAGE>
Exhibit A
SECURED PROMISSORY NOTE
$3,000,000.00 Chicago, Illinois
July ___, 1996
FOR VALUE RECEIVED, MICROENERGY, INC., a Delaware
corporation ("Borrower"), promises to pay to the order of
MARQUETTE NATIONAL BANK, a national bank ("Bank"), at its
principal place of business in Chicago, Illinois or such other
place as Bank may designate from time to time hereafter, the
principal sum of THREE MILLION AND NO/100THS ($3,000,000.00)
DOLLARS, or such lesser principal sum as may then be owed by
Borrower to Bank hereunder.
Borrower's obligations and liabilities to Bank under
this Note, and all other obligations and liabilities of Borrower
to Bank (including without limitation all debts, claims and
indebtedness) whether primary, secondary, direct, contingent,
fixed or otherwise, heretofore, now and/or from time to time
hereafter owing, due or payable, however evidenced, created,
incurred, acquired or owing and however arising, whether under
this Note or any agreement, instrument or document heretofore,
now or from time to time hereafter executed and delivered to Bank
by or on behalf of Borrower to secure this Note, or by oral
agreement or operation of law or otherwise ("Borrower's
Liabilities") shall be due and payable on November 1, 1998.
Borrower's Liabilities unpaid from time to time shall
bear interest from the date hereof until paid, computed at a
daily rate (the "Loan Rate") equal to the daily rate equivalent
of one-quarter (.25%) percent per annum (computed on the basis of
a 360-day year and actual days elapsed) in excess of the "Prime
Rate (as hereinafter defined); provided, however, that in the
event that any of Borrower's Liabilities are not paid when due,
the unpaid amount of Borrower's Liabilities shall bear interest
after the due date until paid at a rate equal to the sum of the
rate in effect prior to the due date and four (4%) percent per
annum (the "Default Rate"). "Prime Rate" means the per annum
rate of interest announced from time to time by Marquette
National Bank at its principal place of business in Chicago,
Illinois as its base, prime or equivalent rate of interest;
provided, that if Marquette National Bank ceases to use the term
"Prime Rate" in setting a prime or base rate of interest for
commercial loans then the Prime Rate herein shall be determined
by reference to the rate used by Marquette National Bank as such
a base rate.
Interest through the first day of each month shall be due
and payable by Borrower to Bank on such first day of the month
commencing with September 1, 1996, and on the first day of each
month thereafter, or as billed by Bank to Borrower, at Bank's
principal place of business in Chicago, Illinois, or at such
other place as Bank may designate from time to time hereafter,
with full payment of all sums due hereunder if not sooner due and
payable by Borrower to Bank, due and payable on November 1, 1998.
All payments on account of the indebtedness evidenced
by this Note shall be applied: (i) first, to the payment of any
late charges; (ii) next, to further advances and costs, if any,
made by Bank to protect the "Collateral" (as hereinafter
defined); (iii) next, to interest at the Default Rate, if
applicable; (iv) next, to interest at the Loan Rate per annum on
the unpaid principal balance; and (v) lastly, any remainder to
reduce unpaid principal.
In the event any installment of principal or interest
due hereunder is not received by Bank on or before the tenth
(10th) day following the due date, or any other payment required
of Borrower to be made hereunder or under any agreement,
instrument or document heretofore, now or at any time hereafter
delivered by or on behalf of Borrower to Bank, shall become
overdue, in order to defray the cost of collection, Borrower
shall pay to Bank a "late charge" equal to five (5%) percent of
the amount of such delinquent payment. The payment of any such
late fee will not affect the rights of the Bank or any holder
hereof to pursue any remedies available to it.
Borrower warrants and represents to Bank that Borrower
shall use the proceeds represented by this Note solely for proper
business purposes, and consistently with all applicable laws and
statutes.
