<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE EXCHANGE ACT
For the transition period from to
-------- ----------
Commission file number 2-95050-D
DATA NATIONAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Colorado 84-0958983
--------------------------- -------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
11415 West I-70 Frontage Road North, Wheat Ridge, CO 80033
-------------------------------------------------------------
(Address of principal executive offices)
(303) 431-1933
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the issuers Common Stock, .001 par value
as of December 31, 1996 was 1,499,165 shares.
Transition Small Business disclosure format. Yes No X
-1-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
DATA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Audited)
December 31, December 31, September 30,
1996 1995 1996
------------ ------------ ------------
Assets
<S> <C> <C> <C>
Current Assets
Cash and equivalents $ 1,648 $ 37,585 $ 4,441
Receivables:
Trade, less allowances for bad 333,206 403,059 342,592
debts of $5,077 in 1996 and
1995, respectively
Other 15,253 7,117 15,305
------- ------- -------
Inventory, at cost 85,065 61,725 63,354
Prepaid expenses 33,276 4,513 35,523
------- ------ -------
Total current assets 468,448 513,999 461,215
Property and equipment, at cost 739,514 475,352 724,414
Less: Accumulated depreciation (392,609) (328,512) (373,709)
------- ------- -------
346,905 146,840 350,705
------- ------- -------
Deferred Computer Software
Development Costs 202,278 8,838 169,977
Other assets 20,931 6,030 12,871
---------- -------- --------
$1,038,562 $675,707 $994,768
Liabilities and Shareholders'
Deficit
Current Liabilities
Short-term borrowings-related
parties $156,000 - 0 - 155,000
Current portion - capital
leases 78,196 18,431 75,401
Accounts payable 181,554 67,537 138,426
Accrued expenses 97,385 27,070 81,271
Deferred revenue 75,470 141,579 26,419
Total current liabilities 588,605 254,617 476,517
------- ------- -------
Note payable - related party 745,272 869,072 743,472
Capital leases, net of
current portion 143,935 21,052 155,958
Shareholders' Deficit
Common stock $.001 par value,
authorized 100,000,000
shares; 1,499,165 and 818,190
shares issued and outstanding
at December 31, 1996 and 1995,
respectively 1,499 818 1,498
Additional paid-in capital 191,947 31,929 188,050
Accumulated deficit (632,696) (501,781) (570,727)
------- ------- -------
(439,250) (469,034) (381,179)
--------- ------- -------
$1,038,562 $675,707 $994,768
========= ======= =======
</TABLE>
See Note to Consolidated Financial Statements
-2-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
DATA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND LOSS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31 December 31,
1996 1995
----------- ------------
<S> <C> <C>
Net sales $ 630,120 $ 734,676
Cost of sales 357,230 354,597
------- -------
Gross profit 272,890 380,079
Selling and marketing expense 126,036 103,379
General and administrative expense 176,947 150,404
Operating income (loss) (30,093) 126,296
Other income (expense)
Interest and other income 134 2,769
Interest expense, primarily
related party (27,716) (23,321)
Other expense (4,294) - 0 -
(31,876) (20,552)
------ ------
Net income (loss) $ (61,969) $ 105,744
Net income (loss) per share (.04) .13
Weighted average shares outstanding 1,498,359 818,190
</TABLE>
See Note to Consolidated Financial Statements
-3-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
DATA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31, December 31,
1996 1995
<S> <C> <C>
Cash flow from operating activities
Net income (loss) $ (61,969) $ 105,744
Adjustments to reconcile net income to
cash flow from operating activities
Depreciation 18,900 9,375
Common stock issued for services 3,900 0
Changes in assets and liabilities:
(Increase) decrease in trade receivables 9,386 (148,060)
(Increase) decrease in other receivables 52 (10,067)
(Increase) in inventory (21,711) (14,033)
Decrease in other current assets 2,247 120
(Increase) decrease in other assets (8,060) 2,538
Increase in accounts payable 43,128 5,759
Increase in accrued expenses 16,114 7,000
Increase in deferred revenue 49,051 9,101
------- ------
Total adjustments 113,007 (138,267)
------- -------
Cash provided by (used in)
operating activities 51,038 (32,523)
------ -------
Cash flow from investing activities
Purchases of property and equipment (5,373) (4,911)
Deferred computer software development
costs (32,301) (8,838)
------ ------
Cash used in investing activities (37,674) (13,749)
Cash flow from financing activities
Short-term borrowings from related parties 196,000 0
Repayment of short-term borrowings from
related parties (195,000) 0
Increase in note payable-related parties 1,800 0
Repayment of capital lease obligations (18,957) (7,502)
Cash (used in) financing activities (16,157) (7,502)
(Decrease) in cash and equivalents (2,793) (53,774)
Cash and equivalents, beginning of period 4,441 91,359
Cash and equivalents, end of period $ 1,648 $ 37,585
------- --------
Supplemental cash flow information
Property and equipment acquired under
capital leases $ 9,729 $ 39,300
-------- --------
Interest paid $ 9,324 $ 23,321
</TABLE>
See Note to Consolidated Financial Statements
-4-
<PAGE>
DATA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, October 1, 1995 818,190 $ 818 $ 31,929 $(607,525)
Net income for the three months
ended December 31, 1995 - - - 105,744
------- ---- ------ -------
Balance, December 31, 1995 818,190 818 31,929 (501,781)
Issuance of common stock for
reduction of note payable to
related parties 550,000 550 125,051 -
Issuance of common stock for
services 137,500 138 32,862 -
Common stock repurchased and
retired (7,500) (8) (1,792) -
Net (loss) for the nine months
ended September 30, 1996 - - - (68,946)
--------- ------ ------- -------
Balance, September 30, 1996 1,498,190 1,498 188,050 (570,727)
--------- ------ ------- -------
Issuance of common stock for
services 975 1 3,897 -
Net (loss) for the three
months ended December 31,
1996 - - - (61,969)
--------- ------ -------- ---------
Balance, December 31, 1996 1,499,165 $1,499 $191,947 $(632,696)
========= ====== ======== ==========
</TABLE>
See Note to Consolidated Financial Statements
-5-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------
DATA NATIONAL CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - MANAGEMENT'S STATEMENT
- -------------------------------
In the opinion of management, the accompanying financial statements
contain all adjustments (which consist only of normal, recurring adjustments)
necessary to fairly present the Company's financial position, results of
operations, and cash flows. The operating results presented are not
necessarily indicative of the operating results for the years ending September
30, 1997 and 1996.
Reference should be made to the notes to the consolidated financial
statements included in Form 10-KSB for the year ended September 30, 1996, for
additional information.
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
- ---------------------
The following information should be read in conjunction with the
condensed consolidated financial statements and notes included in this
Quarterly Report and in the audited Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Form 10-K for the fiscal year ended September 30,
1996.
Quarter Ended December 31, 1996 compared to Quarter Ended December 31, 1995
- ---------------------------------------------------------------------------
Net sales for the quarter ended December 31, 1996 were $630,120 compared
to $734,676 for the quarter ended December 31, 1995. This represents a
decrease of $104,556 or 14%. Approximately $53,000 of the decrease was due to
a decrease in revenues from Sun Oil Co. for services that were "pushed
forward" to January of 1997. An additional $18,000 of revenue received in
1995 for additional services to Sun Oil Co. was not received in 1996.
The business of the Company has been seasonal, and a large portion of
the revenue of the Company has been received from the sales of holiday
greeting cards. Revenues from the sales of this product were $199,963 for the
quarter ended December 31, 1996 and $228,243 for the quarter ended December
31, 1995. The decrease in the sales of holiday greeting cards in the amount
of $28,220 accounted for a portion of the overall decrease in sales for 1996.
In addition to the items above, the Company received $10,000 in licensing
revenue in 1995 that was not received in 1996.
Cost of goods sold was $357,230 or 57% of sales in 1996 compared to
$354,597 or 48% of sales in 1995. The higher cost of goods sold was due to
additional fixed costs in the production department, including additional
depreciation expense in the amount of $7,700 due to the purchase of new
equipment and additional fixed salaries in the amount of $9,000.
Gross profit totalled $272,889 or 43% of sales in the third quarter of
1996, compared to $380,079 or 53% of sales in 1995. The decrease in gross
profit was attributable to the factors stated above. In addition, $10,000 of
the revenue received from licensing in 1995 did not have any cost of goods
sold associated with the revenue and resulted in a higher gross margin.
Selling and marketing expenses increased by $22,657 to $126,036 or 20%
of sales in 1996 compared to $103,379 or 14% of sales in 1995. Sales and
marketing salaries increased by $7,000, due to the hiring of additional sales
and marketing personnel. Travel increased by $9,000 due to additional travel
for new contracts which will commence in January of 1997.
General and administrative (G&A) expenses increased by $26,543 to
$176,947 or 28% of sales in 1996 compared to $150,404 or 20% of sales in 1995.
Rent and depreciation expense accounted for $5,000 of the increase.
The remaining material increase in G&A of $10,000 was due to costs the
Company continued to incur in their information technology department related
to the replacement of their computer system used for production of products
and maintenance of the database. In addition to the costs reported as G&A
expense, the Company spent $32,301 in software development costs for the
quarter ended December 31, 1996. These capitalized costs will be amortized
over three years when the project is completed and the new software is being
utilized, which is anticipated in the first quarter of 1997.
Interest expense for the three months ended December 31, 1996 was
$27,716 compared to $23,321 for the three months ended December 31, 1995. The
increase was due to additional leases added in the last twelve months.
-7-
<PAGE>
Variability of Periodic Results and Seasonality
- -----------------------------------------------
Results from the three-month period cannot be used to predict the
results for the entire year. Revenues fluctuate from period to period. The
Company received seasonal revenue from the sales of holiday greeting cards of
$199,963 for the quarter ended December 31, 1996 and 228,243 for the quarter
ended December 31, 1995.
Liquidity and Capital Resources
- -------------------------------
The Company's cash and cash equivalents decreased over the last three
months by $2,793. The inventory of the Company increased by $21,000 due to
new products. The increase in inventory was funded by an increase in accounts
payable, accrued expenses, and deferred revenue.
Short term borrowings to related parties increased by $1,000 for the
quarter ended December 31, 1996. A large portion of the borrowings were
repaid from the revolving loan facility with Norwest Business Credit, funded
on January 15, 1997.
In December of 1996 the Company commenced a private placement of its
common stock. Under the terms of the offering, the Company expects to raise a
minimum of $200,000 and a maximum of $1,000,000. As of February 12, 1997, the
Company had received the minimum in the form of $50,000 in cash and an
additional $150,000 from the related parties in the form of a reduction on the
$745,272 note to related parties.
The Company has received additional contracts for new business of
approximately $2,000,000. It is anticipated that approximately $1,500,000 of
the new business will be completed before the year ending September 30, 1997.
The Company believes that the existence of the revolving loan facility,
internal cash flow generated from new and existing business, capital leases to
be obtained for the purchase of new equipment, and additional proceeds from
the private placement of the Company's common stock will enable the Company to
meet its currently projected working capital and the cash requirements through
at least the end of the 1997 fiscal year. There can be no assurance, however,
that the additional funds will be raised and that the capital leases will be
obtained.
-8-
<PAGE>
DATA NATIONAL CORPORATION
FORM 10-QSB
December 31, 1996
OTHER INFORMATION
PART II
ITEM 1.Legal Proceedings.
The Company knows of no material pending legal proceedings to which the
Company is a party or to which any of its assets are subject.
ITEM 2.Changes in Securities. None
ITEM 3.Defaults Upon Senior Securities. None
ITEM 4.Submission of Matters to a Vote of Security Holders. None
ITEM 5.Other Information. None
ITEM 6.Exhibits and Reports on Form 8-K.
(a)Exhibits.
10.1 Revolving Note
10.2 Credit and Security Agreement
10.3 Collateral Account Agreement
10.4 Agreement as to Lockbox Service
10.5 Landlord's Disclaimer and Consent
10.6 Support Agreement - Richard S. Simms
10.7 Support Agreement - Donald V. Warriner
10.8 Guaranty by Corporation
10.9 Security Agreement for Guaranty
10.10 Security Agreement in Favor of Norwest Bank NA
10.11 Subordination Agreement
10.12 Assignment
(b)Reports on Form 8-K - None.
EX- 27 Financial Data Schedule
-9-
<PAGE>
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) DATA NATIONAL CORPORATION
BY(Signature) /s/ Richard S. Simms
(Name and Title) Richard S. Simms
(Date) February 14, 1997
(12-31-96.10q)
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,648
<SECURITIES> 0
<RECEIVABLES> 338,283
<ALLOWANCES> 5,077
<INVENTORY> 85,065
<CURRENT-ASSETS> 468,448
<PP&E> 739,574
<DEPRECIATION> 392,609
<TOTAL-ASSETS> 1,038,562
<CURRENT-LIABILITIES> 588,605
<BONDS> 0
0
0
<COMMON> 1,499,165
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,038,562
<SALES> 630,120
<TOTAL-REVENUES> 272,890
<CGS> 357,230
<TOTAL-COSTS> 61,969
<OTHER-EXPENSES> 134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27,716)
<INCOME-PRETAX> (61,969)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,969)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
<PAGE>
DATA NATIONAL CORPORATION
FORM 10-QSB
December 31, 1996
(a) Exhibits:
10.1 Revolving Note
10.2 Credit and Security Agreement
10.3 Collateral Account Agreement
10.4 Agreement as to Lockbox Service
10.5 Landlord's Disclaimer and Consent
10.6 Support Agreement - Richard S. Simms
10.7 Support Agreement - Donald V. Warriner
10.8 Guaranty by Corporation
10.9 Security Agreement for Guaranty
10.10 Security Agreement in Favor of Norwest Bank NA
10.11 Subordination Agreement
10.12 Assignment
<PAGE>
REVOLVING NOTE
$500,000 Denver, Colorado
January 3, 1997
For value received, the undersigned, Service Business Systems, Inc., a
Colorado corporation (the "Borrower"), hereby promises to pay on December 31,
1998 to the order of Norwest Business Credit, Inc., a Minnesota corporation
(the "Lender"), at its main office in Minneapolis, Minnesota, or at any other
place designated at any time by the holder hereof, in lawful money of the
United States of America and in immediately available funds, the principal
sum of Five Hundred Thousand and No/100 Dollars ($500,000) or, if less, the
aggregate unpaid principal amount of all advances made by the Lender to the
Borrower hereunder, together with interest on the principal amount hereunder
remaining unpaid from time to time, computed on the basis of the actual
number of days elapsed and a 360-day year, from the date hereof until this
Note is fully paid at the rate from time to time in effect under the Credit
and Security Agreement of even date herewith (the "Credit Agreement") by and
between the Lender and the Borrower. The principal hereof and interest
accruing thereon shall be due and payable as provided in the Credit Agreement.
This Note may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is
the Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages,
deeds of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when
due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
SERVICE BUSINESS SYSTEMS, INC.
BY (Signature) /s/Donald V. Warriner
(Name and Title) Donald V. Warriner,
President and CEO
<PAGE>
CREDIT AND SECURITY AGREEMENT
Dated as of January 3, 1997
SERVICE BUSINESS SYSTEMS, INC., a Colorado corporation (the "Borrower")
and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"),
hereby agree as follows:
ARTICLE I
Definitions
-----------
Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise
requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles.
"Accounts" means the aggregate unpaid obligations of customers and
other account debtors to the Borrower arising out of the sale or lease of
goods or rendition of services by the Borrower on an open account or deferred
payment basis.
"Advance" means an advance to the Borrower by the Lender under the
Credit Facility.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower, including (without
limitation) any Subsidiary of the Borrower. For purposes of this definition,
"control," when used with respect to any specified Person, means the power
along with any other Person under common control with such Person to vote 80%
or more of the voting stock of any Person.
"Agreement" means this Credit and Security Agreement.
"Banking Day" means a day other than a Saturday on which banks are
generally open for business in Minneapolis, Minnesota and Denver, Colorado.
<PAGE>
"Base Rate" means the rate of interest publicly announced from time
to time by Norwest Bank Minnesota, National Association as its "base rate" or,
if such bank ceases to announce a rate so designated, any similar successor
rate designated by the Lender.
"Borrowing Base" means, at any time and subject to change from time
to time in the Lender's sole discretion, the lesser of (a) the Commitment, or
(b) 80% of Eligible Accounts.
"Collateral" means all of the Equipment, General Intangibles,
Inventory and Receivables, together with all substitutions and replacements
for and products of any of the foregoing Collateral and together with
proceeds of any and all of the foregoing Collateral and, in the case of all
tangible Collateral, together with (i) all accessions, accessories,
attachments, parts, equipment and repairs now or hereafter attached or
affixed to or used in connection with any such goods, and (ii) all warehouse
receipts, bills of lading and other documents of title now or hereafter
covering such goods.
"Collateral Account" has the meaning specified in Section 4.1(d)
hereof.
"Commitment" means $500,000.
"Credit Facility" means the credit facility being made available
to the Borrower by the Lender pursuant to Article II hereof.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Rate" means at any time three percent (3%) over the
Floating Rate, which Default Rate shall change when and as the Floating Rate
changes.
"DNC" means Data National Corporation, a Colorado corporation.
"Eligible Accounts" means, unless otherwise agreed to in writing by
the Lender, all unpaid Accounts, net of any credits, except the following
shall not in any event be deemed Eligible Accounts:
(1) That portion of Accounts that are over 90 days past invoice date;
(2) That portion of the aggregate Accounts of a single customer that
exceeds 15% of the aggregate Accounts of the Borrower;
(3) That portion of Accounts that are disputed or subject to a claim
of offset or a contra account;
2
<PAGE>
(4) That portion of Accounts not yet earned by the final delivery of
goods or rendition of services, as applicable, by the Borrower to
its customer or with respect to which the Lender is unable to
confirm receipt by a common carrier for delivery, and that
portion of Accounts sold as COD or similar terms;
(5) Accounts owed by any unit of government, whether foreign or
domestic (provided, however, that there shall be included in
Eligible Accounts that portion of Accounts owed by such units of
government with respect to which the Borrower has provided
evidence satisfactory to the Lender that (A) the Lender has
a first priority security interest and (B) such Account may be
enforced by the Lender directly against such unit of government
under all applicable laws);
(6) Accounts owed by an account debtor located outside the United
States or Canada which are not backed by a bank letter of credit
assigned to the Lender, in the possession of the Lender and
acceptable to the Lender in all respects, in its sole discretion,
or covered by a policy of foreign receivables insurance
acceptable to the Lender in its sole discretion;
(7) Accounts owed by an account debtor that is the subject of
bankruptcy proceedings or has gone out of business;
(8) Accounts owed by a shareholder, Subsidiary, Affiliate, officer or
employee of the Borrower;
(9) Accounts not subject to a duly perfected security interest in
favor of the Lender or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender;
(10) That portion of Accounts that have been restructured, extended,
amended or modified;
(11) That portion of Accounts that constitutes finance charges or
sales or excise taxes;
(12) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 10% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (1), (3) or
(10) above; and
(13) Accounts, or portions thereof, otherwise deemed ineligible by the
Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12 hereof.
3
<PAGE>
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, which is not
subject to a security interest senior in priority to this Agreement,
including but not limited to all present and future machinery, vehicles,
furniture, fixtures, manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and including specifically
(without limitation) the goods described in any equipment schedule or list
herewith or hereafter furnished to the Lender by the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Event of Default" has the meaning specified in Section 8.1 hereof.
"Floating Rate" means an annual rate equal to the sum of the Base
Rate plus five percent (5%) and which Floating Rate shall change when and as
the Base Rate changes.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and future
patents, patent applications, copyrights, trademarks, trade names, trade
secrets, customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use the Borrower's name, and
the goodwill of the Borrower's business.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, whether acquired, held or furnished for sale, for
lease or under service contracts or for manufacture or processing, and
wherever located.
"Loan Documents" means this Agreement, the Note, the Security
Documents and any other agreements between the parties relating thereto.
"Lockbox" has the meaning specified in Section 4.1(e) hereof.
"Note" means the Revolving Note of the Borrower payable to the
order of the Lender in substantially the form attached hereto as Exhibit A.
"Obligations" has the meaning specified in Section 3.1 hereof.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
4
<PAGE>
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without limitation) the
premises legally described in Exhibit E attached hereto.
"Receivables" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out
of a loan, out of the overpayment of taxes or other liabilities, or otherwise
arises under any contract or agreement, whether such right to payment is
created, generated or earned by the Borrower or by some other person who
subsequently transfers such person's interest to the Borrower, whether such
right to payment is or is not already earned by performance, and howsoever
such right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which the Borrower may
at any time have by law or agreement against any account debtor or other
obligor obligated to make any such payment or against any property of such
account debtor or other obligor; all including but not limited to all present
and future accounts, contract rights, loans and obligations receivable,
chattel papers, bonds, notes and other debt instruments, tax refunds and
rights to payment in the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Security Documents" means the Collateral Account Agreement and the
Lockbox Agreement each as described in Section 4.1 hereof.
"Security Interest" has the meaning specified in Section 3.1 hereof.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of such
corporation, irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency, is at the time directly or indirectly owned by
the Borrower, by the Borrower and one or more other Subsidiaries, or by one
or more other Subsidiaries.
"Termination Date" means December 31, 1998.
"UCC" means the Uniform Commercial Code as in effect from time to
time in the state designated in Section 9.12 hereof as the state whose laws
6
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shall govern this Agreement, or in any other state whose laws are held to
govern this Agreement or any portion hereof.
ARTICLE II
Amount and Terms of the Credit Facility
---------------------------------------
Section 2.1 Advances. The Lender agrees, on the terms and subject
--------
to the conditions herein set forth, to make Advances to the Borrower from
time to time during the period from the date hereof to and including the
Termination Date, or the earlier date of termination in whole of the Credit
Facility pursuant to Section 2.4 or Section 8.2 hereof, in an aggregate
amount at any time outstanding not to exceed the Borrowing Base, which
Advances shall be secured by the Collateral as provided in Article III
hereof. The Credit Facility shall be a revolving facility and it is
contemplated that the Borrower will request Advances, make prepayments and
request additional Advances. The Borrower agrees to comply with the
following procedures in requesting Advances under this Section 2.1:
(a) The Borrower will not request any Advance under this Section 2.1
if, after giving effect to such requested Advance, the sum of the
outstanding and unpaid Advances made under this Section 2.1 would
exceed the Borrowing Base.
(b) Each request for an Advance under this Section 2.1 shall be made
to the Lender prior to 11:00 a.m. (Colorado time) of the day of
the requested Advance by the Borrower. Each request for an
Advance may be made in writing or by telephone, specifying
the date of the requested Advance and the amount thereof, and
shall be by (i) any officer of the Borrower; or (ii) any person
designated as the Borrower's agent by any officer of the
Borrower in a writing delivered to the Lender; or (iii) any
person reasonably believed by the Lender to be an officer of the
Borrower or such a designated agent.
(c) Upon fulfillment of the applicable conditions set forth in Article
IV hereof, the Lender shall disburse loan proceeds by crediting
the same to the Borrower's operating account number 312-8003409
maintained with Norwest Bank Colorado, National Association,
unless the Lender and the Borrower shall agree in writing to
another manner of disbursement. Upon request of the Lender, the
Borrower shall promptly confirm each telephonic request for an
Advance by executing and delivering an appropriate confirmation
certificate to the Lender. The Borrower shall be obligated to
repay all Advances under this Section 2.1 notwithstanding the
failure of the Lender to receive such confirmation and
notwithstanding the fact that the person requesting the same was
not in fact authorized to do so. Any request for an Advance under
this Section 2.1, whether written or telephonic, shall be deemed
to be a representation by the Borrower that (i) the condition set
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<PAGE>
forth in Section 2.1(a) hereof has been met, and (ii) the
conditions set forth in Section 4.2 hereof have been met as of
the time of the request.
Section 2.2 Note. All Advances made by the Lender under this Article
----
II shall be evidenced by and repayable with interest in accordance with the
Note. The principal of the Note shall be payable as provided herein and on
the earlier of the Termination Date or acceleration by the Lender pursuant to
Section 8.2 hereof, and shall bear interest as provided herein.
Section 2.3 Interest.
--------
(a) The principal of the Advances outstanding from time to time during
any month shall bear interest (computed on the basis of actual days
elapsed in a 360-day year) at the Floating Rate; provided, however,
that from the first day of any month during which any Default or
Event of Default occurs or exists at any time and until such
Default or Event of Default is cured to the satisfaction of the
Lender, in the Lender's discretion and without waiving any of its
other rights and remedies, the principal of the Advances
outstanding from time to time shall bear interest at the Default
Rate; and provided, further, that in any event no rate change shall
be put into effect which would result in a rate greater than the
highest rate permitted by law. Interest accruing on the principal
balance of the Advances outstanding from time to time shall be
payable on the last day of each month and on the Termination Date
or earlier demand or prepayment in full.
(b) In addition to any interest payable pursuant to Section 2.3(a)
hereof, the Borrower shall pay with respect to each calendar
quarter, beginning with the calendar quarter ending March 31, 1997,
a minimum interest charge equal to the difference between
(i) $7,500, and (ii) the sum of the interest actually paid by the
Borrower with respect to such period pursuant to Section 2.3(a).
The minimum interest charge payable with respect to a period of
less than three months shall be proportionately reduced.
Section 2.4 Voluntary Prepayment; Termination of Agreement by Borrower.
-----------------------------------------------------------
Except as otherwise provided herein, the Borrower may, in its discretion,
prepay the Advances in whole at any time or from time to time in part. The
Borrower may terminate this Agreement at any time and, subject to payment and
performance of all the Borrower's obligations to the Lender, may obtain any
release or termination of the Security Interest to which the Borrower is
otherwise entitled by law by (a) giving at least 30 days' prior written
notice to the Lender of the Borrower's intention to terminate this Agreement;
and (b) paying the Lender a prepayment fee of two percent (2%) of the
Commitment if the termination occurs on or before December 31, 1997, and one
percent (1%) of the Commitment if the termination occurs after December 31,
1997, but prior to the Termination Date, unless (i) the Credit Facility is
refinanced by an affiliate of Norwest Corporation, or (ii) the Credit
Agreement is terminated by the Borrower within 90 days of a request by the
Lender for payment of additional compensation pursuant to Section 2.12.
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<PAGE>
Section 2.5 Mandatory Prepayment. Without notice or demand, if the sum
--------------------
of the outstanding principal balance of the Advances shall at any time exceed
the Borrowing Base, the Borrower shall immediately prepay the Advances to the
extent necessary to reduce the sum of the outstanding principal balance of
the Advances to the Borrowing Base. Any payment received by the Lender under
this Section 2.5 or under Section 2.4 may be applied to the Advances,
including interest thereon and any fees, commissions, costs and expenses
hereunder and under the Security Documents, in such order and in such amounts
as the Lender, in its discretion, may from time to time determine.
Section 2.6 Payment. All payments of principal of and interest on
-------
the Advances shall be made to the Lender in immediately available funds. The
Borrower hereby authorizes the Lender in its discretion at any time or from
time to time and without request by the Borrower, to make an Advance to pay
such amounts and any fees, costs or expenses hereunder or under the Security
Documents.
Section 2.7 Payment on Non-Banking Days. Whenever any payment to
---------------------------
be made hereunder shall be stated to be due on a day which is not a Banking
Day, such payment may be made on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of
interest on the Advances or the fees hereunder, as the case may be.
Section 2.8 Use of Proceeds. The proceeds of Advances shall be
---------------
used by the Borrower for ordinary working capital purposes.
Section 2.9 Liability Records. The Lender shall maintain liability
-----------------
records as to any and all Advances made or repaid and interest accrued or
paid under this Agreement. All entries made on any such record shall be
presumed correct until the Borrower establishes the contrary. On demand by
the Lender, the Borrower will admit and certify in writing the exact
principal balance that the Borrower then asserts to be outstanding to the
Lender for Advances under this Agreement. Any billing statement or
accounting rendered by the Lender shall be conclusive and fully binding
on the Borrower unless specific written notice of exception is given to the
Lender by the Borrower within 30 days after its receipt by the Borrower.
Section 2.10 Setoff. The Borrower agrees that the Lender may at any
------
time or from time to time, at its sole discretion and without demand and
without notice to anyone, setoff any liability owed to the Borrower by the
Lender, whether or not due, against any indebtedness owed to the Lender by
the Borrower (for Advances or for any other transaction or event), whether or
not due. In addition, each other Person holding a participating interest in
any Advances made to the Borrower by the Lender shall have the right to
appropriate or setoff any deposit or other liability then owed by such Person
to the Borrower, whether or not due, and apply the same to the payment of
said participating interest, as fully as if such Person had lent directly to
the Borrower the amount of such participating interest.
8
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Section 2.11 Fees.
----
(a) The Borrower hereby agrees to pay the Lender a fully earned and
nonrefundable origination fee of $5,000, due and payable upon the
execution of this Agreement.
(b) The Borrower agrees to pay to the Lender an unused commitment fee
at the rate of one half of one percent (0.50%) per annum on the
average daily unused amount of the Commitment from the date hereof
to and including the date on which such facility is terminated,
due and payable monthly in arrears on the last day of each month,
commencing January, 1997, provided that any such commitment fee
remaining unpaid upon termination of the Credit Facility or
acceleration of the Note by the Lender pursuant to Section 8.2
hereof shall be due and payable on the date of such termination or
acceleration. Such fee shall be calculated on the basis of actual
days elapsed in a 360-day year.
(c) The Borrower hereby agrees to pay the Lender, on demand, a
quarterly administrative fee of $750 per calendar quarter during
which no Default or Event of Default exists at any time, and
during any calendar quarter which a Default or Event of Default
exists at any time, an administrative fee equal to the greater of
$750 or an amount equal to the Lender's audit fees and expenses
during such calendar quarter, determined at the rate of $60.00 per
hour (or, if different, the Lender's current hourly audit charge)
per auditor in connection with any audits or inspections by the
Lender of any collateral or the operations or business of the
Borrower, together with all actual out-of-pocket costs and
expenses incurred in conducting any such audit or inspection.
Section 2.12 Capital Adequacy. If the Lender shall determine that the
----------------
adoption after the date hereof of any applicable law, rule or regulation
regarding capital adequacy, or any change therein after the date hereof, any
change after the date hereof in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
the Lender, the Issuer or their respective parent corporations with any
guideline or request issued after the date hereof regarding capital
adequacy (whether nor not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing
the rate of return on the Lender's, the Issuer's or the Lender's or the
Issuer's parent corporation's capital as a consequence of the Lender's
or Issuer's obligations hereunder to a level below that which the Lender or
the Issuer's parent corporations could have achieved but for such adoption,
change or compliance (taking into consideration the Lender's or the Issuer's
policies with respect to capital adequacy and those of the Lender's or the
Issuer's parent corporations) by an amount deemed to the Lender or the
Issuer's parent corporations to be material, then from time to time on demand
by the Lender, the Borrower shall pay to the Lender such additional amount or
amounts as will compensate the Lender or the Issuer or their parent
corporations for such reduction. Certificates of the Lender sent to the
Borrower from time to time claiming compensation under this Section, stating
the reason therefor and setting forth in reasonable detail the calculation of
the additional amount or amounts to be paid to the Lender hereunder shall be
conclusive absent manifest error. In determining such amounts, the Lender,
the Issuer or their respective parent corporations may use any reasonable
averaging and attribution methods.
ARTICLE III
Security Interest
-----------------
Section 3.1 Grant of Security Interest. The Borrower hereby
--------------------------
assigns and grants to the Lender a security interest (collectively referred
to as the "Security Interests") in the Collateral, as security for the
payment and performance of each and every debt, liability and obligation of
every type and description which the Borrower may now or at any time
hereafter owe to the Lender (whether such debt, liability or obligation now
exists or is hereafter created or incurred, whether it arises in a
transaction involving the Lender alone or in a transaction involving other
creditors of the Borrower, and whether it is direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, all indebtedness of the Borrower arising
under this Agreement or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter
entered into; all such debts, liabilities and obligations are herein
collectively referred to as the "Obligations").
Section 3.2 Notification of Account Debtors and Other Obligors. The
--------------------------------------------------
Lender may at any time notify any account debtor or other person obligated to
pay the amount due that payment shall be made directly to the Lockbox, and
may at any time after the occurrence of an Event of Default, notify any
account debtor or other person obligated to pay the amount due that such
right to payment has been assigned or transferred to the Lender for security
and shall be paid directly to the Lender. The Borrower will join in giving
such notice if the Lender so requests. At any time after the Borrower or the
Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, in the Lender's name or in the Borrower's name, (a)
demand, sue for, collect or receive any money or property at any time payable
or receivable on account of, or securing, any such right to payment, or grant
any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as agent
and attorney in fact of the Borrower, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and
receive, open and dispose of the Borrower's mail, applying all Collateral as
permitted under this Agreement and holding all other mail for the Borrower's
account or forwarding such mail to the Borrower's last known address.
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to
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the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and
all other rights of the Borrower with respect to, any and all policies of
insurance now or at any time hereafter covering the Collateral or any
evidence thereof or any business records or valuable papers pertaining
thereto, and the Borrower hereby directs the issuer of any such policy to pay
all such monies directly to the Lender. At any time, whether before or
after the occurrence of any Event of Default, the Lender may (but need not),
in the Lender's name or in the Borrower's name, execute and deliver proof of
claim, receive all such monies, endorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or
release any claim against the issuer of any such policy.
Section 3.4 Occupancy. (a) The Borrower hereby irrevocably grants to
---------
the Lender the right to take possession of the Premises at any time after
the occurrence and during the continuance of an Event of Default.
(b) The Lender may use the Premises only to hold, process, manufacture,
sell, use, store, liquidate, realize upon or otherwise dispose of goods
that are Collateral and for other purposes that the Lender may in good
faith deem to be related or incidental purposes.
(c) The right of the Lender to hold the Premises shall cease and
terminate upon the earlier of (a) payment in full and discharge of all
Obligations, and (b) final sale or disposition of all goods constituting
Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for any rent or
other compensation for the possession, occupancy or use of any of the
Premises; provided, however, in the event that the Lender does pay or
account for any rent or other compensation for the possession, occupancy
or use of any of the Premises, the Borrower shall reimburse the Lender
promptly for the full amount thereof. In addition, the Borrower will
pay, or reimburse the Lender for, all taxes, fees, duties, imposts,
charges and expenses at any time incurred by or imposed upon the Lender
by reason of the execution, delivery, existence, recordation,
performance or enforcement of this Agreement or the provisions of this
Section 3.4.
Section 3.5 License. The Borrower hereby grants to the Lender,
-------
subject, however, to any exclusive rights held by non-U.S. distributors of
the Borrower's products, a non-exclusive, worldwide and royalty-free license
to use or otherwise exploit all trademarks, franchises, trade names,
copyrights and patents of the Borrower for the purpose of selling, leasing or
otherwise disposing of any or all Collateral following an Event of Default.
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ARTICLE IV
Conditions of Lending
---------------------
Section 4.1 Conditions Precedent to the Initial Advance. The
obligation of the Lender to make the initial Advance under the Credit
Facility or to issue or to cause the Issuer to issue the initial Letter of
Credit shall be subject to the condition precedent that the Lender shall have
received all of the following, each in form and substance satisfactory to the
Lender:
(a) This Agreement, properly executed on behalf of the Borrower.
(b) The Note, properly executed on behalf of the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a
landlord's disclaimer and consent with respect to each such
lease.
(d) A Collateral Account Agreement, duly executed by the Borrower
and a financial institution acceptable to the Lender,
pursuant to which the Borrower and the institution establish
a depository account (the "Collateral Account") in the name
of and under the sole and exclusive control of the Lender,
from which such institution agrees to transfer finally
collected funds to the Lender for application to the
Advances.
(e) A Lockbox Agreement, duly executed by the Borrower and an
institution acceptable to the Lender, pursuant to which the
Borrower agrees to maintain and direct account debtors to
make payment to, and such institution agrees to maintain and
process payments received in, a lockbox for the benefit of
the Lender (the "Lockbox"), from which Lockbox such
institution shall transfer funds to the Collateral Account.
(f) Current searches of appropriate filing offices showing that
(i) no state or federal tax liens have been filed and remain
in effect against the Borrower, (ii) no financing statements
have been filed and remain in effect against the Borrower,
except those financing statements relating to liens permitted
pursuant to Section 7.1 hereof and those financing statements
filed by the Lender, and (iii) the Lender has duly filed all
financing statements necessary to perfect the Security
Interests granted hereunder, to the extent the Security
Interests are capable of being perfected by filing.
(g) A certificate of the Secretary or an Assistant Secretary of
the Borrower, certifying as to (i) the resolutions of the
directors and, if required, the shareholders of the Borrower,
authorizing the execution, delivery and performance of this
Agreement and the Security Documents, (ii) the articles of
incorporation and bylaws of the Borrower, and (iii) the
signatures of the officers or agents of the Borrower
authorized to execute and deliver this Agreement, the
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Security Documents and other instruments, agreements and
certificates, including Advance requests, on behalf of the
Borrower.
(h) A current certificate issued by the Secretary of State of the
state of the Borrower's incorporation, certifying that the
Borrower is in compliance with all corporate organizational
requirements of such state.
(i) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of
the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification
necessary.
(j) An opinion of counsel to the Borrower, addressed to the
Lender.
(k) Support Agreements duly executed by Richard S. Simms and
Donald V. Warriner.
(l) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable
endorsement in favor of the Lender and with all liability
insurance naming the Lender as an additional insured.
(m) Payment of the fees due through the date of the initial
Advance under Section 2.11 hereof and expenses incurred by
the Lender through such date and required to be paid
by the Borrower under Section 9.7 hereof.