To secure the prompt payment to Bank of Borrower's
Liabilities and the prompt, full and faithful performance by
Borrower of all the provisions to be kept, observed or performed
by Borrower under this Note and/or any other agreement,
instrument or document heretofore, now and/or from time to time
hereafter delivered by or on behalf of Borrower to Bank, Borrower
grants to Bank a security interest in and to the following
property of Borrower: (a) accounts, accounts receivable, chattel
paper, contract rights, leases, leasehold interests, letters of
credit, instruments, documents, patents, copyrights, trademarks,
tradenames, beneficial interests and general intangibles
(sometimes hereinafter individually and collectively referred to
as "Accounts"), and all goods whose sale, lease or other
disposition by Borrower have given rise to Accounts and have been
returned to or repossessed or stopped in transit by Borrower; (b)
inventory, including without limitation, raw materials, work in
process, finished merchandise, supplies, goods, incidentals,
office supplies and packing materials; (c) certificated and
uncertificated securities; (d) goods, including without
limitation all its consumer goods, machinery, equipment,
vehicles, farm products, buildings, structures, fixtures and
inventory; (e) documents and instruments; (f) liens, guaranties
and other rights and privileges pertaining to any of the
Collateral; (g) monies, reserves, deposits, deposit accounts and
interest or dividends thereon, cash or cash equivalents; (h) all
property now or at any time or times hereafter in the possession
or under the control of Bank or its bailee; (i) all accessions to
the foregoing and all substitutions, renewals, improvements and
replacements of and additions to the foregoing; (j) all books,
records and computer records in any way relating to the
Collateral herein described; (k) Borrower's interest in the
property commonly known as Rural Route 1, Memphis, Missouri; and
(l) all products and proceeds of the foregoing, includillectively
the "Collateral").
Regardless of the adequacy of the Collateral, any
deposits or other sums at any time credited by or payable or due
from Bank to Borrower, or any monies, cash, cash equivalents,
securities, instruments, documents or other assets of Borrower in
the possession or control of Bank or its bailee for any purpose
may, following an Event of Default, be reduced to cash and
applied by Bank to or set off by Bank against Borrower's
Liabilities.
Borrower agrees to deliver or cause to be delivered to
Bank forthwith upon Bank's demand therefor, such additional
collateral as Bank may reasonably request from time to time
should the value of the Collateral (in Bank's sole and exclusive
opinion) decline, deteriorate, depreciate or become impaired, or
should Bank deem itself reasonably insecure for any reason
whatsoever, including without limitation a change in the
financial condition of Borrower or any party liable with respect
to Borrower's Liabilities, and does hereby grant to Bank a
continuing security interest in such other collateral, which
shall be deemed to be a part of the Collateral. Borrower shall
execute and deliver to Bank, at any time upon Bank's demand
therefor, all agreements, instruments, documents and other
written matter that Bank may request, in form and substance
acceptable to Bank, to perfect and maintain perfected Bank's
security interest in the Collateral or any additional collateral.
Borrower agrees that a carbon, photographic or photostatic copy,
or other reproduction, of this Note or of any financing
statement, shall be sufficient as a financing statement.
Bank may take, and Borrower hereby waives notice of,
any action from time to time that Bank may deem necessary or
appropriate to maintain or protect the Collateral, and Bank's
security interest therein, and in particular Bank may at any
time: (i) transfer the whole or any part of the Collateral into
the name of the Bank or its nominee, (ii) collect any amounts due
on Collateral directly from persons obligated thereon pursuant to
the terms of any security agreement executed in connection
herewith, (iii) take control of any proceeds and products of
Collateral, and/or (iv) sue or make any compromise or settlement
with respect to any Collateral. Borrower hereby releases Bank
from any and all causes of action or claims which Borrower may
now or hereafter have for any asserted loss or damage to Borrower
claimed to be caused by or arising from: (a) Bank's taking any
action permitted by this paragraph; (b) any failure of Bank to
protect, enforce or collect in whole or in part any of the
Collateral; and/or (c) any other act or omission to act on the
part of Bank, its officers, agents or employees, except for
willful misconduct.
The occurrence of any one of the following events
shall constitute a default ("Event of Default") by Borrower under
this Note: (a) if Borrower fails or neglects to perform, keep or
observe any term, provision, condition, covenant, warranty or
representation contained in this Note, or in any agreement,
instrument or document heretofore, now or at any time hereafter
delivered by or on behalf of Borrower to Bank, which is required
to be performed, kept or observed by Borrower; (b) if Bank
demands payment under any demand note executed by Borrower and
delivered to Bank; (c) if Borrower fails to pay any of Borrower's
Liabilities when due and payable or declared due and payable; (d)
if the Collateral or any other of Borrower's assets are attached,
seized, subjected to a writ or distress warrant, or are levied
upon, or become subject to any lien, or come within the
possession of any receiver, trustee, custodian or assignee for
the benefit of creditors; (e) if Borrower or any guarantor of
Borrower's Liabilities becomes insolvent or generally fails to
pay or admits in writing its inability to pay debts as they
become due, if a petition under the United States Bankruptcy Code
or any similar law or regulation shall be filed by or against
Borrower or if Borrower shall make an assignment for the benefit
of its creditors or if any case or proceeding is filed by or
against Borrower for its dissolution or liquidation, or if
Borrower is enjoined, restrained or in any way prevented by court
order from conducting all or any material part of its business
affairs; (f) if a notice of lien, levy or assessment is filed of
record or given to Borrower with respect to all of any of
Borrower's assets by any federal, state or local department or
agency; (g) if a contribution failure occurs with respect to any
pension plan maintained by Borrower or any corporation, trade or
business that is, along with Borrower a member or a controlled
group of corporations or controlled group of trackrrower is in
default in the payment of any obligations, indebtedness or other
liabilities to any third parties and such default is declared and
is not cured within the time, if any specified therefor in any
agreement governing the same; (i) the death or incompetency of
any guarantor of Borrower's Liabilities, or the appointment of a
conservator for all or any portion of the assets of any guarantor
of Borrower's Liabilities; (j) the occurrence of a default or
Event of Default under any agreement, instrument and/or document
executed and delivered by any person or entity to Bank pursuant
to which such person or entity has guaranteed to Bank the payment
or collection of Borrower's Liabilities and/or has granted to
Bank a security interest or lien in and to some or all of such
person's or entity's real and/or personal property to secure the
payment of Borrower's Liabilities; (k) the occurrence of a
default or an Event of Default under any agreement, instrument,
document heretofore, now or at any time hereafter delivered by or
on behalf of Borrower to Bank; or (l) the reasonable insecurity
of Bank.