(n) Immediately after the initial Advance under Section 1.1
hereof and payment of the fees required to be paid pursuant
to Section 2.11 hereof, the Borrowing Base shall exceed the
principal balance of the Note by at least $25,000.
(o) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 Conditions Precedent to All Advances. The obligation
of the Lender to make each Advance shall be subject to the further conditions
precedent that on such date:
(a) the representation and warranties contained in Article V
hereof are correct on and as of the date of such Advance as
though made on and as of such date, except to the extent that
such representations and warranties relate solely to an
earlier date; and
(b) no event has occurred and is continuing, or would result from
such Advance which constitutes a Default or an Event of
Default.
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ARTICLE V
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
----------------------------------------------------
Office;
- ------
Inventory and Equipment Locations. The Borrower is a corporation
duly incorporated, validly existing and in good standing under the laws of
the State of Colorado, and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties
and to execute and deliver, and to perform all of its obligations under, the
Loan Documents. During its corporate existence, the Borrower has done
business solely under the names set forth in Exhibit B hereto. The chief
executive office and principal place of business of the Borrower is located
at the address set forth in Exhibit B hereto, and all of the Borrower's
records relating to its business or the Collateral are kept at that location.
All Inventory and Equipment is located at that location or at one of the
other locations set forth in Exhibit B hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
----------------------------------------------------
Agreements.
- ----------
The execution, delivery and performance by the Borrower of the
Loan Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (a)
require any consent or approval of the stockholders of the Borrower other
than that which has been obtained as of the date hereof, (b) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except
such authorization, consent, approval, registration, declaration, filing or
notice as has been obtained, accomplished or given prior to the date hereof,
(c) violate any provision of any law, rule or regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal Reserve
System) or of any order, writ, injunction or decree presently in effect
having applicability to the Borrower or of the Articles of Incorporation or
Bylaws of the Borrower, (d) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other material
agreement, lease or instrument to which the Borrower is a party or by which
it or its properties may be bound or affected, or (e) result in, or require,
the creation or imposition of any mortgage, deed of trust, pledge, lien,
security interest or other charge or encumbrance of any nature (other than
the Security Interests) upon or with respect to any of the properties now
owned or hereafter acquired by the Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and,
----------------
upon due execution by the Borrower, the other Loan Documents will constitute
14
<PAGE>
the legal, valid and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective terms.
Section 5.4 Subsidiaries. Except as set forth in Exhibit B attached
------------
hereto, the Borrower has no Subsidiaries.
Section 5.5 Financial Condition; No Adverse Change. The Borrower
-------------------
has heretofore furnished to the Lender unaudited financial statements of the
Borrower as of October 31, 1996, and those statements fairly present the
financial condition of the Borrower on the dates thereof and the results of
its operations and cash flows for the periods then ended and were prepared in
accordance with generally accepted accounting principles. Since the date of
the most recent financial statements, there has been no material adverse
change in the business, properties or condition (financial or otherwise) of
the Borrower.
Section 5.6 Litigation. Except as otherwise disclosed to the
----------
Lender in writing, there are no actions, suits or proceedings pending or, to
the knowledge of the Borrower, threatened against or affecting the Borrower
or any of its Affiliates or the properties of the Borrower or any of its
Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the
------------
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be
used to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid or
-----
caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them. The Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may
be, are required to be filed, and the Borrower and its Affiliates have paid
or caused to be paid to the respective taxing authorities all taxes as shown
on said returns or on any assessment received by any of them to the extent
such taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and absolute
----------------
title to all Collateral described in the collateral reports provided to the
Lender and all other Collateral, properties and assets reflected in the
latest balance sheet referred to in Section 5.5 hereof and all proceeds
thereof, free and clear of all mortgages, security interests, liens and
encumbrances, except for (i) mortgages, security interests and liens
permitted by Section 7.1 hereof, and (ii) in the case of any such property
which is not Collateral or other collateral described in the Security
Documents, covenants, restrictions, rights, easements and minor
15
<PAGE>
irregularities in title which do not materially interfere with the business
or operations of the Borrower as presently conducted. No financing
statement naming the Borrower as debtor is on file in any office except to
perfect only security interests permitted by Section 7.1 hereof.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior
-----
to the date hereof, neither the Borrower nor any of its Affiliates maintains
or has maintained any Plan.
Section 5.11 Default. The Borrower is in compliance with all provisions
-------
of all agreements, instruments, decrees and orders to which it is a party or
by which it or its property is bound or affected, the breach or default of
which could have a material adverse effect on the financial condition,
properties or operations of the Borrower.
Section 5.12 Environmental Protection. The Borrower, to the best of
------------------------
the Borrower's knowledge, has obtained all permits, licenses and other
authorizations which are required under federal, state and local laws and
regulations relating to emissions, discharges, releases of pollutants,
contaminants, hazardous or toxic materials, or wastes into ambient air,
surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") at the Borrower's facilities or
in connection with the operation of its facilities. Except as previously
disclosed to the Lender in writing, the Borrower and all activities of the
Borrower at its facilities comply, to the best of the Borrower's knowledge,
with all Environmental Laws and with all terms and conditions of any required
permits, licenses and authorizations applicable to the Borrower with respect
thereto. Except as previously disclosed to the Lender in writing, the
Borrower is also in compliance, to the best of the Borrower's knowledge,
with all limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in Environmental
Laws or contained in any plan, order, decree, judgment or notice of which the
Borrower is aware. Except as previously disclosed to the Lender in writing,
the Borrower is not aware of, nor has the Borrower received notice of, any
events, conditions, circumstances, activities, practices, incidents, actions
or plans which may interfere with or prevent continued compliance with, or
which may give rise to any liability under, any Environmental Laws.
Section 5.13 Submissions to Lender. All financial and other information
---------------------
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14 Financing Statements. The Borrower has provided to the
--------------------
Lender signed financing statements sufficient when filed to perfect the
Security Interests and the other security interests created by the Security
Documents. When such financing statements are filed in the offices
noted therein, the Lender will have a valid and perfected security interest
in all Collateral and all other collateral described in the Security
16
<PAGE>
Documents which is capable of being perfected by filing financing statements.
None of the Collateral or other collateral covered by the Security Documents
is or will become a fixture on real estate, unless a sufficient fixture
filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
-----------------
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents
is (or, in the case of all future Collateral or such other collateral,
will be when arising or issued) the valid, genuine and legally enforceable
obligation, subject to no defense, setoff or counterclaim, of the account
debtor or other obligor named therein or in the Borrower's records pertaining
thereto as being obligated to pay such obligation.
ARTICLE VI
Affirmative Covenants of the Borrower
-------------------------------------
So long as the Note shall remain unpaid or the Credit Facility
shall be outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or
----------------------
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 105 days after
the end of each fiscal year of DNC, audited consolidated and
consolidating financial statements of DNC and its subsidiaries,
including the Borrower, with the unqualified opinion of
independent certified public accountants selected by DNC and
acceptable to the Lender, which annual financial statements
shall include the balance sheet of DNC and its subsidiaries,
including the Borrower, as at the end of such fiscal year and
the related statements of income, retained earnings and cash
flows of DNC and its subsidiaries, including the Borrower, for
the fiscal year then ended, all in reasonable detail and
prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the accounting
practices applied in the financial statements referred to in
Section 5.5 hereof, together with (i) a report signed by such
accountants stating that in making the investigations necessary
for said opinion they obtained no knowledge, except as
specifically stated, of any Default or Event of Default
hereunder and all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in
Sections 6.12 through 6.13 and Section 7.10 hereof; and (ii) a
certificate of the chief financial officer of DNC stating that
such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a basis
17
<PAGE>
consistent with the accounting practices reflected in the
annual financial statements referred to in Section 5.5 hereof
and whether or not such officer has knowledge of the occurrence
of any Default or Event of Default hereunder and, if so,
stating in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days after the
end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as
at the end of and for such month and for the year to date
period then ended, in reasonable detail and stating in
comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with
generally accepted accounting principles applied on a basis
consistent with the accounting practices reflected in the
financial statements referred to in Section 5.5 hereof, subject
to year-end audit adjustments; and accompanied by a certificate
of the chief financial officer of the Borrower, substantially
in the form of Exhibit D hereto stating (i) that such financial
statements have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent
with the accounting practices reflected in the financial
statements referred to in Section 5.5 hereof, subject to
year-end audit adjustments, (ii) whether or not such officer
has knowledge of the occurrence of any Default or Event of
Default hereunder not theretofore reported and remedied and, if
so, stating in reasonable detail the facts with respect
thereto, and (iii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in
Sections 6.12 through 6.13 and Section 7.10 hereof;
(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and its accounts payable as at
the end of such month;
(d) on each Banking Day an assignment of Receivables and a
collection report;
(e) at least 30 days before the beginning of each fiscal year of
the Borrower, the projected balance sheets and income
statements for each month of such year, each in reasonable
detail, representing the good faith projections of the Borrower
and certified by the Borrower's chief financial officer as
being the most accurate projections available;
(f) immediately after the commencement thereof, notice in writing
of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the
type described in Section 5.6 hereof or which seek a monetary
recovery against the Borrower in excess of $25,000;
(g) as promptly as practicable (but in any event not later than
five business days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of
default under any Security Document or any event which
constitutes a Default or Event of Default hereunder, notice of
such occurrence, together with a detailed statement by a
18
<PAGE>
responsible officer of the Borrower of the steps being taken by
the Borrower to cure the effect of such breach, default or
event;
(h) promptly upon knowledge thereof, notice of (i) any disputes or
claims by customers of the Borrower in excess of $5,000
individual or in excess of $20,000 in the aggregate; and (ii)
any change in the persons constituting the officers and
directors of the Borrower;
(i) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered
by the Security Documents or of any substantial adverse change
in any Collateral or such other collateral or the prospect of
payment thereof;
(j) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which DNC shall have
sent to its stockholders;
(k) promptly after the sending or filing thereof, copies of all
regular and periodic financial reports which DNC shall file
with the Securities and Exchange Commission or any national
securities exchange;
(l) promptly upon knowledge thereof, notice of the violation by the
Borrower of any law, rule or regulation, the non-compliance
with which could materially and adversely affect its business
or its financial condition; and
(m) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records,
equipment schedules, copies of invoices to account debtors,
shipment documents and delivery receipts for goods sold, and
such other material, reports, records or information as the
Lender may reasonably request.
Section 6.2 Books and Records; Inspection and Examination. The
---------------------------------------------
Borrower will keep accurate books of record and account for itself pertaining
to the Collateral and pertaining to the Borrower's business and financial
condition and such other matters as the Lender may from time to time request
in which true and complete entries will be made in accordance with generally
accepted accounting principles consistently applied and, upon request of the
Lender, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
affairs of the Borrower with any of its directors, officers, employees or
agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, other collateral
covered by the Security Documents or any other property of the Borrower at
any time during ordinary business hours.
19
<PAGE>
Section 6.3 Account Verification. The Borrower will at any time and
from time to time upon request of the Lender send requests for verification
of accounts or notices of assignment to account debtors and other obligors.
Section 6.4 Compliance with Laws; Environmental Indemnity. The
---------------------------------------------
Borrower will (a) comply with the requirements of applicable laws and
regulations, the non-compliance with which would materially and adversely
affect its business or its financial condition, (b) comply with all
applicable Environmental Laws and obtain any permits, licenses or similar
approvals required by any such Environmental Laws, and (c) use and keep the
Collateral, and will require that others use and keep the Collateral, only
for lawful purposes, without violation of any federal, state or local law,
statute or ordinance. The Borrower will indemnify, defend and hold the
Lender harmless from and against any claims, loss or damage to which the
Lender may be subjected as a result of any past, present or future existence,
use, handling, storage, transportation or disposal of any hazardous waste or
substance or toxic substance by the Borrower or on property owned, leased or
controlled by the Borrower. This indemnification agreement shall survive the
termination of this Agreement and payment of the indebtedness hereunder.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay
---------------------------------
or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security Interests,
prior to the date on which penalties attach thereto, (b) all federal, state
and local taxes required to be withheld by it, and (c) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien or
charge upon any properties of the Borrower; provided, that the Borrower shall
not be required to pay any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
Section 6.6 Maintenance of Properties.
--------------------------
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and
will from time to time replace or repair any worn, defective or
broken parts; provided, however, that nothing in this Section 6.6
shall prevent the Borrower from discontinuing the operation and
maintenance of any of its properties if such discontinuance is,
in the judgment of the Lender, desirable in the conduct of the
Borrower's business and not disadvantageous in any material
respect to the Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the
Collateral or any interest therein.
20
<PAGE>
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security
interests, liens and encumbrances except the Security Interests
and other security interests permitted by Section 7.1 hereof.
Section 6.7 Insurance. The Borrower will obtain and at all times
---------
maintain insurance with insurers believed by the Borrower to be responsible
and reputable, in such amounts and against such risks as may from time to
time be required by the Lender, which insurance shall include business
interruption insurance, but in all events in such amounts and against such
risks as is usually carried by companies engaged in similar business and
owning similar properties in the same general areas in which the Borrower
operates. Without limiting the generality of the foregoing, the Borrower
will at all times keep all tangible Collateral insured against risks of fire
(including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the
extent of its interest, and all policies of such insurance shall contain a
lender's loss payable endorsement for the benefit of the Lender. All
policies of liability insurance required hereunder shall name the Lender as
an additional insured.
Section 6.8 Preservation of Corporate Existence. The Borrower will
-----------------------------------
preserve and maintain its corporate existence and all of its rights,
privileges and franchises necessary or desirable in the normal conduct of its
business and shall conduct its business in an orderly, efficient and
regular manner.
Section 6.9 Delivery of Instruments, etc. Upon request by the Lender,
----------------------------
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or
assigned by the Borrower.
Section 6.10 Lockbox; Collateral Account.
---------------------------
(a) The Borrower will irrevocably direct all present and future Account
debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to the Lockbox. All of
the Borrower's invoices, account statements and other written or
oral communications directing, instructing, demanding or requesting
payment of any Account or any other amount constituting Collateral
shall conspicuously direct that all payments be made to the Lockbox
and shall include the Lockbox address. All payments received in
the Lockbox shall be processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral Account or, at the
Lender's option, to deliver to the Lender all collections on
Accounts, contract rights, chattel paper and other rights to
payment constituting Collateral, and all other cash proceeds of
Collateral, which the Borrower may receive directly notwithstanding
its direction to Account debtors and other obligors to make
payments to the Lockbox, immediately upon receipt thereof, in
21
<PAGE>
the form received, except for the Borrower's endorsement when
deemed necessary. In the event that there are no outstanding
Advances and the loan balance is zero, at the Borrower's written
request, the Lender shall direct the Collateral Account bank to
deposit proceeds or collections of Collateral into the Borrower's
operating account. Until delivered to the Lender or deposited in
the Collateral Account, all proceeds or collections of Collateral
shall be held in trust by the Borrower for and as the property of
the Lender and shall not be commingled with any funds or property
of the Borrower. Amounts deposited in the Collateral Account shall
not bear interest and shall not be subject to withdrawal by the
Borrower, except after full payment and discharge of all
Obligations. All such collections shall constitute proceeds of
Collateral and shall not constitute payment of any Obligation.
Collected funds from the Collateral Account may be transferred to
the Lender's general account, and the Lender may deposit in its
general account or in the Collateral Account any and all
collections received by it directly from the Borrower. The Lender
may commingle such funds with other property of the Lender or any
other person. The Lender shall, after allowing two Banking Days
for collection and two Banking Days for processing, apply such
funds to the payment of any and all Obligations, in any order or
manner of application satisfactory to the Lender. All items
delivered to the Lender or deposited in the Collateral Account
shall be subject to final payment. If any such item is returned
uncollected, the Borrower will immediately pay the Lender, or, for
items deposited in the Collateral Account, the bank maintaining
such account, the amount of that item, or such bank at its
discretion may charge any uncollected item to the Borrower's
commercial account or other account. The Borrower shall be liable
as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
Section 6.11 Performance by the Lender. If the Borrower at any time
-------------------------
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a
period of ten calendar days after the Lender gives the Borrower written
notice thereof (or in the case of the agreements contained in Sections 6.5,
6.7 and 6.10 hereof, immediately upon the occurrence of such failure, without
notice or lapse of time), the Lender may, but need not, perform or observe
such covenant on behalf and in the name, place and stead of the Borrower (or,
at the Lender's option, in the Lender's name) and may, but need not, take any
and all other actions which the Lender may reasonably deem necessary to cure
or correct such failure (including, without limitation, the payment of taxes,
the satisfaction of security interests, liens or encumbrances, the
performance of obligations owed to account debtors or other obligors, the
procurement and maintenance of insurance, the execution of assignments,
security agreements and financing statements, and the endorsement of
instruments); and the Borrower shall thereupon pay to the Lender on demand
the amount of all monies expended and all costs and expenses (including
reasonable attorneys' fees and legal expenses) incurred by the Lender in
connection with or as a result of the performance or observance of such
agreements or the taking of such action by the Lender, together with interest
thereon from the date expended or incurred at the Floating Rate. To
22
<PAGE>
facilitate the performance or observance by the Lender of such covenants of
the Borrower, the Borrower hereby irrevocably appoints the Lender, or the
delegate of the Lender, acting alone, as the attorney in fact of the Borrower
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing
statements, applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by the Borrower
under this Section 6.11.
Section 6.12 Maximum Loss. The Borrower shall not have during any
------------
month or period of two consecutive months, commencing with January, 1997, an
after-tax net loss, determined in accordance with generally accepted
accounting principles but excluding extraordinary gains, of $50,000 or more.
Section 6.13 Cumulative Net Profits. The Borrower shall, at the end of
----------------------
each period set forth below, have net after-tax income for such period,
determined in accordance with generally accepted accounting principles, but
excluding extraordinary gains, of an amount which is greater than or equal to
the amount set forth opposite such period:
<TABLE>
<CAPTION>
Period Net Profits
-------------------------------- --------------
<S> <C>
Six months ending March 31, 1997 $ 25,000
Nine months ending June 30, 1997 $ 50,000
Twelve months ending September 30, 1997 $ 75,000
</TABLE>
Prior to September 1, 1997, the Lender and the Borrower shall negotiate in
good faith as to the net profits that the Borrower shall be required to
achieve for periods after September 30, 1997, but if the Borrower and the
Lender do not agree, the Lender may designate the required net profits in its
sole discretion and the failure of the Borrower to achieve the net profits
designated by the Lender pursuant to this Section 6.13 shall constitute a
Default by the Borrower hereunder.
ARTICLE VII
Negative Covenants
------------------
So long as the Note shall remain unpaid or the Credit Facility
shall be outstanding, the Borrower agrees that, without the prior written
consent of the Lender:
Section 7.1 Liens. The Borrower will not create, incur or suffer
-----
to exist any mortgage, deed of trust, pledge, lien, security interest,
assignment or transfer upon or of any of its assets, now owned or hereafter
23
<PAGE>
acquired, to secure any indebtedness; excluding, however, from the operation
-------
of the foregoing:
(a) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Exhibit
C hereto, securing indebtedness for borrowed money permitted under
Section 7.2 hereof;
(b) the Security Interests; and
(c) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower so long as the Borrower is
in, and maintains, compliance with every other provision of this
Agreement.
Section 7.2 Indebtedness. The Borrower will not incur, create, assume
------------
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money, or any other indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations,
except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof and
listed in Exhibit C hereto; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1(c) hereof.
Section 7.3 Guaranties. The Borrower will not assume, guarantee,
----------
endorse or otherwise become directly or contingently liable in connection
with any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary
course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons
in existence on the date hereof and listed in Exhibit C hereto.
Section 7.4 Investments and Subsidiaries. (a) The Borrower will not
purchase or hold beneficially any stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make
any investment or acquire any interest whatsoever in, any other Person,
including specifically but without limitation any partnership or joint
venture, except:
24
<PAGE>
(1) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper issued by
U.S. corporations rated "A-1" or "A-2" by Standard & Poors Corporation or
"P-1" or "P-2" by Moody's Investors Service or certificates of deposit or
bankers' acceptances having a maturity of one year or less issued by
members of the Federal Reserve System having deposits in excess of
$100,000,000 (which certificates of deposit or bankers' acceptances are
fully insured by the Federal Deposit Insurance Corporation);
(2) travel advances or loans to officers and employees of the
Borrower not exceeding at any one time an aggregate of $15,000;
(3) advances in the form of progress payments, prepaid rent or
security deposits; and
(4) loans or advances to DNC outstanding on the date of this
Agreement plus loans or advances to DNC made after the date of this
Agreement provided that no more than $8,000 of loans or advances are made
in any calendar month and at the time any such loans or advances are made
(i) no Default or Event of Default has occurred and is continuing or
would exist immediately after such loan or advance is made, and (ii)
immediately after such loan or advance is made the Borrower has no
undisputed trade payables which are more than 30 days past due and the
Borrowing Base exceeds the outstanding principal balance of the Note by
at least $25,000.
(b) The Borrower will not create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the
date hereof and listed in Exhibit B hereto.
Section 7.5 Dividends. The Borrower will not declare or pay any
---------
dividends (other than dividends payable solely in stock of the Borrower) on
any class of its stock or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
--------------------------------------------------
Operations.
- ----------
The Borrower will not sell, lease, assign, transfer or otherwise dispose of
(i) the stock of any Subsidiary, (ii) all or a substantial part of its
assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than
the sale of Inventory in the ordinary course of business and will not
liquidate, dissolve or suspend business operations. The Borrower will not in
any manner transfer any property without prior or present receipt of full and
adequate consideration.
26
<PAGE>
Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower
--------------------------------------------
will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of
any other Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into any
------------------
arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now
owned or hereafter acquired, and then or thereafter rent or lease as lessee
such property or any part thereof or any other property which the Borrower
intends to use for substantially the same purpose or purposes as the property
being sold or transferred.
Section 7.9 Restrictions on Nature of Business. The Borrower will not
----------------------------------
engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 Capital Expenditures. The Borrower will not expend or
--------------------
contract to expend, in the aggregate during any fiscal year, more than (a)
$50,000 or (b) $100,000, if DNC makes an capital investment in the Borrower
in an amount equal to or more than $50,000, for the lease, purchase or other
acquisition of any capital asset, or for the lease of any other asset, whether
payable currently or in the future.
Section 7.11 Accounting. The Borrower will not adopt any material
----------
change in accounting principles other than as required by generally accepted
accounting principles. The Borrower will not adopt, permit or consent to any
change in its fiscal year.
Section 7.12 Discounts, etc. The Borrower will not, after notice from
--------------
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold (other than a return of defective
merchandise in the ordinary course of business), or at any time (whether
before after notice from the Lender) modify, amend, subordinate, cancel or
terminate the obligation of any account debtor or other obligor of the
Borrower.
Section 7.13 Defined Benefit Pension Plans. The Borrower will not
-----------------------------
adopt, create, assume or become a party to any Plan, unless disclosed to the
Lender pursuant to Section 5.10 hereof.
Section 7.14 Other Defaults. The Borrower will not permit any breach,
--------------
default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower, in excess of $2,000
singly or in the aggregate.
26
<PAGE>
Section 7.15 Place of Business; Name. The Borrower will not transfer
-----------------------
its chief executive office or principal place of business, or move, relocate,
close or sell any business location outside of Jefferson County, the City and
County of Denver, Arapahoe County, Adams County or Douglas County (the
"Counties") provided that, if the Borrower transfers its chief executive
office or principal place of business within the Counties, or moves,
relocates, closes or sells any business location within the Counties, the
Borrower shall notify the Lender in writing of such transfer, move,
relocation, closure or sale at least thirty days before such transfer, move,
relocation, closure or sale occurs. The Borrower will not permit any
tangible Collateral or any records pertaining to the Collateral to be located
in any state or area in which, in the event of such location, a financing
statement covering such Collateral would be required to be, but has not in
fact been, filed in order to perfect the Security Interests. The Borrower
will not change its name.
Section 7.16 Organizational Documents. The Borrower will not amend its
------------------------
certificate of incorporation, articles of incorporation or bylaws.
ARTICLE VIII
Events of Default, Rights and Remedies
--------------------------------------
Section 8.1 Events of Default. "Event of Default", wherever used
-----------------
herein, means any one of the following events:
(a) Default in the payment of any interest on or principal of the
Note when it becomes due and payable; or
(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this
Agreement; or
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement; or
(d) The Borrower shall be or become insolvent, or admit in writing
its inability to pay its debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower shall
apply for or consent to the appointment of any receiver,
trustee, or similar officer for it for all or any substantial
part of its property; or such receiver, trustee or similar
officer shall be appointed without the application or consent
of the Borrower; or the Borrower shall institute (by petition,
application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it
under the laws of any jurisdiction; or any such proceeding
shall be instituted (by petition, application or otherwise)
27
<PAGE>
against the Borrower; or any judgment, writ, warrant of
attachment, garnishment or execution or similar process
shall be issued or levied against a substantial part of the
property of the Borrower; or
(e) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor; or
(f) Any representation or warranty made by the Borrower in this
Agreement, any agreement, certificate, instrument or financial
statement or other statement contemplated by or made or
delivered pursuant to or in connection with this Agreement
shall prove to have been incorrect in any material respect when
deemed to be effective; or
(g) The rendering against the Borrower of a final judgment, decree
or order for the payment of money in excess of $35,000 which is
not covered by insurance under circumstances where the insurer
does not contest coverage, and the continuance of such
judgment, decree or order unsatisfied and in effect for any
period of 30 consecutive days without a stay of execution; or
(h) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the
Lender, or under any indenture or other instrument under which
any such evidence of indebtedness has been issued or by which
it is governed, or under any lease of any of the Premises, and
the expiration of the applicable period of grace, if any,
specified in such evidence of indebtedness, indenture, other
instrument or lease; or
(i) An event of default shall occur under any Security Document or
under any other security agreement, mortgage, deed of trust,
assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note; or
(j) The Borrower shall liquidate, dissolve, terminate or suspend
its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially
all of its assets, without the prior written consent of the
Lender; or
(k) The Borrower shall fail to pay, withhold, collect or remit any
tax or tax deficiency when assessed or due (other than any tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books
adequate reserves therefor) or notice of any state or federal
tax liens shall be filed or issued; or
(l) Default in the payment of any amount owed by the Borrower to
the Lender other than any indebtedness arising hereunder.
28
<PAGE>
Section 8.2 Rights and Remedies. Upon the occurrence of an Event of
-------------------
Default or at any time thereafter, the Lender may exercise any or all of the
following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare the Credit
Facility to be terminated, whereupon the same shall forthwith
terminate;
(b) The Lender may, by notice to the Borrower, declare to be
forthwith due and payable the entire unpaid principal amount of
the Note then outstanding, all interest accrued and unpaid
thereon, all amounts payable under this Agreement and any other
Obligations, whereupon the Note, all such accrued interest and
all such amounts and Obligations shall become and be forthwith
due and payable, without presentment, notice of dishonor,
protest or further notice of any kind, all of which are hereby
expressly waived by the Borrower;
(c) The Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to
the Borrower to the payment of the Advances, including interest
accrued thereon, and of all other sums then owing by the
Borrower hereunder;
(d) The Lender may, exercise and enforce any and all rights and
remedies available upon default to a secured party under the
UCC, including, without limitation, the right to take
possession of Collateral, or any evidence thereof, proceeding
without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrower hereby
expressly waives) and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and, in connection
therewith, the Borrower will on demand assemble the Collateral
and make it available to the Lender at a place to be designated
by the Lender which is reasonably convenient to both parties;
(e) the Lender may exercise and enforce its rights and remedies
under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies available
to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(e) hereof, the entire unpaid principal amount of the
Note, all interest accrued and unpaid thereon, all other amounts payable
under this Agreement (including amounts to be deposited pursuant to Section
8.2(c)), and any other Obligations shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrower of any intended
---------------
disposition of Collateral or any other intended action is required by law in
a particular instance, such notice shall be deemed commercially reasonable if
29
<PAGE>
given (in the manner specified in Section 9.3) at least ten calendar days
prior to the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
-------------
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay on the
------------------------------
part of the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under
the Loan Documents. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification, termination
---------------
or waiver of any provision of any Loan Document or consent to any departure
by the Borrower therefrom or any release of a Security Interest shall be
effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed to the party to whom notice is being given at its address
as set forth below and, if telecopied, transmitted to that party at its
telecopier number set forth below:
If to the Borrower:
Service Business Systems, Inc.
11415 West I-70 Frontage Road North
Wheat Ridge, Colorado 80033
Telecopier: (303) 431-5668
Attention: Richard S. Simms
30
<PAGE>
If to the Lender:
Norwest Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Telecopier: (303) 863-4904
Attention: Debra Tracy
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given
on (a) the date received if personally delivered, (b) when deposited in the
mail if delivered by mail, (c) the date sent if sent by overnight courier, or
(d) the date of transmission if delivered by telecopy, except that notices or
requests to the Lender pursuant to any of the provisions of Article II hereof
shall not be effective until received by the Lender.
Section 9.4 Financing Statement. A carbon, photographic or other
-------------------
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests
granted hereby. For this purpose, the following information is set forth:
Name and address of Debtor:
Service Business Systems, Inc.
11415 West I-70 Frontage Road North
Wheat Ridge, Colorado 80033
Federal Tax Identification No. 84-1100884
Name and address of Secured Party:
Norwest Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Section 9.5 Further Documents. The Borrower will from time to time
-----------------
execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interests or the rights of
the Lender under this Agreement (but any failure to request or assure that
the Borrower executes, delivers or endorses any such item shall not affect or
impair the validity, sufficiency or enforceability of this Agreement and the
Security Interests, regardless of whether any such item was or was not
executed, delivered or endorsed in a similar context or on a prior occasion).
31
<PAGE>
Section 9.6 Collateral. This Agreement does not contemplate a sale of
----------
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any
deficiency. The Lender's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third
person, and the Lender need not otherwise preserve, protect, insure or care
for any Collateral. The Lender shall not be obligated to preserve any rights
the Borrower may have against prior parties, to realize on the Collateral at
all or in any particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application.
Section 9.7 Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) attorneys' fees,
reasonably incurred by the Lender in connection with the Obligations, this
Agreement, the Loan Documents and any other document or agreement related
hereto or thereto, and the transactions contemplated hereby, including without
limitation all such costs, expenses and fees incurred in connection with the
negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction,
foreclosure or enforcement of the Security Interests.
Section 9.8 Indemnity. In addition to the payment of expenses pursuant
---------
to Section 9.7 hereof and the environmental indemnity pursuant to Section 6.4
hereof, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all
present and future officers, directors, employees and agents of the foregoing
(the "Indemnitees"), from and against (i) any and all transfer taxes,
documentary taxes, assessments or charges made by any governmental authority
by reason of the execution and delivery of this Agreement and the other Loan
Documents or the making of the Advances, and (ii) any and all liabilities,
losses, damages, penalties, judgments, suits, claims, costs and expenses of
any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel) in connection with any investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall
be designated a party thereto, which may be imposed on, incurred by or
asserted against such Indemnitee, in any manner relating to or arising out of
or in connection with the making of the Advances, this Agreement and all
other Loan Documents or the use or intended use of the proceeds of the
Advances (the "Indemnified Liabilities"). If any investigative, judicial or
administrative proceeding arising from any of the foregoing is brought
against any Indemnitee, upon request of such Indemnitee, the Borrower, or
counsel designated by the Borrower and satisfactory to the Indemnitee, will
resist and defend such action, suit or proceeding to the extent and in the
manner directed by the Indemnitee, at the Borrower's sole cost and expense.
Each Indemnitee will use its best efforts to cooperate in the defense of any
such action, suit or proceeding. If the foregoing undertaking to indemnify,
defend and hold harmless may be held to be unenforceable because it violates
any law or public policy, the Borrower shall nevertheless make the maximum
contribution to the payment and satisfaction of each of the Indemnified
32
<PAGE>
Liabilities which is permissible under applicable law. The obligation of the
Borrower under this Section 9.8 shall survive the termination of this
Agreement and the discharge of the Borrower's other Obligations.
Section 9.9 Participants. The Lender and its participants, if any, are
------------
not partners or joint venturers, and the Lender shall not have any liability
or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender
may be transferred or delegated to any of the participants, successors or
assigns of the Lender.
Section 9.10 Execution in Counterparts. This Agreement and other Loan
-------------------------
Documents may be executed in any number of counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same
instrument.
Section 9.11 Binding Effect; Assignment; Complete Agreement. The Loan
----------------------------------------------
Documents shall be binding upon and inure to the benefit of the Borrower and
the Lender and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights thereunder or any
interest therein without the prior written consent of the Lender. This
Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and
supersedes all prior agreements, written or oral, on the subject matter
hereof.
Section 9.12 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
--------------------------------------------------------
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Colorado. Each
party consents to the personal jurisdiction of the state and federal courts
located in the State of Colorado in connection with any controversy related
to this Agreement, waives any argument that venue in any such forum is not
convenient and agrees that any litigation initiated by any of them in
connection with this Agreement shall be venued in either the District Court
of the City and County of Denver, Colorado, or the United States District
Court, District of Colorado. The parties waive any right to trial by jury
in any action or proceeding based on or pertaining to this Agreement.
Section 9.13 Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.14 Headings. Article and Section headings in this Agreement
--------
are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
SERVICE BUSINESS SYSTEMS, INC.
BY(Signature) /s/Donald V. Warriner
(Name and Title) Donald V. Warriner,
President and CEO
NORWEST BUSINESS CREDIT, INC.
BY(Signature) /s/Greg Glessman
(Name and Title) Greg Glessman,
Vice President
34
<PAGE>
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$500,000 Denver, Colorado
January 3, 1997
For value received, the undersigned, Service Business Systems, Inc., a
Colorado corporation (the "Borrower"), hereby promises to pay on December 31,
1998 to the order of Norwest Business Credit, Inc., a Minnesota corporation
(the "Lender"), at its main office in Minneapolis, Minnesota, or at any other
place designated at any time by the holder hereof, in lawful money of the
United States of America and in immediately available funds, the principal
sum of Five Hundred Thousand and No/100 Dollars ($500,000) or, if less, the
aggregate unpaid principal amount of all advances made by the Lender to the
Borrower hereunder, together with interest on the principal amount hereunder
remaining unpaid from time to time, computed on the basis of the actual
number of days elapsed and a 360-day year, from the date hereof until this
Note is fully paid at the rate from time to time in effect under the Credit
and Security Agreement of even date herewith (the "Credit Agreement") by and
between the Lender and the Borrower. The principal hereof and interest
accruing thereon shall be due and payable as provided in the Credit
Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is
the Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages,
deeds of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when
due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
SERVICE BUSINESS SYSTEMS, INC.
BY(Signature) /s/
(Name and Title)
35
<PAGE>
Exhibit B to Credit and Security Agreement
Names
-----
Service Business Systems, Inc.
Service Business Systems of Colorado, Inc.
Chief Executive Office/Principal Place of Business
--------------------------------------------------
11415 West I-70 Frontage Road North
Wheat Ridge, Colorado 80033
Other Locations
---------------
Creative Business
1001 S. Galapago Street
Denver, CO 80223
BEI Graphics
3550 Frontier Avenue
Boulder, CO 80301
American Stamping
P.O. Box 203
Englewood, CO 80151
Precision Graphics
2021 S. Platte River Drive
Denver, CO 80223
National Self Storage
8845 North I-70 Frontage Road
Arvada, CO 80002
Subsidiaries
------------
None
36
<PAGE>
Exhibit C to Credit and Security Agreement
Permitted Liens, Indebtedness and Guaranties
--------------------------------------------
SEE ATTACHED
1
<PAGE>
Exhibit D to Credit and Security Agreement
Compliance Certificate
----------------------
In accordance with our Credit and Security Agreement dated as of January
3, 1997 (the "Credit Agreement"), attached are the financial statements of
_________________ (the "Borrower") as of and for the month and year-to-date
period ended ______________ __, 199_ (the"Current Financials").
I certify that the Current Financials have been prepared in accordance
with generally accepted accounting principles applied on a basis consistent
with the accounting practices reflected in the financial statements referred
to in Section 5.5 of the Credit Agreement, subject to year-end audit
adjustments.
Defaults and Events of Default (check one)
- ------------------------------------------
I have no knowledge of the occurrence of any Default or Event of
Default under the Credit Agreement which has not previously been
reported to you and remedied.
Attached is a detailed description of all Defaults and Events of
Default of which I have knowledge and which have not previously
been reported to you and remedied.
For the date and periods covered by the Current Financials, the Borrower
is in compliance with the covenants set forth in Sections 6.12 through 6.14
and 7.10 of the Credit Agreement, except as indicated below. The
calculations made to determine compliance are as follows:
<TABLE>
<CAPTION>
Covenant Actual Requirement
-------- ------ -----------
<S> <C>
6.12) (Maximum Loss)
6.13) (Earnings)
7.10) (Capital Expenditures)
</TABLE>
BY(Signature) /s/
(Name and Title) Chief Financial Officer of
Service Business Systems, Inc.
1
<PAGE>
Exhibit E to Credit and Security Agreement
Premises
--------
The Premises referred to in the Credit and Security Agreement are
described as follows:
11415 West I-70 Frontage Road North
Wheat Ridge, CO 80033
1
<PAGE>
COLLATERAL ACCOUNT AGREEMENT
January 3, 1997
Norwest Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Re: Account No. 312-8003425 maintained by Norwest Bank Colorado, N.A. (the
"Bank")
Ladies and Gentlemen:
SERVICE BUSINESS SYSTEMS, INC., a Colorado corporation (the
"Client"), and the Bank are writing to confirm that they have agreed as
follows:
1. The Client will deposit in the referenced Account (the "Collateral
Account") all collections of receivables and other cash proceeds of the
collateral security granted to Norwest Business Credit, Inc., a Minnesota
corporation (the "Lender").