Upon the occurrence of an Event of Default, at Bank's
option, without notice by Bank to or demand by Bank of Borrower;
(i) all of Borrower's Liabilities shall be due and payable
forthwith; (ii) Bank may exercise any one or more of the rights
and remedies accruing to a secured party under the Uniform
Commercial Code of the relevant jurisdiction and any other
applicable law upon default by a debtor; (iii) Bank may enter,
with or without process of law and without breach of the peace,
any premises where the Collateral is or may be located, and may
seize or remove the Collateral from said premises and/or remain
upon said premises and use the same for the purpose of
collecting, preparing and disposing of the Collateral; (iv) Bank
may sell or otherwise dispose of the Collateral at public or
private sale for cash or credit, provided, however, that Borrower
shall be credited with the net proceeds of any such sale only
when the same are actually received by Bank; (v) Bank may pursue
any remedy set forth in any agreement, instrument or document
heretofore, now or hereafter delivered by or on behalf of
Borrower to Bank; and/or (vi) Bank may pursue any remedy
available at law or in equity.
Upon the occurrence of an Event of Default, Borrower,
immediately upon demand by Bank, shall assemble the Collateral
and make it available to Bank at a place or places to be
designated by Bank which is reasonably convenient to Bank and
Borrower.
All of Bank's rights and remedies under this Note are
cumulative and non-exclusive. The acceptance by Bank of any
partial payment made hereunder after the time when any of
Borrower's Liabilities become due and payable will not establish
a custom, or waive any rights of Bank to enforce prompt payment
thereof. Bank's failure to require strict performance by
Borrower of any provision of this Note shall not waive, affect or
diminish any right of Bank thereafter to demand strict compliance
and performance therewith. Any waiver of an Event of Default
hereunder shall not suspend, waive or affect any other Event of
Default hereunder. To the extent permitted by law, Borrower and
all endorsers, guarantors and all persons liable or to become
liable on this Note waive presentment, protest and demand, notice
of protest, demand and dishonor and nonpayment of this Note, and
consent to any and all renewals and extensions in the time of
payment hereof, and agree, further, that at any time and from
time to time without notice, the terms of payment herein may be
modified or the security described in any document securing this
Note released, in whole or in part, or increased, changed or
exchanged by agreement between the holder hereof and any owner of
the property affected by said document securing this Note,
without in anywise affecting the liability of any party to this
instrument or any person liable or to become liable with respect
to any indebtedness evidenced hereby.
Borrower agrees to pay, upon Bank's demand therefor,
any and all reasonable costs, fees and expenses (including
reasonable attorney's fees, costs and expenses) incurred by Bank
(i) in enforcing any of Bank's rights hereunder, and (ii) in
representing Bank in any litigation, contest, suit or dispute, or
to commence, defend or intervene or to take any action with
respect to any litigation, contest, suit or dispute (whether
instituted by Bank, Borrower or any other person) in any way
relating to this Note, Borrower's Liabilities or the Collateral,
and to the extent not paid the same shall become part of
Borrower's Liabilities hereunder.