2. The Collateral Account will be operated and maintained exclusively
for the Lender's benefit. The Client shall have no right to make or
countermand withdrawals from the Collateral Account.
3. The Client hereby pledges to and grants the Lender a security
interest in all funds on deposit in the Collateral Account from time to time
and all proceeds thereof, to secure payment of all of the Client's
obligations to the Lender whether now existing or hereafter arising.
4. After allowing two days for collection of items deposited in the
Collateral Account, the Client shall instruct the Bank to transmit good funds
in the amount of the deposit to Norwest Bank Minnesota, National Association,
ABA No. 091000019, for the Lender's account, account no. 635-5010459.
5. If any item deposited in the Collateral Account is returned unpaid,
the Bank will so notify the Client.
6. The Client hereby grants the Bank the right to charge its general
operating account, account no. 312-8003409 maintained by the Client with the
Bank for any item deposited in the Collateral Account which is returned
<PAGE>
unpaid. The Bank, however, shall have no right to charge or offset amounts
in the Collateral Account for items returned unpaid. Without limiting the
generality of the foregoing, the Bank hereby waives any right of setoff it
may have with respect to the Collateral Account.
This Agreement shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Colorado. Each
party consents to the personal jurisdiction of the state and federal courts
located in the State of Colorado in connection with any controversy related
to this Agreement, waives any argument that venue in any such forum is not
convenient, and agrees that any litigation initiated by any of them in
connection with this Agreement shall be venued in either the Colorado state
courts of general jurisdiction located in the City and County of Denver,
Colorado, or the United States District Court, District of Colorado. The
parties waive any right to trial by jury in any action or proceeding based
on or pertaining to this Agreement. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
The Client may not terminate this Agreement without obtaining the
Lender's prior written consent. The Bank may not terminate this Agreement
without 60 days' prior written notice to the Lender. The Lender may
terminate this Agreement at any time, with or without cause.
This Agreement shall be enforceable against the Client and the Bank
by the Lender and the Lender's participants, successors and assigns. The
Client and the Bank waive notice of the Lender's acceptance hereof.
SERVICE BUSINESS SYSTEMS, INC.
BY(Signature) /s/Donald V. Warriner
(Name and Title) Donald V. Warriner,
President and CEO
NORWEST BANK COLORADO, N.A.
BY(Signature) /s/Frank L. Cummings
(Name and Title) Frank L. Cummings
AVP
2
<PAGE>
Accepted:
NORWEST BUSINESS CREDIT, INC.
BY(Signature) /s/Greg Glessman
(Name and (Title) Greg Glessman
Vice President
3
<PAGE>
AGREEMENT AS TO LOCKBOX SERVICE
This Agreement is made as of the 3rd day of January, 1997, by and among
SERVICE BUSINESS SYSTEMS, INC., a Colorado corporation (the "Customer"),
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Secured Party"),
and NORWEST BANK COLORADO, N.A., a national association ("Norwest").
The Secured Party has required the execution of this Agreement as a
condition to the Secured Party's consideration of making any advances to the
Customer under the terms of the Credit and Security Agreement dated as of
January 3, 1997, by and between the Customer and the Secured Party.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter contained, the parties agree as follows:
I . Definitions.
-----------
"Collateral" means all of the Customer's equipment, inventory, accounts,
instruments, chattel paper, other rights to payment, money and general
intangibles, now or hereafter acquired, together with all products and
proceeds thereof.
"Collateral Account" means Norwest account no. 312-8003425 maintained
for the benefit of the Secured Party pursuant to the terms of the
Collateral Account Agreement dated as of January 3, 1997, given to the
Secured Party by the Customer and Norwest.
"Lockbox" means the lockbox to be administered by Norwest for the
benefit of the Secured Party, to which the Customer shall direct its
account debtors and other persons obligated to make payments
constituting Collateral to make such payments.
2. Notification to Account Debtors. The address of the Lockbox
-------------------------------
shall be as follows:
Service Business Systems, Inc..
Department 703
Denver, Colorado 80291-0703
Immediately upon the execution of this Agreement, and as Collateral is
generated in the future, the Customer shall give written notification to all
persons obligated to make payments constituting Collateral, directing them to
make such payments to the address of the Lockbox. The Customer shall not
revoke or rescind any such notification and shall not take any action
inconsistent with this Agreement. The Customer agrees to deposit any and all
collections of accounts receivable and any and all other proceeds of
Collateral received directly by it in the Collateral Account.
<PAGE>
3 . Control of Lockbox. The Lockbox shall be under the sole and
------------------
exclusive control of the Secured Party. All items in the Lockbox shall
constitute proceeds of Collateral upon their deposit therein.
4. Processing Contents of Lockbox. Each business day, Norwest or its
------------------------------
authorized designees shall remove the contents of the Lockbox and process
items in the Lockbox in accordance with Exhibit A hereto.
5. Depositing Checks to the Collateral Account. For all processed
-------------------------------------------
checks, other than those with respect to which Paragraph 4 provides a
difference procedure, the Customer authorizes Norwest to endorse the checks
and to deposit them to the Collateral Account on the business day of receipt.
6. Limitation of Liability. Norwest's and the Secured Party's
-----------------------
liability in connection with the performance of the transactions covered by
this Agreement shall be strictly limited as follows:
(a) Norwest shall exercise due care in selecting agents and
independent contractors to pick up and deliver the contents of the Lockbox
("Norwest's Designees") but shall not be liable for loss caused by Norwest's
Designees' negligence or misconduct. In the event of such loss, Norwest
will exercise its best efforts, at the Customer's cost and expense, to assist
the Customer in obtaining redress from the responsible party.
(b) Norwest shall exercise its best efforts in determining the
optimum time to pick up mail at the Lockbox and the best carrier to deliver
that mail to its Operations Center. However, Norwest shall not be liable if
the chosen pickup time and carrier prove not to result in the earliest
possible availability of funds.
(c) In performing its duties hereunder, Norwest will exercise
ordinary care and will act in good faith. Norwest will not be accountable
for its failure to perform any of its obligations hereunder, except for its
gross negligence or willful misconduct, or that of its employees, officers,
or agents. If, as a result of such gross negligence or willful misconduct,
Norwest is liable for mishandling any item, such liability shall be limited
to the lesser of the face amount of any check involved or the amount of the
Customer's direct loss as a result of such mishandling, and in no event
shall Norwest be responsible for any incidental or consequential damages.
IN NO EVENT SHALL NORWEST BE LIABLE FOR ANY INDIRECT OR
CONSEQUENTIAL DAMAGES
OR LOSS OF PROFIT, NOTWITHSTANDING NOTICE TO NORWEST OF THE
POSSIBILITY OF
SUCH DAMAGES OR LOSSES.
(d) Neither the Secured Party nor its present, former or future
shareholders, directors, officers, employees, agents, attorneys,
predecessors, successors, divisions, parent, subsidiaries, affiliates,
participants and assigns (together with the Secured Party, collectively the
"Indemnitees") shall be liable for, and the Customer hereby assumes full
responsibility for and agrees to indemnify and hold harmless the Indemnitees
from and against, any and all of the Customer's or any other person's losses,
liabilities, damages, claims, demands, causes of action, lawsuits, judgments,
2
<PAGE>
costs and expenses (including without limitation attorneys' fees) relating in
any way to this Agreement. The foregoing indemnification agreement shall
survive the termination of this Agreement, the closing of the Lockbox and
the payment of the Customer's indebtedness to the Secured Party. IN NO EVENT
SHALL THE SECURED PARTY BE LIABLE FOR ANY INDIRECT OR CONSEQUENTIAL
DAMAGES
OR LOSS OF PROFIT, NOTWITHSTANDING NOTICE TO THE SECURED PARTY OF THE
POSSIBILITY OF SUCH DAMAGES OR LOSSES.
7. Fees. For the services to be provided by Norwest, the Customer
----
will pay Norwest in accordance with Norwest's standard rates for the services
contemplated hereby as set forth on such fee schedules as Norwest may from
time to time deliver to the Customer.
8. Term and Termination. This Agreement shall be effective when a
--------------------
copy of the Agreement executed by all parties has been delivered to Norwest.
The Customer may not terminate this Agreement without the written consent of
the Secured Party and 30 days' written notice to Norwest. The Secured Party
may terminate this Agreement at any time, with or without cause, upon 30
days' written notice to the other parties. Norwest may terminate this
Agreement at any time, with or without cause, upon 30 days' written notice to
the Customer and the Secured Party. Norwest may terminate this Agreement
immediately upon written notice to the Customer and the Secured Party
if it in good faith believes that it is at significant risk of loss by
continuing its obligations under this Agreement.
9. Notice. Any notice required or permitted by this Agreement shall
------
be deemed to have been given when mailed, postage prepaid, or when delivered
to the following address:
If to Norwest:
Norwest Bank Colorado, N. A.
12601 West 32nd Avenue
Wheat Ridge, Colorado 80033-5252
Attention: Fran Cummings
If to the Customer:
Service Business Systems
11415 West I-70 Frontage Road North
Wheat Ridge, CO 80033
Attention: Richard S. Simms
3
<PAGE>
If to the Secured Party:
Norwest Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Attention: Debra Tracy
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
NORWEST BANK COLORADO, N.A.
BY(Signature) /s/Frank L. Cummings
(Name and Title) Frank L. Cummings,
AVP
NORWEST BUSINESS CREDIT, INC.
BY(Signature) /s/Greg Glessman
(Name and Title) Greg Glessman,
Vice President
SERVICE BUSINESS SYSTEMS, INC..
BY(Signature) /s/Donald V. Warriner
(Name and Title) Donald V. Warriner,
President and CEO
4
<PAGE>
LANDLORD'S DISCLAIMER AND CONSENT
To induce Norwest Business Credit, Inc. (the "Lender"), to make one
or more loans to Service Business Systems of Colorado, Inc. (the "Borrower"),
secured by the Borrower's property, including the Borrower's property located
at the Premises (as defined below) which is leased by Data National
Corporation, the corporate parent of Borrower (the "Lessee"), pursuant to the
Lease (as defined below), and for other good and valuable consideration, the
undersigned hereby certifies and agrees for the benefit of the Lender, its
participants, successors and assigns, as follows:
1. The undersigned owns certain premises located in Jefferson
County, described in Exhibit A attached hereto (the "Premises") and has leased
the Premises to the Lessee pursuant to a lease (the "Lease"), a true, correct
and complete copy of which is attached hereto as Exhibit B.
2. The Lease is in full force and effect and the Lessee is
not in default of any provision of the Lease.
3. The undersigned does not own, and hereby releases and
disclaims, any interest in any goods (whether in the nature of inventory or
equipment and specifically including any fixtures and tenant improvements)
which the Borrower or the Lessee has previously placed or installed or may
hereafter place or install upon the Premises.
4. The undersigned hereby (i) agrees to recognize the right
of possession granted to the Lender by the Borrower pursuant to that certain
Credit and Security Agreement by and between the Borrower and the Lender
dated as of _____________, 1997, as amended from time to time; (ii)
acknowledges that the Lender shall have no duty, obligation or liability
whatsoever for rent or otherwise with respect to the possession, occupancy or
use of the Premises, even if the Lender has taken possession of the Premises
or has, on a previous occasion, paid rent or performed any obligation under
any lease of the Premises; except if the Lender takes possession of or
occupies the Premises, the Lender shall pay the undersigned rent for the same
base rental rate which the Lessee would have been obligated to pay for the
period during which the Lender has possession of or occupies the Premises;
(iii) reserves in all respects the right to cancel or terminate the Lease,
for nonpayment of rent or otherwise, whether or not the Lender is in
possession of the Premises, but, notwithstanding any such cancellation or
termination, the Lender shall continue to have the right to the possession,
occupancy and use of the Premises for purposes of holding, processing,
manufacturing, selling, using, storing, liquidating, realizing upon or
otherwise disposing of the Lender's collateral, and for related and
incidental purposes, for up to 105 days from the date of notice of such
cancellation or termination, given pursuant to clause (v) of this paragraph
4; (iv) agrees to give the Lender notice of any breach of the Lease by the
Lessee or the Borrower, at the same time as the undersigned shall give
notice of such breach to the Lessee or to the Borrower, of any legal action
which the undersigned may commence to evict the Lessee or the Borrower from
the Premises or to terminate or limit the Lessee's or the Borrower's right to
use, possess or lease the Premises, promptly upon the commencement of any
such action, and of any change in the ownership of the Premises and the name
and address of each new owner of the Premises, at least 15 days prior
<PAGE>
to any such change in ownership; and (v) agrees not to cancel the Lease
without first giving the Lender at least 15 days' prior written notice of
such cancellation, stating the grounds for cancellation or termination. All
notices to the Lender shall be deemed given three days after being sent by
first class United States mail, postage prepaid, addressed to the Lender at
Norwest Business Credit, Inc.; Attention: Debbie Tracy; 1740 Broadway;
Denver, Colorado 80274-8625.
5. This Disclaimer and Consent shall be governed by and
construed in accordance with the substantive laws (other than conflict laws)
of the State of Colorado. The parties waive any right to trial by jury in
any action or proceeding based on or pertaining to this Disclaimer and
Consent. This Disclaimer and Consent may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. No failure on the part of the Lender to
exercise, and no delay in exercising any right, power or remedy hereunder
shall operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any right, power or remedy hereunder preclude
any other or further exercise of such right, power or remedy or the exercise
of any other right, power or remedy. This Disclaimer and Consent expresses
completely, exclusively and finally all the agreements, conditions and
covenants of the parties and does not need evidence (written or oral) of
prior, contemporaneous or subsequent statements or representations (express
or implied) to reflect the intentions of the parties. This Disclaimer and
Consent may not be supplemented or modified except in writing. This
Disclaimer and Consent inures to the benefit of the Lender and binds the
undersigned, and their respective successors and assigns. This does not
imply a commitment to lend and shall be binding as long as any obligations of
the Borrower to the Lender remain outstanding or are subject to recoupment.
Dated: December 26, 1996.
H.K. BUILDINGS
BY(Signature) /s/Harold Kunz
(Name and Title) Harold Kunz, Owner
STATE OF Colorado )
)
COUNTY OF Jefferson)
The foregoing instrument was acknowledged before me this 26th day of
December, 1996, by Harold Kunz, the owner of the HK building, a sole
proprietorship, on behalf of the owner.
BY(Signature) /s/ D. J. Hayes
Notary Public
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<PAGE>
LESSEE ACKNOWLEDGMENT
The Lessee hereby acknowledges that the Borrower occupies the Premises
with the Lessee's permission. The Lessee does not own, and hereby releases
and disclaims, any interest in any goods (whether in the nature of inventory
or equipment and specifically including any fixtures and tenant improvements)
which the Borrower has previously placed or installed or may hereafter place
or install upon the Premises. The Lessee hereby (1) agrees to recognize the
right of possession granted to the Lender by the Borrower pursuant to that
certain Credit and Security Agreement by and between the Borrower and the
Lender dated as of January 3, 1997, as amended from time to time and agrees
that, regardless of any obligations of the Borrower to pay rent to the
Lessee, for the Borrower's occupation of the Premises, the Lender shall have
the right to occupy the Premises without any payment of rent and without
curing any defaults of the Borrower; and (ii) agrees to give the Lender
notice of any breach of the Lease by the Lessee or the Borrower, at the same
time as the Lessee receives notice of such breach or of any legal action
which H.K. Buildings may commence to evict the Lessee or the Borrower from
the Premises or to terminate or limit the Lessee's or the Borrower's right to
use, possess or lease the Premises, promptly upon the receipt of notice of
the commencement of any such action, and, upon receipt of notice, of any
change in the ownership of the Premises and the name and address of each new
owner of the Premises.
Dated: January 3, 1997
DATA NATIONAL CORPORATION
BY(Signature) /s/Richard S. Simms
(Name and Title) Richard S. Simms, Vice President
STATE OF Colorado )
)
COUNTY OF Jefferson )
The foregoing instrument was acknowledged before me this 26th day
of December, 1996, by Richard S. Simms, the Vice President of Data National
Corporation, a Colorado corporation, on behalf of the _______________.
BY(Signature) /s/ Jacqueline A Brabo
Notary Public
3
<PAGE>
EXHIBIT A
TO
LANDLORD'S DISCLAIMER AND CONSENT
The Premises described in the referenced document are located in
Jefferson County, and are described as follows:
that certain real property situated in the County of
Jefferson, State of Colorado, commonly known as
11415 W. I-70 Frontage Road North, Wheat Ridge,
Colorado 80033 and described as approximately 7,680
sq. ft. of office warehouse and 925 sq. ft. of dock
and cold storage which constitutes 67% of the building
not including the dock area.
4
<PAGE>
EXHIBIT B
TO
LANDLORD'S DISCLAIMER AND CONSENT
[COPY OF LEASE]
5
<PAGE>
SUPPORT AGREEMENT
This SUPPORT AGREEMENT ("Agreement") is made as of the 3rd day of
January, 1997, among Richard S. Simms (hereinafter referred to as the
"undersigned"), Service Business Systems, Inc., a Colorado corporation
(the "Borrower"), and Norwest Business Credit, Inc. (hereinafter
referred to as "NBCI").
WITNESSETH:
WHEREAS, NBCI and Borrower have entered into that certain Credit and
Security Agreement ("Credit Agreement") dated as of January 3, 1997, pursuant
to which NBCI may, from time to time, at its discretion, make advances to or
for the benefit of Borrower;
WHEREAS, the undersigned is the duly elected, qualified and acting
Chief Financial Officer of the Borrower and is fully familiar with all of
the Borrower's business and financial affairs;
NOW, THEREFORE, to induce NBCI to make advances to or for the account
of the Borrower under the Credit Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the undersigned, the Borrower and NBCI agree as follows:
1. The undersigned agrees that in the event (i) NBCI comes into
possession of any or all of the tangible Collateral (as such term is defined
in the Credit Agreement) or is collecting the Borrower's accounts receivable
or otherwise disposing of Collateral by reason of the occurrence of an Event
of Default under the Security Documents (as defined in Credit Agreement),
(ii) NBCI has given notice of an acceleration of all of the obligations under
and an defined in the Security Agreement, and (iii) he is then in the employ
of the Borrower, he will, if and at such time as he ceases to be employed by
the Borrower, at NBCI's option and upon NBCI's request, and until this
Agreement shall have terminated as provided herein, enter NBCI's employ for
a period not to exceed six months, for the sole purpose of disposing of such
Collateral and collecting such accounts, or assisting NBCI in disposing of
such Collateral and collecting such accounts. During the period of such
employment the undersigned shall exert his best efforts and devote
approximately the same number of hours as he devoted to the business of the
Borrower prior to the commencement of such period to obtain sales of such
Collateral at the best obtainable prices and terms and to collect such
accounts at their full face value. If the events described in clauses (i)
and (ii) occur at a time when the undersigned is employed by the Borrower,
then, if requested by NBCI, Borrower shall cause the undersigned, so long as
he is in its employ, to exert his best efforts and devote all of his regular
working hours to obtain sales of such Collateral at the best obtainable
prices and terms and to collect such accounts at their full face value.