It is the intent of Borrower and Bank to comply with
the laws, rules and regulations governing this Note with regard
to the rate of interest charged hereunder, and accordingly,
notwithstanding any provision to the contrary in this Note or any
other instruments given to secure this Note, no such provision in
any such instrument, including without limitation any provision
of this Note providing for the payment of interest or other
charges and any provision of any other instrument given to secure
this Note providing for the payment of interest, fees, costs or
other charges, shall require the payment or permit the collection
of any amount (herein called "Excess Interest") in excess of the
maximum amount of interest permitted by law to be charged for the
use, detention, or forbearance in the collection, of all or any
portion of the indebtedness evidenced by this Note; provided that
if any Excess Interest is provided for, or is adjudicated as
being provided for, in this Note, or any instrument given to
secure this Note, then in such event: (a) the provisions of this
Section shall govern and control; (b) Borrower shall not be
obligated to pay any Excess Interest; (c) any Excess Interest
that the holder hereof may have received hereunder shall, at the
option of the holder hereof be (i) applied as a credit against
the then outstanding principal balance due under this Note, or
accrued and unpaid interest thereon, not to exceed the maximum
amount permitted by law, or both, (ii) refunded to the payor
thereof, or (iii) any combination of the foregoing; (d) the
applicable interest rate or rates shall be automatically subject
to reduction to the maximum lawful rate allowed to be contracted
for in writing under the applicable usury laws as of the date of
disbursement of the indebtedness evidenced hereby, and this Note
and any other instruments given to secure this Note, shall be
deemed to have been, and shall be reformed and modified to
reflect such reduction in such intethe payment or collection of
any Excess Interest.
It is understood and agreed that the loan evidenced by
this Note is a business loan within the purview of paragraph 4 of the
Illinois Interest Act, 815 ILCS 205/4, or any substitute,
amended, or replacement statutes, transacted solely for the
purpose of carrying on or acquiring the business of Borrower.
All notices, demands and requests given hereunder by
Borrower or Bank, shall be in writing and shall be by: (i) hand
delivery to the address for notices; or (ii) delivery by
overnight courier service to the address for notices; or (iii) by
certified mail, return receipt requested, addressed to the
address for notices by United States mail, postage prepaid. All
notices shall be deemed received upon the earliest to occur of:
(i) the hand delivery of such notice to the address for notices;
or (ii) one day after the deposit of such notice with any
overnight courier service addressed to the address for notices;
or (iii) three days after depositing the notice in the United
States mail as set forth in (iii) above. All notices shall be
addressed to the following addresses:
Borrower: MICROENERGY, INC.
350 Randy Road, Suite 1
Carol Stream, IL 60188
Attention: Robert Fanella
with a copy to: George M. Bradshaw, Esq.
HUCK, BOUMA, MARTIN, CHARLTON
& BRADSHAW
1755 S. Naperville Rd.
Suite 200
Wheaton, IL 60187
Bank: MARQUETTE NATIONAL BANK
6316 South Western Avenue
Chicago, IL 60636
Attention: Peter M. Hueser
with a copy to: Edward J. Grzelakowski, Esq.
KEMP, GRZELAKOWSKI &
LORENZINI, LTD.
1900 Spring Road, Suite 500
Oak Brook, IL 60521-1495
or to such other person or at such other place as any party
hereto may by notice designate as a place for service of notice.
This Note shall be deemed to have been submitted by
Borrower to Bank at Bank's principal place of business and shall
be deemed to have been made thereat. This Note shall be governed
and controlled by the laws of the State of Illinois as to
interpretation, enforcement, validity, construction, effect,
choice of law and in all other respects.
This Note and the obligations covered hereby are
secured and governed by a Commercial Loan and Security Agreement
and a Junior Mortgage, Security Agreement and Assignment of
Rents, each of even date herewith, between Borrower and Bank.
TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER,
IRREVOCABLY, AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE
ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR
RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS NOTE SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTIES OF COOK OR
DUPAGE, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS
TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED
WITHIN SAID COUNTIES AND STATE. BORROWER HEREBY WAIVES ANY RIGHT
IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION
BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS
PARAGRAPH.
BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR IN CONNECTION WITH THIS NOTE OR ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (ii) ARISING FROM
ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS
NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT AND
AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
MICROENERGY, INC.,
a Delaware corporation
By:___________________________________
Name: Robert Gatza
Title: President
<PAGE>
Exhibit B
SECURED PROMISSORY NOTE
$800,000.00 Chicago, Illinois
July ___, 1996
FOR VALUE RECEIVED, MICROENERGY, INC., a Delaware
corporation ("Borrower"), promises to pay to the order of
MARQUETTE NATIONAL BANK, a national bank ("Bank"), at its
principal place of business in Chicago, Illinois or such other
place as Bank may designate from time to time hereafter, the
principal sum of EIGHT HUNDRED THOUSAND AND NO/100THS
($800,000.00) DOLLARS, or such lesser principal sum as may then
be owed by Borrower to Bank hereunder.