2. NBCI shall have the right to terminate the undersigned's employment
or other assistance described in Paragraph 1 above at any time on five
business days' notice, for any cause or without cause.
3. The sole compensation and remuneration of the undersigned for any
employment or assistance rendered pursuant to Paragraph 1 above shall be a
weekly salary paid at the same rate as the average salary (on a weekly basis)
paid to such person by Borrower in the twelve (12) months immediately
preceding the commencement of such employment or activities. Such
compensation shall be prorated for partial weeks of service.
4. In connection with such employment, the undersigned shall not have
any authority to bind NBCI, except such specific authority as NBCI may grant
in writing.
5. In the event that the undersigned fails to comply with the
provisions of Paragraph 1 above, unless such failure occurs as a result of
death, mental or physical incapacity, or NBCI's termination of employment of
the undersigned, the undersigned shall pay NBCI an amount equal to $25,000
as liquidated damages, but not as a penalty, because of the difficulty of
proving actual damages for the breach of premium of the type contained
herein. Such liquidated damages shall be immediately due and payable upon
the failure by the undersigned to comply with the provisions of Paragraph 1
above. In addition, the undersigned shall be liable for NBCI's costs and
expenses (including reasonable attorneys, fees and legal costs) incurred in
enforcing this liquidated damages provision. In no event, however, shall the
undersigned be liable for more than NBCI's actual damages, plus NBCI's costs
of enforcement of this Agreement. Notwithstanding the foregoing, the
undersigned shall not have any obligation under this Paragraph 5 if he shall
have ceased to be employed by the Borrower more than thirty (30) business
days prior to the occurrence of the events described in clauses (i) add (ii)
of Paragraph 1 hereof, and shall have given notice of such cessation
of employment to NBCI at least thirty (30) business days prior to the
occurrence of such events.
6. In the event of the death, mental or physical incapacity, or
termination by NBCI of employment of the undersigned, Borrower shall be
responsible for obtaining a replacement for such person and Borrower shall
use its best efforts to cause such replacement to execute a support
agreement substantially in the form of this Agreement.
7. This agreement shall remain in full force and effect so long as the
Credit Agreement is outstanding or until otherwise agreed by an amendment
hereto signed by NBCI and the undersigned.
2
<PAGE>
8. The provisions of this Agreement are declared to be severable. If
any provision of this Agreement shall be held to be invalid, illegal or
unenforceable, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Agreement.
9. The undersigned and the Borrower waive notice of NBCI's acceptance
hereof.
SERVICE BUSINESS SYSTEMS, INC.
BY(Signature) /s/Donald V. Warriner
(Name and Title) Donald V. Warriner,
President and CEO
NORWEST BUSINESS CREDIT, INC.
BY(Signature) /s/Greg Glessman
(Name and Title) Greg Glessman,
Vice President
DATA NATIONAL CORPORATION
BY(Signature) /s/Richard S. Simms
(Name and Title) Richard S. Simms,
Vice President
3
<PAGE>
SUPPORT AGREEMENT
This SUPPORT AGREEMENT ("Agreement") is made as of the 3rd day of
January, 1997, among Donald V. Warriner (hereinafter referred to as the
"undersigned"), Service Business Systems, Inc., Colorado corporation (the
"Borrower"), and Norwest Business Credit, Inc. (hereinafter referred
to as "NBCI").
WITNESSETH:
WHEREAS, NBCI and Borrower have entered into that certain Credit and
Security Agreement ("Credit Agreement") dated as of January 3, 1997,
pursuant to which NBCI may, from time to time, at its discretion, make
advances to or for the benefit of Borrower;
WHEREAS, the undersigned is the duly elected, qualified and acting
President of the Borrower and is fully familiar with all of the Borrower's
business and financial affairs;
NOW, THEREFORE, to induce NBCI to make advances to or for the account
of the Borrower under the Credit Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the undersigned, the Borrower and NBCI agree as follows:
1. The undersigned agrees that in the event (i) NBCI comes into
possession of any or all of the tangible Collateral (as such term is defined
in the Credit Agreement) or is collecting the Borrower's accounts receivable
or otherwise disposing of Collateral by reason of the occurrence of an Event
of Default under the Security Documents (as defined in Credit Agreement),
(ii) NBCI has given notice of an acceleration of all of the obligations under
and an defined in the Security Agreement, and (iii) he is then in the employ
of the Borrower, he will, if and at such time as he ceases to be employed by
the Borrower, at NBCI's option and upon NBCI's request, and until this
Agreement shall have terminated as provided herein, enter NBCI's employ for a
period not to exceed six months, for the sole purpose of disposing of such
Collateral and collecting such accounts, or assisting NBCI in disposing of
such Collateral and collecting such accounts. During the period of such
employment the undersigned shall exert his best efforts and devote all of
his regular working hours to obtain sales of such Collateral at the best
obtainable prices and terms and to collect such accounts at their full face
value. If the events described in clauses (i) and (ii) occur at a time when
the undersigned is employed by the Borrower, then, if requested by NBCI,
Borrower shall cause the undersigned, so long as he is in its employ, to
exert his best efforts and devote all of his regular working hours to obtain
1
<PAGE>
sales of such Collateral at the best obtainable prices and terms and to
collect such accounts at their full face value.
2. NBCI shall have the right to terminate the undersigned's
employment or other assistance described in Paragraph 1 above at any time on
five business days' notice, for any cause or without cause.
3. The sole compensation and remuneration of the undersigned for
any employment or assistance rendered pursuant to Paragraph 1 above shall be
a weekly salary paid at the same rate as the average salary (on a weekly
basis) paid to such person by Borrower in the twelve (12) months immediately
preceding the commencement of such employment or activities. Such
compensation shall be prorated for partial weeks of service.
4. In connection with such employment, the undersigned shall not
have any authority to bind NBCI, except such specific authority as NBCI may
grant in writing.
5. In the event that the undersigned fails to comply with the
provisions of Paragraph 1 above, unless such failure occurs as a result of
death, mental or physical incapacity, or NBCI's termination of employment of
the undersigned, the undersigned shall pay NBCI an amount equal to $25,000 as
liquidated damages, but not as a penalty, because of the difficulty of
proving actual damages for the breach of premium of the type contained
herein. Such liquidated damages shall be immediately due and payable upon
the failure by the undersigned to comply with the provisions of Paragraph 1
above. In addition, the undersigned shall be liable for NBCI's costs and
expenses (including reasonable attorneys, fees and legal costs) incurred in
enforcing this liquidated damages provision. In no event, however, shall the
undersigned be liable for more than NBCI's actual damages, plus NBCI's costs
of enforcement of this Agreement. Notwithstanding the foregoing, the
undersigned shall not have any obligation under this Paragraph 5 if he shall
have ceased to be employed by the Borrower more than thirty (30) business
days prior to the occurrence of the events described in clauses (i) add (ii)
of Paragraph 1 hereof, and shall have given notice of such cessation of
employment to NBCI at least thirty (30) business days prior to the occurrence
of such events.
6. In the event of the death, mental or physical incapacity, or
termination by NBCI of employment of the undersigned, Borrower shall be
responsible for obtaining a replacement for such person and Borrower shall
use its best efforts to cause such replacement to execute a support agreement
substantially in the form of this Agreement.
7. This agreement shall remain in full force and effect so long as
the Credit Agreement is outstanding or until otherwise agreed by an amendment
hereto signed by NBCI and the undersigned.
2
<PAGE>
8. The provisions of this Agreement are declared to be severable.
If any provision of this Agreement shall be held to be invalid, illegal or
unenforceable, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Agreement.
9. The undersigned and the Borrower waive notice of NBCI's
acceptance hereof.
SERVICE BUSINESS SYSTEMS, INC.
BY(Signature) /s/Donald V. Warriner
(Name and Title) Donald V. Warriner,
President and CEO
NORWEST BUSINESS CREDIT, INC.
BY(Signature) /s/Greg Glessman
(Name and Title) Greg Glessman,
Vice President
BY(Signature) /s/Donald V. Warriner
3
<PAGE>
GUARANTY BY CORPORATION
Denver, Colorado
January 3, 1997
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and to induce Norwest Business Credit, Inc.,
a Minnesota corporation (herein, with its participants, successors and
assigns, called the "Lender"), at its option, at any time or from time to
time to make loans or extend other accommodations to or for the account of
Service Business Systems, Inc. (herein called the "Borrower") or to engage
in any other transactions with the Borrower, the undersigned hereby
absolutely and unconditionally guaranties to the Lender the full and prompt
payment when due, whether at maturity or earlier by reason of acceleration or
otherwise, of any and all present and future debts, liabilities and
obligations owed by the Borrower to the Lender; and the undersigned
acknowledges and agrees with the Lender that:
1. The debts, liabilities and obligations guarantied hereby
(collectively referred to herein as the "Indebtedness") shall include, but
shall not be limited to, debts, liabilities and obligations arising out of
loans, credit transactions, financial accommodations, discounts, purchases of
property or other transactions with the Borrower or for the Borrower's
account or out of any other transaction or event, owed to the Lender or owed
to others by reason of participations granted to or interests acquired or
created for or sold to them by the Lender, in each case whether now existing
or hereafter arising, whether arising directly in a transaction or event
involving the Lender or acquired by the Lender from another by purchase or
assignment or as collateral security, whether owed by the Borrower as drawer,
maker, endorser, accommodation party, guarantor, principal, surety or as a
member of any partnership, syndicate, association or group or in any other
capacity, whether absolute or contingent, direct or indirect, primary or
secondary, sole, joint, several or joint and several, secured or unsecured,
due or not due, contractual, tortious or statutory, liquidated or
unliquidated, arising by agreement or imposed by law or otherwise.
2. The undersigned represents and warrants to the Lender
that (a) the undersigned is a corporation duly organized and existing in good
standing and has full power and authority to make and deliver this guaranty;
(b) the execution, delivery and performance of this guaranty by the
undersigned have been duly authorized by all necessary action of its
directors and shareholders and do not and will not violate the provisions of,
or constitute a default under, any presently applicable law or its articles
of incorporation or bylaws or any agreement presently binding on it; (c) this
guaranty has been duly executed and delivered by the authorized officers of
the undersigned and constitutes its lawful, binding and legally enforceable
obligation; and (d) the authorization, execution, delivery and performance of
this guaranty do not require notification to, registration with, or consent
or approval by, any federal, state or local regulatory body or administrative
agency.
<PAGE>
3. No act or thing need occur to establish the liability of
the undersigned hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the
undersigned hereunder or modify, reduce, limit or release the liability of
the undersigned hereunder. This is an absolute, unconditional and continuing
guaranty of payment of the Indebtedness and shall continue to be in force and
be binding upon the undersigned, whether or not all of the Indebtedness is
paid in full, until this guaranty is revoked prospectively as to future
transactions, by written notice actually received by the Lender, and such
revocation shall not be effective as to the amount of Indebtedness existing
or committed for at the time of actual receipt of such notice by the Lender,
or as to any renewals, extensions, refinancings or refundings thereof. The
dissolution or adjudication of bankruptcy of the undersigned shall not revoke
this guaranty, except upon actual receipt of written notice thereof by the
Lender and only prospectively, as to future transactions, as herein set
forth.
4. The undersigned represents and warrants to the Lender
that the undersigned has a direct and substantial economic interest in the
Borrower and expects to derive substantial benefits therefrom and from any
loans, credit transactions, financial accommodations, discounts, purchases
of property and other transactions and events resulting in the creation of
the Indebtedness guarantied hereby, and that this guaranty is given for a
corporate purpose. The undersigned agrees to rely exclusively on the right
to revoke this guaranty prospectively as to future transactions, in
accordance with paragraph 3, if at any time, in the opinion of the directors
or officers of the undersigned, the corporate benefits then being received
by the undersigned in connection with this guaranty are not sufficient to
warrant the continuance of this guaranty as to the future Indebtedness of
the Borrower. Accordingly, so long as this guaranty is not revoked
prospectively in accordance with paragraph 3, the Lender may rely
conclusively on a continuing warranty, hereby made, that the undersigned
continues to bebenefitted by this guaranty and the Lender shall have no duty
to inquire into or confirm the receipt of any such benefits, and this
guaranty shall be effective and enforceable by the Lender without regard to
the receipt, nature or value of any such benefits.
5. If the undersigned shall be dissolved or shall be or
become insolvent (however defined), then the Lender shall have the right to
declare immediately due and payable, and the undersigned will forthwith pay
to the Lender, the full amount of all of the Indebtedness whether due and
payable or unmatured. If the undersigned voluntarily commences or there is
commenced involuntarily against the undersigned a case under the United
States Bankruptcy Code, the full amount of all Indebtedness, whether due and
payable or unmatured, shall be immediately due and payable without demand or
notice thereof.
6. The undersigned hereby waives all rights that the
undersigned may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise,
to recover from the Borrower or from any property of the Borrower any sums
paid under this Guaranty. The undersigned will not exercise or enforce any
2
<PAGE>
right of contribution to recover any such sums from any person who is a
co-obligor with the Borrower or a guarantor or surety of the Indebtedness or
from any property of any such person until all of the Indebtedness shall have
been fully paid and discharged.
7. The undersigned will pay or reimburse the Lender for all
costs, expenses and attorneys' fees paid or incurred by the Lender in
endeavoring to collect and enforce the Indebtedness and in enforcing this
guaranty.
8. The Lender shall not be obligated by reason of its
acceptance of this guaranty to engage in any transactions with or for the
Borrower. Whether or not any existing relationship between the undersigned
and the Borrower has been changed or ended and whether or not this guaranty
has been revoked, the Lender may enter into transactions resulting in the
creation or continuance of the Indebtedness and may otherwise agree, consent
to or suffer the creation or continuance of any of the Indebtedness, without
any consent or approval by the undersigned and without any prior or
subsequent notice to the undersigned. The liability of the undersigned shall
not be affected or impaired by any of the following acts or things (which the
Lender is expressly authorized to do, omit or suffer from time to time, both
before and after revocation of this guaranty, without consent or approval by
or notice to the undersigned): i. any acceptance of collateral security,
guarantors, accommodation parties or sureties for any or all of the
Indebtedness; ii. one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of
the interest rates, maturities or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the
Indebtedness or any part thereof arose; iii. any waiver or indulgence granted
to the Borrower, any delay or lack of diligence in the enforcement of the
Indebtedness or any failure to institute proceedings, file a claim, give any
required notices or otherwise protect any of the Indebtedness; iv. any full
or partial release of, compromise or settlement with, or agreement not to
sue, the Borrower or any guarantor or other person liable in respect of any
of the Indebtedness; v. any release, surrender, cancellation or other
discharge of any evidence of the Indebtedness or the acceptance of any
instrument in renewal or substitution therefor; vi. any failure to obtain
collateral security (including rights of setoff) for the Indebtedness, or to
see to the proper or sufficient creation and perfection thereof, or to
establish the priority thereof, or to preserve, protect, insure, care for,
exercise or enforce any collateral security; or any modification, alteration,
substitution, exchange, surrender, cancellation, termination, release or
other change, impairment, limitation, loss or discharge of any collateral
security; vii. any collection, sale, lease or disposition of, or any other
foreclosure or enforcement of or realization on, any collateral security;
viii. any assignment, pledge or other transfer of any of the Indebtedness or
any evidence thereof; ix. any manner, order or method of application of any
payments or credits upon the Indebtedness; and x. any election by the Lender
under Section 1111(b) of the United States Bankruptcy Code. The undersigned
waives any and all defenses and discharges available to a surety, guarantor
or accommodation co-obligor.
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<PAGE>
9. The undersigned waives any and all defenses, claims,
setoffs and discharges of the Borrower, or any other obligor, pertaining to
the Indebtedness, except the defense of discharge by payment in full.
Without limiting the generality of the foregoing, the undersigned will not
assert, plead or enforce against the Lender any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res
judicata, statute of frauds, anti-deficiency statute, fraud, incapacity,
minority, usury, illegality or unenforceability which may be available to
the Borrower or any other person liable in respect of any of the
Indebtedness, or any setoff available against the Lender to the Borrower or
any other such person, whether or not on account of a related transaction.
The undersigned expressly agrees that the undersigned shall be and remain
liable for any deficiency remaining after foreclosure of any mortgage or
security interest securing the Indebtedness, whether or not the liability of
the Borrower or any other obligor for such deficiency is discharged pursuant
to statute or judicial decision. The liability of the undersigned shall not
be affected or impaired by any voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all of the
assets, marshalling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of, or other similar event or
proceeding affecting, the Borrower or any of its assets. The undersigned
will not assert, plead or enforce against the Lender any claim, defense or
setoff available to the undersigned against the Borrower.
10. The undersigned waives presentment, demand for payment,
notice of dishonor or nonpayment and protest of any instrument evidencing the
Indebtedness. The Lender shall not be required first to resort for payment
of the Indebtedness to the Borrower or other persons, or their properties, or
first to enforce, realize upon or exhaust any collateral security for
the Indebtedness, before enforcing this guaranty.
11. If any payment applied by the Lender to the Indebtedness
is thereafter set aside, recovered, rescinded or required to be returned for
any reason (including, without limitation, the bankruptcy, insolvency or
reorganization of the Borrower or any other obligor), the Indebtedness to
which such payment was applied shall for the purpose of this guaranty be
deemed to have continued in existence, notwithstanding such application, and
this guaranty shall be enforceable as to such Indebtedness as fully as if
such application had never been made.
12. The undersigned acknowledges and agrees that the Lender
(a) has not made any representations or warranties with respect to, (b) does
not assume any responsibility to the undersigned for, and (c) has no duty to
provide information to the undersigned regarding, the enforceability of any
of the Indebtedness or the financial condition of the Borrower or any
guarantor. The undersigned has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness
and until the Indebtedness is paid in full will independently and without
reliance on the Lender continue to make such determinations.
4
<PAGE>
13. The liability of the undersigned under this guaranty is
in addition to and shall be cumulative with all other liabilities of the
undersigned to the Lender as guarantor, surety, endorser, accommodation
co-obligor or otherwise of any of the Indebtedness or obligation of the
Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides
to the contrary.