Borrower's obligations and liabilities to Bank under
this Note, and all other obligations and liabilities of Borrower
to Bank (including without limitation all debts, claims and
indebtedness) whether primary, secondary, direct, contingent,
fixed or otherwise, heretofore, now and/or from time to time
hereafter owing, due or payable, however evidenced, created,
incurred, acquired or owing and however arising, whether under
this Note or any agreement, instrument or document heretofore,
now or from time to time hereafter executed and delivered to Bank
by or on behalf of Borrower to secure this Note, or by oral
agreement or operation of law or otherwise ("Borrower's
Liabilities") shall be due and payable on July 1, 2001.
Borrower's Liabilities unpaid from time to time shall
bear interest from the date hereof until paid, computed at a
daily rate (the "Loan Rate") equal to the daily rate equivalent
of one-quarter (.25%) percent per annum (computed on the basis of
a 360-day year and actual days elapsed) in excess of the "Prime
Rate (as hereinafter defined); provided, however, that in the
event that any of Borrower's Liabilities are not paid when due,
the unpaid amount of Borrower's Liabilities shall bear interest
after the due date until paid at a rate equal to the sum of the
rate in effect prior to the due date and four (4%) percent per
annum (the "Default Rate"). "Prime Rate" means the per annum
rate of interest announced from time to time by Marquette
National Bank at its principal place of business in Chicago,
Illinois as its base, prime or equivalent rate of interest;
provided, that if Marquette National Bank ceases to use the term
"Prime Rate" in setting a prime or base rate of interest for
commercial loans then the Prime Rate herein shall be determined
by reference to the rate used by Marquette National Bank as such
a base rate.
Equal principal installments of THIRTEEN THOUSAND THREE
HUNDRED THIRTY THREE AND 33/100THS ($13,333.33) DOLLARS, along
with interest thereon through the first day of each month shall
be due and payable by Borrower to Bank on such first day of the
month commencing with September 1, 1996, and on the first day of
each month thereafter, or as billed by Bank to Borrower, at
Bank's principal place of business in Chicago, Illinois, or at
such other place as Bank may designate from time to time
hereafter, with full payment of all sums due hereunder if not
sooner due and payable by Borrower to Bank, due and payable on
July 1, 2001.
All payments on account of the indebtedness evidenced
by this Note shall be applied: (i) first, to the payment of any
late charges; (ii) next, to further advances and costs, if any,
made by Bank to protect the "Collateral" (as hereinafter
defined); (iii) next, to interest at the Default Rate, if
applicable; (iv) next, to interest at the Loan Rate per annum on
the unpaid principal balance; and (v) lastly, any remainder to
reduce unpaid principal.
In the event any installment of principal or interest
due hereunder is not received by Bank on or before the tenth
(10th) day following the due date, or any other payment required
of Borrower to be made hereunder or under any agreement,
instrument or document heretofore, now or at any time hereafter
delivered by or on behalf of Borrower to Bank, shall become
overdue, in order to defray the cost of collection, Borrower
shall pay to Bank a "late charge" equal to five (5%) percent of
the amount of such delinquent payment. The payment of any such
late fee will not affect the rights of the Bank or any holder
hereof to pursue any remedies available to it.
Borrower warrants and represents to Bank that Borrower
shall use the proceeds represented by this Note solely for proper
business purposes, and consistently with all applicable laws and
statutes.
To secure the prompt payment to Bank of Borrower's
Liabilities and the prompt, full and faithful performance by
Borrower of all the provisions to be kept, observed or performed
by Borrower under this Note and/or any other agreement,
instrument or document heretofore, now and/or from time to time
hereafter delivered by or on behalf of Borrower to Bank, Borrower
grants to Bank a security interest in and to the following
property of Borrower: (a) accounts, accounts receivable, chattel
paper, contract rights, leases, leasehold interests, letters of
credit, instruments, documents, patents, copyrights, trademarks,
tradenames, beneficial interests and general intangibles
(sometimes hereinafter individually and collectively referred to
as "Accounts"), and all goods whose sale, lease or other
disposition by Borrower have given rise to Accounts and have been
returned to or repossessed or stopped in transit by Borrower; (b)
inventory, including without limitation, raw materials, work in
process, finished merchandise, supplies, goods, incidentals,
office supplies and packing materials; (c) certificated and
uncertificated securities; (d) goods, including without
limitation all its consumer goods, machinery, equipment,
vehicles, farm products, buildings, structures, fixtures and
inventory; (e) documents and instruments; (f) liens, guaranties
and other rights and privileges pertaining to any of the
Collateral; (g) monies, reserves, deposits, deposit accounts and
interest or dividends thereon, cash or cash equivalents; (h) all
property now or at any time or times hereafter in the possession
or under the control of Bank or its bailee; (i) all accessions to
the foregoing and all substitutions, renewals, improvements and
replacements of and additions to the foregoing; (j) all books,
records and computer records in any way relating to the
Collateral herein described; (k) Borrower's interest in the
property commonly known as Rural Route 1, Memphis, Missouri; and
(l) all products and proceeds of the foregoing, includillectively
the "Collateral").
Regardless of the adequacy of the Collateral, any
deposits or other sums at any time credited by or payable or due
from Bank to Borrower, or any monies, cash, cash equivalents,
securities, instruments, documents or other assets of Borrower in
the possession or control of Bank or its bailee for any purpose
may, following an Event of Default, be reduced to cash and
applied by Bank to or set off by Bank against Borrower's
Liabilities.
Borrower agrees to deliver or cause to be delivered to
Bank forthwith upon Bank's demand therefor, such additional
collateral as Bank may reasonably request from time to time
should the value of the Collateral (in Bank's sole and exclusive
opinion) decline, deteriorate, depreciate or become impaired, or
should Bank deem itself reasonably insecure for any reason
whatsoever, including without limitation a change in the
financial condition of Borrower or any party liable with respect
to Borrower's Liabilities, and does hereby grant to Bank a
continuing security interest in such other collateral, which
shall be deemed to be a part of the Collateral. Borrower shall
execute and deliver to Bank, at any time upon Bank's demand
therefor, all agreements, instruments, documents and other
written matter that Bank may request, in form and substance
acceptable to Bank, to perfect and maintain perfected Bank's
security interest in the Collateral or any additional collateral.
Borrower agrees that a carbon, photographic or photostatic copy,
or other reproduction, of this Note or of any financing
statement, shall be sufficient as a financing statement.
Bank may take, and Borrower hereby waives notice of,
any action from time to time that Bank may deem necessary or
appropriate to maintain or protect the Collateral, and Bank's
security interest therein, and in particular Bank may at any
time: (i) transfer the whole or any part of the Collateral into
the name of the Bank or its nominee, (ii) collect any amounts due
on Collateral directly from persons obligated thereon pursuant to
the terms of any security agreement executed in connection
herewith, (iii) take control of any proceeds and products of
Collateral, and/or (iv) sue or make any compromise or settlement
with respect to any Collateral. Borrower hereby releases Bank
from any and all causes of action or claims which Borrower may
now or hereafter have for any asserted loss or damage to Borrower
claimed to be caused by or arising from: (a) Bank's taking any
action permitted by this paragraph; (b) any failure of Bank to
protect, enforce or collect in whole or in part any of the
Collateral; and/or (c) any other act or omission to act on the
part of Bank, its officers, agents or employees, except for
willful misconduct.
The occurrence of any one of the following events
shall constitute a default ("Event of Default") by Borrower under
this Note: (a) if Borrower fails or neglects to perform, keep or
observe any term, provision, condition, covenant, warranty or
representation contained in this Note, or in any agreement,
instrument or document heretofore, now or at any time hereafter
delivered by or on behalf of Borrower to Bank, which is required
to be performed, kept or observed by Borrower; (b) if Bank
demands payment under any demand note executed by Borrower and
delivered to Bank; (c) if Borrower fails to pay any of Borrower's
Liabilities when due and payable or declared due and payable; (d)
if the Collateral or any other of Borrower's assets are attached,
seized, subjected to a writ or distress warrant, or are levied
upon, or become subject to any lien, or come within the
possession of any receiver, trustee, custodian or assignee for
the benefit of creditors; (e) if Borrower or any guarantor of
Borrower's Liabilities becomes insolvent or generally fails to
pay or admits in writing its inability to pay debts as they
become due, if a petition under the United States Bankruptcy Code
or any similar law or regulation shall be filed by or against
Borrower or if Borrower shall make an assignment for the benefit
of its creditors or if any case or proceeding is filed by or
against Borrower for its dissolution or liquidation, or if
Borrower is enjoined, restrained or in any way prevented by court
order from conducting all or any material part of its business
affairs; (f) if a notice of lien, levy or assessment is filed of
record or given to Borrower with respect to all of any of
Borrower's assets by any federal, state or local department or
agency; (g) if a contribution failure occurs with respect to any
pension plan maintained by Borrower or any corporation, trade or
business that is, along with Borrower a member or a controlled
group of corporations or controlled group of trackrrower is in
default in the payment of any obligations, indebtedness or other
liabilities to any third parties and such default is declared and
is not cured within the time, if any specified therefor in any
agreement governing the same; (i) the death or incompetency of
any guarantor of Borrower's Liabilities, or the appointment of a
conservator for all or any portion of the assets of any guarantor
of Borrower's Liabilities; (j) the occurrence of a default or
Event of Default under any agreement, instrument and/or document
executed and delivered by any person or entity to Bank pursuant
to which such person or entity has guaranteed to Bank the payment
or collection of Borrower's Liabilities and/or has granted to
Bank a security interest or lien in and to some or all of such
person's or entity's real and/or personal property to secure the
payment of Borrower's Liabilities; or (k) the occurrence of a
default or an Event of Default under any agreement, instrument,
document heretofore, now or at any time hereafter delivered by or
on behalf of Borrower to Bank; or (l) the reasonable insecurity
of Bank.