14. This guaranty shall be effective upon delivery to the
Lender, without further act, condition or acceptance by the Lender, shall be
binding upon the undersigned and the successors and assigns of the
undersigned and shall inure to the benefit of the Lender and its
participants, successors and assigns. Any invalidity or unenforceability of
any provision or application of this guaranty shall not affect other lawful
provisions and application thereof, and to this end the provisions of this
guaranty are declared to be severable. This guaranty may not be
waived, modified, amended, terminated, released or otherwise changed except
by a writing signed by the undersigned and the Lender. This guaranty shall
be governed by and construed in accordance with the substantive laws (other
than conflict laws) of the State of Colorado. The undersigned waives notice
of the Lender's acceptance hereof. The undersigned irrevocably
i. agrees that any suit, action or other legal proceeding arising out of or
relating to this guaranty may be brought in a court of record in the State of
Colorado or in the Courts of the United States located in such State, ii.
consents to the jurisdiction of each such court in any suit, action or
proceeding, iii. waives any objection which it may have to the laying of
venue of any such suit, action or proceeding in any such courts and any
claim that any such suit, action or proceeding has been brought in an
inconvenient forum, and iv. agrees that a final judgment in any such suit,
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
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<PAGE>
15. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
This guaranty is secured by the "Collateral" as defined in the
Security Agreement between the undersigned and the Lender dated January 3,
1997.
IN WITNESS WHEREOF, this guaranty has been duly executed by the
undersigned the day and year first above written.
(Registrant) DATA NATIONAL CORPORATION
BY(Signature) /s/Donald V. Warriner
(Name and Title) Donald V. Warriner,
President and CEO
Address: 11415 West I-70 Frontage Road North
Wheat Ridge, CO 80033
Attn: Richard S. Simms
STATE OF Colorado )
) ss.
COUNTY OF Jefferson )
The foregoing instrument was acknowledged before me this 3rd day of
January, 1997, by Donald V. Warriner, the President and CEO of Data National
Corporation, a Colorado corporation, on behalf of the corporation.
BY(Signature) /s/Thomas J. Moore
Notary Public
6
<PAGE>
SECURITY AGREEMENT
1. DATA NATIONAL CORPORATION (hereinafter called "Debtor"), whose
address is 11415 West I-70 Frontage Road North, Wheat Ridge, Colorado 80033,
for value received, hereby grants to Norwest Business Credit, Inc., a
Minnesota corporation (hereinafter called "Secured Party"), whose address is
1740 Broadway, Denver, Colorado 80274-8625, a security interest in the
"Collateral" (as hereinafter defined) to secure all obligations of the Debtor
under a guaranty (hereinafter called the "Guaranty") entered into by Debtor
in favor of Secured Party to guarantee any and all obligations of Service
Business Systems, Inc., a Colorado corporation and subsidiary of Debtor
("SBS") to Secured Party, all obligations of Debtor hereunder, and in the
protection, maintenance and liquidation of the security interests hereby
granted, with interest at the maximum legal rate on such costs, expenses,
advances and liabilities, and all other obligations of Debtor to the Secured
Party however created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, due or to become due.
The Guaranty, the SBS Note and all other obligations secured hereby are
herein collectively called the "Liabilities".
2. The property (herein called the "Collateral") in which the
security interests are granted is all of the Debtor's property described
below, together with all proceeds and products therefrom:
(a) All inventory, raw materials, work in process and supplies now
owned or hereafter acquired; and
(b) All equipment and machinery whether now owned or hereafter
acquired;
(c) All accounts, and each and every right of Debtor to the payment
of money, whether such right to payment now exists or hereafter
<PAGE>
arises, whether such right to payment arises out of a sale, lease
or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of
taxes or other liabilities, or otherwise arises under any contract
or agreement, whether such right to payment is created, generated
or earned by Debtor or by some other person who subsequently
transfers such person's interest to Debtor, whether such right to
payment is or is not already earned by performance and howsoever
such right to payment may be evidenced, together with all other
rights and interests (including all liens and security interests)
which Debtor may at any time have by law or against any property
of such account debtor or other obligor; all including but not
limited to all present and future accounts, contract rights,
loans and obligations receivable, chattel papers, bonds, notes
and other debt instruments, tax refunds and rights to payment in
the nature of general intangibles; and
(d) All general intangibles of Debtor whether now owned or hereafter
acquired, including (without limitation) all present and future
patents, patent applications, copyrights, trademarks, trade names,
trade secrets, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, the right to use
Debtor's name, and the goodwill of Debtor's business.
3. Debtor represents and warrants to, and covenants and agrees with,
the Secured Party as follows:
(a) The Collateral will be kept at the address of Debtor set forth
above unless the Secured Party shall otherwise consent in
writing.
(b) Debtor shall not conduct business under any name other than that
given above, nor change or reorganize the type of business entity
under which it does business without the prior written consent of
the Secured Party.
2
<PAGE>
(c) Debtor has full title to the Collateral and will at all times keep
the Collateral free of all liens and claims whatsoever, other than
the security interest granted hereunder and a second priority
security interest granted pursuant to that certain Amended and
Restated Promissory Note dated January 3, 1997 by Debtor in favor
of Ray E. Dillon, Jr. and Ray E. Dillon, III in the original
principal amount of $551,400.
(d) Debtor will not sell, transfer, lease or otherwise dispose of
any of the Collateral or any interest thereon, without the prior
written approval of the Secured Party, except that Debtor may
sell the inventory listed in the ordinary course of business on
customary terms and at usual prices, until advised otherwise by
Secured Party.
(e) No financing statement covering any of the Collateral is on file
in any public office and Debtor will, from time to time on
request of the Secured Party, execute such financing statement
and other documents (and pay the costs of filing or recording the
same in all public offices deemed necessary by the Secured Party)
and do such other acts and things, and pay the cost thereof, as
the Secured Party may request, to establish, maintain,
perfect, extend, modify or terminate the security interests
granted hereunder, including, without limitation, depositing with
the Secured Party any certificate of title issuable with respect
to any of the Collateral and noting the security interest granted
hereunder thereon.
(f) Debtor shall at all times keep the Collateral in first class
order and repair, pay promptly all taxes, judgments or charges of
any kind levied or assessed thereon, and keep current all rent
due on the premises where the Collateral is located.
3
<PAGE>
(g) Debtor shall, at all times, maintain insurance on all Collateral
against such hazards and in such amounts and with such companies
as the Secured Party may demand, all such insurance policies to
be in the possession of the Secured Party and to contain a
lender's loss payable clause naming the Secured Party in an
amount satisfactory to the Secured Party. Debtor hereby assigns
to the Secured Party any proceeds of such policies and all
unearned premiums thereon and authorizes and empowers the Secured
Party to collect such sums and to execute and endorse in Debtor's
name all proofs of loss, drafts, checks and any other documents
necessary to accomplish such collections, and any persons or
entities making payments to the Secured Party under the terms of
this paragraph are hereby relieved absolutely from any obligation
to see to the application of any sums so paid.
(h) The Collateral, whether fixed to realty or not, shall remain
personal property.
(i) The Secured Party may examine and inspect the Collateral or any
portion thereof, wherever located, at any reasonable time or
times.
4. The Secured Party may, from time to time, at its option,
perform any agreement of Debtor hereunder which Debtor shall fail to perform
and take any other action which the Secured Party deems necessary for the
maintenance or preservation of any of the Collateral or its interest
therein, and Debtor agrees to forthwith reimburse the Secured Party for all
expenses of the Secured Party in connection with the foregoing, together with
interest thereon at the maximum legal rate from the date incurred until
reimbursed by Debtor.
4
<PAGE>
5. If the Collateral, or any part thereof, is repossessed by the
Secured Party, Debtor agrees to send notice by registered or certified mail
to the Secured Party within 24 hours thereafter if Debtor claims that any
article not constituting a part of the Collateral was contained therein at
the time of repossession, and agrees that failure to do so shall be a waiver
of, and a bar to, any subsequent claim therefor.
6. The occurrence of any of the following events shall constitute a
default (herein called a "Default") hereunder:
(a) Nonpayment when due of any amount payable on any of the
Liabilities or failure to perform any agreement of Debtor
contained herein or in the Guaranty;
(b) Any statement, representation or warranty of Debtor herein or any
other writing at any time furnished by Debtor to the Secured Party
is untrue in any material respect as of the date made;
(c) The Debtor shall become insolvent or unable to pay debts as they
mature or makes an assignment for the benefit of creditors, or any
proceedings are instituted by or against any obligor alleging that
such obligor is insolvent or unable to pay debts as they mature;
(d) Entry of any judgments against the Debtor in an amount in excess
of $35,000;
(e) Dissolution, merger or consolidation or transfer of a substantial
part of the property of the Debtor;
(f) Appointment of a receiver for the Collateral or any property in
which Debtor has an interest; and
5
<PAGE>
(g) Seizure of the Collateral.
When a Default shall have occurred, all obligations of the Debtor under
the Guaranty and all other Liabilities (notwithstanding any provision
thereof) shall, at the option of the Secured Party, and without demand or
notice of any kind, become immediately due and payable and the Secured Party
may exercise from time to time any rights and remedies available to it under
applicable law. Debtor agrees, in the case of a Default, to assemble and
make available at its expense all of the Collateral at a convenient place
acceptable to the Secured Party and to pay all costs of the Secured
Party of collection of the Guaranty and all other Liabilities, enforcement
of rights hereunder, including reasonable attorney's fees and legal expenses,
and expenses of any repairs to any realty or other property to which any of
the Collateral may be affixed or be a part. If any notification of any
intended disposition of any of the Collateral is required by law, such
notification, if mailed, shall be deemed reasonably and properly given if
mailed at least five days before such disposition, postage prepaid, addressed
to Debtor either at the address shown hereinabove, or at any other address of
Debtor appearing on the records of the Secured Party and in reference to a
private sale, need only state that the Secured Party intends to negotiate
such a sale. Disposition of Collateral shall be deemed commercially
reasonable if made pursuant to a public offering advertised at least twice in
a newspaper of general circulation in the community where the Collateral is
located or by a private sale for a sum equal to or in excess of the
liquidation value of the Collateral as determined by the Secured Party. Any
proceeds of the disposition of the Collateral may be applied by the Secured
Party to the payment of expenses in connection with the Collateral, including
reasonable attorney's fees and legal expenses, and any balance of such
proceeds may be applied by the Secured Party toward the payment of such of
6
<PAGE>
the Liabilities, and in such order of application, as the Secured Party may
from time to time elect.
7. (a) Time is of the essence of this Agreement.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado.
(c) No waiver of any breach of any covenant, agreement or
undertaking contained herein shall operate as a waiver of any
subsequent breach of the same covenant, agreement or
undertaking or as a waiver of any breach of any other
covenant, agreement or undertaking. In the case of a breach
by any party of any covenant, agreement or undertaking,
the nonbreaching party may nevertheless accept from the other,
any payment or performance without waiving its right to
exercise any right or remedy provided herein or otherwise,
with respect to any such breach which was in existence at the
time such payment or performance were accepted by it. No
failure of any party to exercise any power given herein or to
insist upon strict compliance with any covenant, agreement or
undertaking contained herein, and no custom or practice which
varies from the terms hereof, shall constitute a waiver of
such party's right to demand exact compliance with the terms
hereof. The waiver by any party of a breach of any covenant,
agreement or undertaking contained herein shall be made only
by a written waiver in each case, and no such waiver shall
operate or be construed as a waiver of any prior or subsequent
breach.
(d) If any provision of this Agreement shall, to any extent, be
held invalid, illegal or unenforceable, in whole or in part,
the validity, legality, and enforceability of the remaining
7
<PAGE>
part of such provision, and the validity, legality and
enforceability of the other provisions hereof, shall not be
affected thereby. Any provision of this Agreement which is
held invalid, illegal or unenforceable in any jurisdiction
shall not be deemed invalid, illegal or unenforceable in any
other jurisdiction.
(e) This Agreement may not be amended, changed, modified, altered
or terminated except in writing executed by all parties with
the same formality as this Agreement is executed.
(f) Except as otherwise expressly provided herein, all rights,
powers and privileges conferred hereunder upon any party shall
be cumulative and not restrictive of those given by law. No
remedy herein conferred is exclusive of any other available
remedy, but each and every such remedy shall be cumulative and
shall be in addition to every other remedy given by agreement
or now or hereafter existing at law or in equity or by statute.
(g) This Agreement shall be binding upon, shall inure to the
benefit of, and shall be enforceable by and against all the
parties and their respective heirs, legal representatives,
successors and assigns. Nothing in this Agreement, expressed
or implied, is intended to or shall confer upon any person
other than the parties, and their respective heirs, legal
representatives, successors and assigns, any rights, remedies,
obligations or liabilities.
8
<PAGE>
(h) Use of the terms "herein", "hereby", "hereunder", "hereof',
"hereinbefore", "hereinafter", and other equivalent words
refer to this Agreement in its entirety and not solely to the
particular portion of the Agreement in which such word is
used. Reference to "this Article", "this Section", or a
similar reference to a specific part of this Agreement shall
refer to the particular Article, Section or specific part in
which such reference appears. Wherever used herein, any
pronoun shall be deemed to include both singular and plural
and all genders.
(i) Debtor will execute, deliver, acknowledge and supply such
further documents, instruments and assurances as shall be
reasonably necessary or appropriate to carry out the full
intent and purposes of this Agreement.
IN WITNESS WHEREOF, the Debtor has executed this Security Agreement as
of the 3rd day of January, 1997.
(Registrant) DATA NATIONAL CORPORATION
BY(Signature) /s/Donald V. Warriner
(Name and Title) Donald V. Warriner,
President and CEO
9
<PAGE>
Security
Agreement
_____________________________________________________________________________
DATE: January 3, 1997
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
DEBTOR| SERVICE BUSINESS SYSTEMS, INC. | SECURED| NORWEST BANK
COLORADO, N.A.|
| | PARTY | |
- ------------------------------------------------------------------------------
BUS. | 11415 WEST I-70 FRONTAGE ROAD |ADDRESS | 12601 WEST 32ND AVE. |
OR | NORTH | | |
RES. | | | |
ADD. | | | |
- ------------------------------------------------------------------------------
CITY, | WHEAT RIDGE, CO 80033 | CITY, | WHEAT RIDGE, CO 80033-5252 |
STATE | | STATE, | |
& | | & | |
ZIP | | ZIP | |
CODE | | CODE | |
- ------------------------------------------------------------------------------
1. Security Interest and Collateral. To secure the payment and
performance of each and every debt, liability and obligation of every type
and description which Debtor may now or at any time hereafter owe to Secured
Party (whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it is currently contemplated by the Debtor and
Secured Party, whether any documents evidencing it refer to this Security
Agreement, whether it arises with or without any documents (e.g. obligations
to Secured party created by checking overdrafts), and whether it is or may be
direct or indirect, due to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or joint, several or joint and
several; all such debts, liabilities and obligations being herein
collectively referred to as the "Obligations"). Debtor hereby grants Secured
Party a security interest (herein called the "Security Interest"0 int he
following property (herein called the "Collateral) (check applicable boxes
and complete information):
(a) INVENTORY:
All Inventory of Debtor, whether now owned or hereafter acquired and
wherever located:
(b) EQUIPMENT, FARM PRODUCTS AND CONSUMER GOODS:
All equipment of Debtor, whether now owned or hereafter acquired,
including but not limited to all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, farm machinery
and equipment, shop equipment, office and recordkeeping equipment,
parts and tools, and the goods described in any equipment schedule or
list herewith or hereafter furnished to Secured Party by Debtor (but
no such schedule or list need be furnished in order for the security
interest granted herein to be valid as to all of Debtor's equipment).
All farm products of Debtor, whether now owned or hereafter acquired,
including but not limited to all poultry and livestock and their young,
products thereof and produce thereof, all crops, whether annual or
perennial and the products thereof, and all feed, seed, fertilizer,
medicines and other supplies used or produced by Debtor in farming
operations, and any crop insurance payments and any government farm
support payments, including any diversion or deficiency payments. The
real estate concerned with the above described crops growing or to be
grown is:____________________________________________________________
_____________________________________________________________________
and the name of the record owner is:_________________________________
The following goods or types of goods:_______________________________
_____________________________________________________________________
(c) ACCOUNTS AND OTHER RIGHTS TO PAYMENT:
Each and every right of Debtor to the payment of money, whether such
right to payment now exists or hereafter arises, whether such right to
payment arises out of a sale, lease or other disposition of goods or
other property by Debtor, out of a rendering of services by Debtor,
out of a loan by Debtor, out of the overpayment of taxes or other
liabilities of Debtor, or otherwise arises under any contract or
agreement, whether such right to payment is or is not already earned
by performance, and howsoever such right to payment may be evidenced,
together with all other rights and interests (including all liens and
security interests) which Debtor may at any time have by law or
agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property such account
debtor or other obligor;o all including but not limited to all present
and future debt instruments, chattel papers, accounts, loans and
obligations receivable and tax refunds.
______________________________________________________________________
______________________________________________________________________
(d) GENERAL INTANGIBLES:
All general intangibles of Debtor, whether now owned or hereafter
acquired, including, but not limited to, applications for patents,
patients, copyrights, trademarks, trade secrets, good will, tradenames,
customers' lists, permits and franchises, and the right to use Debtor's
name.
together with all substitutions and replacements for and products of any of
the foregoing property not constituting consumer goods and together with
proceeds of any and all of the foregoing property and, in the case of all
tangible Collateral, together with all accessions and, except in the case of
consumer goods, together with (i) all accessories, attachments, parts,
equipment and repairs now or hereafter attached or affixed to or used in
connection with any such goods, and (ii) all warehouse receipts, bills of
lading and other documents of title now or hereafter covering such goods.
2. Representations, Warranties and Agreements. Debtor represents,
warrants and agrees that:
(a) Debtor is an individual, a partnership, a corporation and, if
Debtor is an individual, the Debtor's residence is at the address of
Debtor shown at the beginning of this Agreement.
(b) The Collateral will be used primarily for personal, family or
household purposes; farming operations; business purposes.
(c) if any part or all of the tangible Collateral will become so related
to particular real estate as to become a fixture, the real estate
concerned is:_______________________________________________________
____________________________________________________________________
and the name of the record owner is:________________________________
(d) Debtor's chief executive office is located at:______________________
or, if left blank, at the address of Debtor shown at the beginning of
this Agreement.
THIS AGREEMENT CONTAINS ADDITIONAL PROVISIONS SET FORTH ON THE
REVERSE SIDE
HEREOF, ALL OF WHICH ARE MADE A PART HEREOF.
NORWEST BANK COLORADO, N.A. SERVICE BUSINESS SYSTEM, INC
Secured Party's Name Debtor's Name
BY(Signature) /s/Frank L. Cummings /s/Donald V. Warriner
(Name and Title) Frank L.Cummings Donald V. Warriner
AVP President and CEO
<PAGE>
ADDITIONAL PROVISIONS
3. Additional Representations, Warranties and Agreements.
Debtor represents, warrants and agrees that:
------------------------------------------------------
(a) Debtor has (or will have all the time Debtor acquires rights in
Collateral hereafter arising) absolute title to each item of Collateral free
and clear of all security interests, liens and encumbrances, except the
Security interest, and will defend the Collateral against all claims or
demands of all persons other than Secured Party. Debtor will not sell or
otherwise dispose of the Collateral or any interest thereon without the prior
written consent of Secured Party, except that, until the occurrence of an
Event of Default and the revocation by Secured Party or Debtor's right to do
so. Debtor may sell any inventory constituting Collateral to buyers in the
ordinary course of business and use and consume any farm products
constituting Collateral in Debtor's farming operation. If Debtor is a
corporation, this Agreement has been duly and validly authorized by all
necessary corporate action, and, if Debtor is a partnership, the partner(s)
executing this Agreement has (have) authority to act for the partnership.
(b) Debtor will not permit any tangible Collateral to be located in any
state (and, if county filing is required, in any county) in which a financing
statement covering such Collateral is required to be, but has not in fact
been, titled in order to perfect the Security interest.
(c) Each right to payment and each instrument, document, chattel paper
and other agreement constituting or evidencing Collateral is (or will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, set-off or counterclaim (other than those arising in
the ordinary course of business) of the account debtor or other obligor named
therein or in Debtor's records pertaining thereto as being obligated to pay
such obligation. Debtor will neither agree to any material modification or
amendment nor agree to any cancellation of any such obligation without
Secured Party's prior written consent, and will not subordinate any such
right to payment to claims or other creditors of such account debtor or other
obligor.
(d) Debtor will keep all tangible Collateral in good repair, working
order and condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof; promptly pay all
taxes and other governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or continuance of the
Security interest; keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security interest; at all
reasonable times, permit Secured Party or its representatives to examine or
inspect any Collateral, wherever located, and to examine, inspect and copy
Debtor's books and records pertaining to the Collateral and its business and
financial condition and to discuss with account debtors and other obligors
requests for verifications of amounts owed to Debtor; keep accurate and
complete records pertaining to the Collateral and pertaining to Debtor's
business and financial condition and submit to Secured Party such periodic
reports concerning the Collateral and Debtor's business and financial
condition as Secured Party may from time to time reasonably request;
promptly notify Secured Party of any loss of or material damage to any
Collateral or of any adverse change, known to Debtor, in the prospect of
payment of any sums due or on under any instrument, chattel paper, or
account constituting Collateral; if Secured Party at any time so requests
(whether the request is made before or after the occurrence of an Event of
Default), promptly deliver to Secured Party any instrument, document or
chattel paper constituting Collateral, duly endorsed or assigned by Debtor;
at all times keep all tangible Collateral insured against risks of fire
(including so-called extended coverage), theft, collision (in case of
Collateral consisting of motor vehicles) any such other risks and in such
amounts as Secured Party may reasonably request, with any loss payable to
Secured Party to the extent of its interest; from time to time execute such
financing statements as Secured Party may reasonably require in order to
protect the Security interest and, if any Collateral consists of a motor
vehicle, execute such documents as may be required to have the Security
Interest properly noted on a certificate of title; pay when due or reimburse
Secured Party on demand for all costs of collection of any of the Obligations
and all other out-of-pocket expenses (including in each case all reasonable
attorneys' fees) incurred by Secured Party in connection with the creation,
perfection, satisfaction, protection, defense or enforcement of the Security
Interest or the creation, continuance, protection, defense or enforcement of
this Agreement or any or all of the Obligations, including expenses incurred
in any litigation or bankruptcy or insolvency proceedings; execute, deliver
or endorse any and all instruments, documents, assignments, security
agreements and other agreements and writings which Secured Party may at any
time reasonably request in order to secure, protect, perfect or enforce
the Security Interest and Secured Party's rights under this Agreement; not
use or keep any Collateral, or permit it to be used or kept, for any
unlawful purpose or in violation of any federal, state or local law,
statute or ordinance; permit Secured Party at any time and from time to time
to send requests (both before and after the occurrence of an Event of
Default) to account debtors or other obligors for verification of amounts
owed to Debtor; and not permit any tangible Collateral to become part of or
to be affixed to any real property without first assuring to the reasonable
satisfaction of Secured Party that the Security interest will be prior and
senior to any interest or lien then held or thereafter acquired by any
mortgagee of such real property or the owner or purchaser of any interest
therein. If Debtor at any time fails to perform or observe any agreement
contained in this Section 3(d), and if such failure shall continue for a
period of ten calendar days after Secured Party gives Debtor written notice
thereof (or, in the case of the agreements contained in clauses (viii) and
(ix) of this Section 3(d), immediately upon the occurrence of such failure,
without notice or lapse of time), Secured Party may (but need not) perform or
observe such agreement on behalf and in the name, place and stead of Debtor
(or, at Secured Party's option, in Secured Party's own name) and may (but
need not) take any and all other actions which Secured Party may reasonably
deem necessary to cure or correct such failure (including, without
limitation, the payment of taxes, the satisfaction of security interests,
liens, or encumbrances, the performance of obligations under contracts or
agreements with account debtors or other obligors, the procurement and
maintenance of insurance, the execution of financing statements, the
endorsement of instruments, and the procurement of repairs, transportation or
insurance); and, except to the extent that the effect of such payment would
be to render any loan or forbearance of money usurious or otherwise illegal
under any applicable law, Debtor shall thereupon pay Secured Party on demand
the amount of all moneys expended and all costs and expenses (including
reasonable attorneys' fees) incurred by Secured Party in connection with or
as a result of Secured Party's performing or observing such agreements or
taking such actions, together with interest thereon from the date expended or
incurred by Secured Party at the highest rate then applicable to any of the
Obligations. To facilitate the performance or observance by Secured Party of
such agreements of Debtor, Debtor hereby irrevocably appoints ()which
appointment is coupled with an interest) Secured Party, or its delegate, as
the attorney-i-fact of Debtor with the right (but not the duty) from time to
time to create, prepare, complete, execute, deliver, endorse or file, in
the name and on behalf of Debtor, any and all instruments, documents,
financing statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by Debtor
under this Section 3 and Section 4.
4. Lock Box, Collateral Account. If Secured Party so requests at any time
(whether before or after the occurrence of an Event of Default), Debtor will
direct each of its account debtors to make payments due under the relevant
account or chattel paper directly to a special lock box to be under the
control of Secured Party. Debtor hereby authorizes and directs Secured Party
to deposit into a special collateral account to be established and maintained
with Secured Party all checks, drafts and cash payments, received in said
lock box. All deposits in said collateral account to the payment of the
Obligations in such order of application as Secured Party may determine or
permit Debtor to withdraw all or any party of the balance on deposit in said
collateral account. If a collateral account is so established, Debtor agrees
that it will promptly deliver to Secured Party, for deposit into said
collateral account, all payments on accounts and chattel paper received by
it. All such payments shall be delivered to Secured Party in the form
received (except for Debtor's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by Debtor
shall be held in trust by Debtor for and as the property of Secured Party
and shall not be commingled with any funds or property of Debtor.
5. Collection Rights of Secured Party. Notwithstanding Secured Party's
rights under Section 4 With respect to any and all debt instruments,
chattel papers, accounts, and other rights to payment constituting Collateral
(including proceeds), Secured Party may, at any time (both before and after
the occurrence of an Event of Default) notify any account debtor, or any
other person obligated to pay any amount due, that such chattel paper,
account, or other right to payment has been assigned or transferred to
Secured Party for security and shall be a paid directly to Secured Party.
If Secured Party so requests at any time, Debtor will so notify such account
debtors and other obligors in writing and will indicate on all invoices to
such account debtors or other obligors that the amount due is payable
directly to Secured Party. At any time after Secured Party or Debtor gives
such notice to an account debtor or other obligor, secured Party may (but
need not) in its own name or in Debtor's name, demand, sue for, collect or
receive any money or property at any time payable or receivable on account
of, or securing, any such chattel paper, account, or other right to payment,
or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor.
6. Assignment of Insurance. Debtor hereby assigns to secured Party, as
additional security for the payment of the Obligations, any and all moneys
(including but not limited to proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of Debtor under
or with respect to, any and all policies of insurance covering the
Collateral, and Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to Secured Party. Both before and after the
occurrence of an Event of Default, Secured Party may (but need not) in its
own name or in Debtor's name, execute and deliver proofs of claim, receive
all such moneys, endorse checks and other instruments representing payment of
such moneys, and adjust, litigate, compromise or release any claim against
the issuer of any such policy.
7. Events of Default. Each of the following occurrences shall constitute
an event of default under this Agreement (herein called "Event of Default"):
Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand, or shall fail to observe or perform any
covenant or agreement herein binding on it;
(i) any representation or warranty by Debtor set forth in this Agreement or
made to Secured Party in any financial statements or reports submitted to
Secured Party by or on behalf of Debtor shall prove materially false or
misleading; a garnishment, summons or a writ of attachment shall be issued
against or served upon the Secured Party for the attachment of any property
of the Debtor or any indebtedness owing to Debtor; Debtor or any guarantor of
any Obligation shall (A) be or become insolvent (however defined); or (B)
voluntarily file or have filed against it involuntarily, a petition under
the United States Bankruptcy Code; or (C) if a corporation, partnership, or
organization be dissolved or liquidated or if a partnership suffer the death
of a partner or, if an individual, die; or (D) go out of business; or Secured
Party shall in good faith believe that the prospect of due and punctual
payment of any or all of the Obligations is impaired.
8. Remedies upon Event of Default. Upon the occurrence of an Event of
Default under Section 7 and at any time thereafter, Secured Party may
exercise any one or more of the following rights and remedies: declare all
unmatured Obligations to be immediately due and payable, and the same shall
thereupon be immediately due and payable, without presentment or other notice
or demand; exercise and enforce any or a all rights and remedies available
upon default to a secured party under the Uniform Commercial Code, including
but not limited to the right to take possession of any Collateral, proceeding
without judicial process or by judicial process (without a prior hearing or
notice thereof, which Debtor hereby expressly waives), and the right to sell,
lease or otherwise dispose of any or all of the Collateral, and in connection
therewith, Secured Party may require Debtor to make the Collateral available
to Secured Party at a place to be designed by Secured Party which is
reasonably convenient to both parties, and if notice to Debtor of any
intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 10) at least 10
calendar days prior to the date of intended disposition or other action;
exercise or enforce any or all other rights or remedies available to Secured
Party by law or agreement against the Collateral, against Debtor or against
any other person or property. Upon the occurrence of the Event of Default
described in Section 7(iv)(B), all Obligations shall be immediately due
and payable without demand or notice thereof. Secured Party is hereby
granted a nonexclusive, worldwide and royalty-free license to use or
otherwise exploit all trademarks, trade secrets, franchises, copyrights
and patents of Debtor that Secured Party deems necessary or appropriate to
the disposition of any Collateral.
9. Other Personal Property. Unless at the time Secured Party takes
possession of any tangible Collateral, or within seven days thereafter,
Debtor gives written notice to Secured Party of the existence of any goods,
paper or other property of Debtor, not affixed to or constituting a part of
such Collateral, but which are located or found upon or within such
Collateral, describing such property. Secured Party shall not be responsible
or liable to Debtor for any action taken or omitted by or on behalf of
Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that it was
located or to be found upon or within such Collateral.
10. Miscellaneous. This Agreement does not contemplate a sale of accounts
or chattel paper. Debtor agrees that each provision whose box is checked is
part of this Agreement. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by Secured Party. A waiver signed by Secured
Party shall be effective only in the specific instance and for the specific
purpose given. Mere delay or failure to act shall not preclude the exercise
or enforcement of any of Secured Party's rights or remedies. All rights and
remedies of Secured Party shall be cumulative and may be exercised singularly
or concurrently at Secured Party's option, and the exercise or enforcement of
any one such right or remedy shall neither be a condition to nor bar the
exercise or enforcement of any other. All notices to be given to Debtor
shall be deemed sufficiently given if delivered or mailed by registered or
certified mail, postage prepaid, to Debtor at its address set forth
above or at the most recent address shown on Secured Party's records.
Secured Party's duty of care with respect to Collateral in its possession
(as imposed by law) shall be deemed fulfilled if Secured Party exercises
reasonable care in physically safekeeping such Collateral or, in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third
person, and Secured Party need not otherwise preserve, protect, insure or
care for any Collateral. Secured Party shall not be obligated to preserve
any rights Debtor may have against prior parties, to realize on the
Collateral at all or in any particular manner or order, or to apply any cash
proceeds of Collateral in any particular order of application. This
Agreement shall be binding upon and inure to the benefit of Debtor and
Secured Party and their prospective heirs, representatives, successors and
assigns and shall take effect when signed by Debtor and delivered to Secured
Party, and Debtor waives notice of Secured Party's acceptance hereof.
Secured Party may execute this Agreement if appropriate for the purpose of
timing, but the failure of Secured Party to execute this Agreement shall not
affect or impair the validity or effectiveness of this Agreement. A carbon,
photographic or other reproduction of this Agreement or of any financing
statement signed by the Debtor shall have the same force and effects as the
original for all purposes of a financing statement. Except to the extent
otherwise required by law, this Agreement shall be governed by the internal
laws of the state named as part of Secured Party's address above. If any
provision or application of this Agreement is held unlawful or unenforceable
in any respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect and this Agreement
shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. Any
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations. If this Agreement is signed by more than one
person as Debtor, the term "Debtor" shall refer to each of them separately
and to both or all of them jointly: all such persons shall be bound both
severally and jointly with the other(s), and the Obligations shall include
all debts, liabilities and obligations owed to Secured Party by any Debtor
solely or by both or several or all Debtors jointly or jointly and severally,
and all property described in Section 1 shall be included as part of the
Collateral, whether it is owned jointly by both or all Debtors or is owned in
whole or in part by one (or more) of them.
<PAGE>
SUBORDINATION AGREEMENT
This Agreement executed by Ray E. Dillon, Jr. and Ray E. Dillon, III,
herein called "Creditors" and Northwest Business Credit, Inc., a Minnesota
corporation, herein called the "Lender".
Data National Corporation, a Colorado corporation ("DNC") presently owes
the Creditors $762,369.00 as evidenced by promissory notes totaling
$551,400.00. To induce the Lender to give credit accommodations to Service
Business Systems, Inc. a Colorado corporation and a wholly-owned
subsidiary of DNC (the "Borrower"), which indebtedness is guarantied by DNC
pursuant to the terms of a Guaranty By Corporation dated January 3, 1997
(the "Guaranty"), the Creditors agree as follows:
1. Creditors acknowledge that the only source of payment of the
indebtedness of DNC to either of them is as a result of dividends or other
distributions or advances from the Borrower to DNC. Pursuant to the Credit
and Security Agreement dated January 3, 1997 between the Borrower and the
Lender (the "Credit Agreement"), the Borrower is prohibited from paying
dividends or making distributions, advances or debt repayments under certain
circumstances. Creditors acknowledge that the Borrower has no liability with
respect to DNC's indebtedness to Creditors. Creditors agree that if DNC
defaults in the payment of indebtedness owed to Creditors by it, they will
take no collection action of any kind or nature against DNC, including,
without limitation, demand of payment of any such indebtedness, suing to
collect any such indebtedness, or commencing or participating in the
commencement of any bankruptcy proceeding against DNC if, at the time
thereof, an Event of Default exists under the Credit Agreement or the
Borrower is precluded pursuant to the terms of the Credit Agreement from
making dividends, distributions or advances in the amount then due and
owing to Creditors. Creditors further agree that they will not accept any
payments from DNC in excess of the amount of the dividends, distributions,
advances or debt repayments which the Borrower is permitted to make
pursuant to the Credit Agreement.
2. Creditors acknowledge that regardless of any priority otherwise
available to Creditors by law or agreement, the Lender shall hold a first
security interest in all collateral ( the "Collateral") of either the
Borrower or DNC securing any amounts owed by DNC to the Creditors, and any
security interest of Creditors therein shall be and remain fully subordinated
for all purposes to the security interests of the Lender therein.
Notwithstanding any security interest now held or hereafter acquired by
Creditors, the Lender may take possession of, sell, dispose of, and otherwise
deal with all or any part of the Collateral, and may enforce any right or
remedy available to it with respect to the Collateral, all without notice to
or consent of Creditors except as specifically required by applicable law.
The Lender shall have no duty to preserve, protect, care for, insure, take
possession of, collect, dispose of, or otherwise realize upon any of the
Collateral, and in no event shall the Lender be deemed the Creditors' agent
with respect to the Collateral. All proceeds received by the Lender with
respect to any Collateral may be applied, first, to pay or reimburse the
Lender for all costs and expenses (including reasonable attorneys' fees)
<PAGE>
incurred by the Lender in connection with the collection of such proceeds,
and, second, to any indebtedness secured by the Lender's security interest
in that Collateral in any order that it may choose. Without the prior
written consent of the Lender, Creditors will not foreclose or take any
action against any of the Collateral until all indebtedness of the Borrower
and DNC to the Lender has been paid in full.
3. Any notes or other evidence of indebtedness which have been or
shall be issued to either Creditor by DNC shall be deposited with the Lender
or shall be endorsed with a legend reading:
"Payment of this instrument is subordinated to all debts
now or hereafter owed by maker to Norwest Business Credit,
Inc., pursuant to the terms of a Subordination Agreement
dated January 3, 1997."
4. Any funds or property of any kind received by either Creditor in
violation of this Agreement shall be held in trust by such Creditor and shall
be paid or delivered to the Lender upon demand.
5. This Agreement shall be binding upon, and insure either to the
benefit of, Creditors and the Lender and their respective personal
representatives, heirs, successors and assigns.
6. Notice of acceptance by the Lender of this Agreement is hereby
waived by Creditors, and this Agreement and all of the terms and provisions
hereof shall be immediately binding upon Creditors from the date of execution
hereof.
7. This Agreement may be executed in counterparts, each of which shall
be deemed to be an original, but all of which together shall constitute one
and the same instrument.
Executed this 3rd day of January, 1997.
BY(Signature) /s/Ray E. Dillon, Jr.
BY(Signature) /s/Ray E. Dillon, III
<PAGE>
ASSIGNMENT
This Assignment is made this 3rd day of January, 1997, by and between
Data National Corporation ("DNC") and Service Business Systems, Inc. ("SBS").
Recitals
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SBS is in the business of providing certain information services to
corporations and other customers. Certain of the contracts pursuant to which
SBS provides such services are in the name of, or payments under such
contracts are made to, DNC.
Since the services under such contracts are performed by SBS, DNC has
agreed to assign all of its right, title and interest in such contracts and
rights of payments to SBS.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, DNC does hereby assign and transfer to SBS all of its
right, title and interest in and to any contracts for the provision of
information services and any rights to payment under such contracts to SBS.
(Registrant) DATA NATIONAL CORPORATION
BY(Signature) /s/Donald V. Warriner
(Name and Title) Donald V. Warriner,
President and CEO
SERVICES BUSINESS SYSTEMS, INC.
BY(Signature) /s/Richard S. Simms
(Name and Title) Richard S. Simms,
Vice President