Upon the occurrence of an Event of Default, at Bank's
option, without notice by Bank to or demand by Bank of Borrower;
(i) all of Borrower's Liabilities shall be due and payable
forthwith; (ii) Bank may exercise any one or more of the rights
and remedies accruing to a secured party under the Uniform
Commercial Code of the relevant jurisdiction and any other
applicable law upon default by a debtor; (iii) Bank may enter,
with or without process of law and without breach of the peace,
any premises where the Collateral is or may be located, and may
seize or remove the Collateral from said premises and/or remain
upon said premises and use the same for the purpose of
collecting, preparing and disposing of the Collateral; (iv) Bank
may sell or otherwise dispose of the Collateral at public or
private sale for cash or credit, provided, however, that Borrower
shall be credited with the net proceeds of any such sale only
when the same are actually received by Bank; (v) Bank may pursue
any remedy set forth in any agreement, instrument or document
heretofore, now or hereafter delivered by or on behalf of
Borrower to Bank; and/or (vi) Bank may pursue any remedy
available at law or in equity.
Upon the occurrence of an Event of Default, Borrower,
immediately upon demand by Bank, shall assemble the Collateral
and make it available to Bank at a place or places to be
designated by Bank which is reasonably convenient to Bank and
Borrower.
All of Bank's rights and remedies under this Note are
cumulative and non-exclusive. The acceptance by Bank of any
partial payment made hereunder after the time when any of
Borrower's Liabilities become due and payable will not establish
a custom, or waive any rights of Bank to enforce prompt payment
thereof. Bank's failure to require strict performance by
Borrower of any provision of this Note shall not waive, affect or
diminish any right of Bank thereafter to demand strict compliance
and performance therewith. Any waiver of an Event of Default
hereunder shall not suspend, waive or affect any other Event of
Default hereunder. To the extent permitted by law, Borrower and
all endorsers, guarantors and all persons liable or to become
liable on this Note waive presentment, protest and demand, notice
of protest, demand and dishonor and nonpayment of this Note, and
consent to any and all renewals and extensions in the time of
payment hereof, and agree, further, that at any time and from
time to time without notice, the terms of payment herein may be
modified or the security described in any document securing this
Note released, in whole or in part, or increased, changed or
exchanged by agreement between the holder hereof and any owner of
the property affected by said document securing this Note,
without in anywise affecting the liability of any party to this
instrument or any person liable or to become liable with respect
to any indebtedness evidenced hereby.
Borrower agrees to pay, upon Bank's demand therefor,
any and all reasonable costs, fees and expenses (including
reasonable attorney's fees, costs and expenses) incurred by Bank
(i) in enforcing any of Bank's rights hereunder, and (ii) in
representing Bank in any litigation, contest, suit or dispute, or
to commence, defend or intervene or to take any action with
respect to any litigation, contest, suit or dispute (whether
instituted by Bank, Borrower or any other person) in any way
relating to this Note, Borrower's Liabilities or the Collateral,
and to the extent not paid the same shall become part of
Borrower's Liabilities hereunder.
It is the intent of Borrower and Bank to comply with
the laws, rules and regulations governing this Note with regard
to the rate of interest charged hereunder, and accordingly,
notwithstanding any provision to the contrary in this Note or any
other instruments given to secure this Note, no such provision in
any such instrument, including without limitation any provision
of this Note providing for the payment of interest or other
charges and any provision of any other instrument given to secure
this Note providing for the payment of interest, fees, costs or
other charges, shall require the payment or permit the collection
of any amount (herein called "Excess Interest") in excess of the
maximum amount of interest permitted by law to be charged for the
use, detention, or forbearance in the collection, of all or any
portion of the indebtedness evidenced by this Note; provided that
if any Excess Interest is provided for, or is adjudicated as
being provided for, in this Note, or any instrument given to
secure this Note, then in such event: (a) the provisions of this
Section shall govern and control; (b) Borrower shall not be
obligated to pay any Excess Interest; (c) any Excess Interest
that the holder hereof may have received hereunder shall, at the
option of the holder hereof be (i) applied as a credit against
the then outstanding principal balance due under this Note, or
accrued and unpaid interest thereon, not to exceed the maximum
amount permitted by law, or both, (ii) refunded to the payor
thereof, or (iii) any combination of the foregoing; (d) the
applicable interest rate or rates shall be automatically subject
to reduction to the maximum lawful rate allowed to be contracted
for in writing under the applicable usury laws as of the date of
disbursement of the indebtedness evidenced hereby, and this Note
and any other instruments given to secure this Note, shall be
deemed to have been, and shall be reformed and modified to
reflect such reduction in such intethe payment or collection of
any Excess Interest.
It is understood and agreed that the loan evidenced by
this Note is a business loan within the purview of paragraph 4 of the
Illinois Interest Act, 815 ILCS 205/4, or any substitute,
amended, or replacement statutes, transacted solely for the
purpose of carrying on or acquiring the business of Borrower.
All notices, demands and requests given hereunder by
Borrower or Bank, shall be in writing and shall be by: (i) hand
delivery to the address for notices; or (ii) delivery by
overnight courier service to the address for notices; or (iii) by
certified mail, return receipt requested, addressed to the
address for notices by United States mail, postage prepaid. All
notices shall be deemed received upon the earliest to occur of:
(i) the hand delivery of such notice to the address for notices;
or (ii) one day after the deposit of such notice with any
overnight courier service addressed to the address for notices;
or (iii) three days after depositing the notice in the United
States mail as set forth in (iii) above. All notices shall be
addressed to the following addresses:
Borrower: MICROENERGY, INC.
350 Randy Road, Suite 1
Carol Stream, IL 60188
Attention: Robert Fanella
with a copy to: George M. Bradshaw, Esq.
HUCK, BOUMA, MARTIN, CHARLTON
& BRADSHAW
1755 S. Naperville Rd.
Suite 200
Wheaton, IL 60187
Bank: MARQUETTE NATIONAL BANK
6316 South Western Avenue
Chicago, IL 60636
Attention: Peter M. Hueser
with a copy to: Edward J. Grzelakowski, Esq.
KEMP, GRZELAKOWSKI &
LORENZINI, LTD.
1900 Spring Road, Suite 500
Oak Brook, IL 60521-1495
or to such other person or at such other place as any party
hereto may by notice designate as a place for service of notice.
This Note shall be deemed to have been submitted by
Borrower to Bank at Bank's principal place of business and shall
be deemed to have been made thereat. This Note shall be governed
and controlled by the laws of the State of Illinois as to
interpretation, enforcement, validity, construction, effect,
choice of law and in all other respects.
This Note and the obligations covered hereby are
secured and governed by a Commercial Loan and Security Agreement
and Junior Mortgage, Security Agreement and Assignment of Rents,
each of even date herewith, between Borrower and Bank.
TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER,
IRREVOCABLY, AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE
ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR
RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS NOTE SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTIES OF COOK OR
DUPAGE, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS
TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED
WITHIN SAID COUNTY AND STATE. BORROWER HEREBY WAIVES ANY RIGHT
IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION
BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS
PARAGRAPH.
BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR IN CONNECTION WITH THIS NOTE OR ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (ii) ARISING FROM
ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS
NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT AND
AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
MICROENERGY, INC.,
a Delaware corporation
By:___________________________________
Name: Robert Gatza
Title: President
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FOR FISCAL YEAR 10-K
</LEGEND>
<CIK> 0000740622
<NAME> MICROENERGY, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 19615
<SECURITIES> 0
<RECEIVABLES> 1651989
<ALLOWANCES> 50000
<INVENTORY> 3364846
<CURRENT-ASSETS> 5037993
<PP&E> 5113120
<DEPRECIATION> (3201432)
<TOTAL-ASSETS> 7279355
<CURRENT-LIABILITIES> 6642118
<BONDS> 0
0
250000
<COMMON> 4215
<OTHER-SE> 88075
<TOTAL-LIABILITY-AND-EQUITY> 7279355
<SALES> 14386323
<TOTAL-REVENUES> 14386323
<CGS> 11912736
<TOTAL-COSTS> 14692798
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 341578
<INCOME-PRETAX> (648053)
<INCOME-TAX> 0
<INCOME-CONTINUING> (648053)
<DISCONTINUED> 0
<EXTRAORDINARY> 1000495
<CHANGES> 0
<NET-INCOME> 352442
<EPS-PRIMARY> .978
<EPS-DILUTED> .978
</TABLE>
