SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
Commission File No. 0-20097
ADVANCED MACHINE VISION CORPORATION
A California Corporation
IRS Employer Identification No. 33-0256103
2067 Commerce Drive
Medford, OR 97504
Telephone: 541-776-7700
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
On March 31, 1998, registrant had 10,636,384 shares of Class A Common Stock, and
76,835 shares of Class B Common Stock, all no par value, issued and outstanding.
Exhibit Index at Page 14
<PAGE>
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets.........................................1
Consolidated Statements of Operations...............................2
Consolidated Statements of Cash Flows...............................3
Notes to Unaudited Consolidated Financial Statements............4 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................8 - 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..............................14 - 17
Signature..........................................................17
<PAGE>
PART I. FINANCIAL INFORMATION
=============================
Item 1. Financial Statements
================================================================================
Advanced Machine Vision Corporation
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,777,000 $ 6,045,000
Accounts receivable - net 4,093,000 2,711,000
Inventories 5,406,000 5,181,000
Prepaid expenses 147,000 138,000
------------- -------------
Total current assets 14,423,000 14,075,000
Property, plant and equipment - net 4,813,000 4,775,000
Intangible assets - net 5,361,000 5,535,000
Other assets 938,000 850,000
------------- -------------
$ 25,535,000 $ 25,235,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,937,000 $ 1,436,000
Accrued liabilities 953,000 1,146,000
Customer deposits 1,008,000 1,073,000
Accrued payroll 660,000 783,000
Warranty reserve 445,000 477,000
Current portion of notes payable 27,000 27,000
------------- -------------
Total current liabilities 5,030,000 4,942,000
------------- -------------
Notes payable, less current portion 8,334,000 8,342,000
------------- -------------
Commitments and contingencies
Shareholders' equity:
Common stock:
Class A and B - 10,713,000 and 10,679,000
shares issued and outstanding
at March 31, 1998 and December 31, 1997,
respectively 24,323,000 24,285,000
Common stock warrants 402,000 2,197,000
Additional paid in capital 4,618,000 2,823,000
Accumulated deficit (17,172,000) (17,354,000)
------------- -------------
Total shareholders' equity 12,171,000 11,951,000
------------- -------------
$ 25,535,000 $ 25,235,000
============= =============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
================================================================================
Advanced Machine Vision Corporation
Consolidated Statements of Operations
================================================================================
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
Net sales $ 7,103,000 $ 9,337,000
Cost of sales 3,770,000 4,730,000
------------- ------------
Gross profit 3,333,000 4,607,000
------------- ------------
Operating expenses:
Selling and marketing 937,000 1,253,000
Research and development 1,150,000 1,019,000
General and administrative 776,000 1,032,000
Amortization of intangible assets 174,000 199,000
------------- ------------
3,037,000 3,503,000
Income from operations before other income and expense 296,000 1,104,000
Other income and expense:
Investment and other income 62,000 57,000
Interest expense (168,000) (360,000)
------------- ------------
Income before income taxes 190,000 801,000
Provision for income taxes 8,000 32,000
------------- ------------
Net income $ 182,000 $ 769,000
============= ============
Earnings per share (Note 5):
Basic $ 0.02 $ 0.07
============= ============
Diluted $ 0.02 $ 0.05
============= ============
Average shares outstanding - assuming dilution 13,255,000 17,600,000
============= ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
================================================================================
Advanced Machine Vision Corporation
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 182,000 $ 769,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 332,000 370,000
Changes in assets and liabilities:
Accounts receivable (1,383,000) 4,000
Inventories (226,000) (630,000)
Prepaid expenses and other assets (91,000) (499,000)
Accounts payable, short-term borrowings,
accrued liabilities, customer deposits,
accrued payroll, and warranty reserve 119,000 989,000
------------ -------------
Net cash (used in) provided by operating activities (1,067,000) 1,003,000
------------ -------------
Cash (used in) provided by investing activities:
Purchases of property and equipment (195,000) (142,000)
------------ -------------
Net cash (used in) investing activities (195,000) (142,000)
------------ -------------
Cash (used in) provided by financing activities:
Notes payable to bank and others, net (8,000) (75,000)
Proceeds from exercise of stock options 2,000 15,000
------------ -------------
Net cash (used in) financing activities (6,000) (60,000)
------------ -------------
Net (decrease) increase in cash (1,268,000) 801,000
Cash and cash equivalents, beginning of the period 6,045,000 1,909,000
------------ -------------
Cash and cash equivalents, end of the period $ 4,777,000 $ 2,710,000
============ =============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
================================================================================
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Note 1. Principles of Consolidation
====================================
In the opinion of the management of Advanced Machine Vision Corporation (the
"Company" or "AMV"), the accompanying consolidated financial statements, which
have not been audited by independent accountants (except for the balance sheet
as of December 31, 1997), reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the Company's financial position
at March 31, 1998, and December 31, 1997, the results of operations and cash
flows for the three-month periods ended March 31, 1998 and 1997. The financial
statements include the accounts of the Company and its four wholly-owned
subsidiaries, Applied Laser Systems, Inc., SRC VISION, Inc. ("SRC"), ARC
Netherlands BV and its respective subsidiary, Pulsarr Holding BV ("Pulsarr")
from its March 1, 1996 acquisition date to its May 6, 1997 disposition date, and
Ventek, Inc. ("Ventek") from its July 24, 1996 acquisition date (see Note 6
regarding the sale of Pulsarr). The Company's current operating subsidiaries are
SRC and Ventek.
Certain notes and other information are condensed or omitted in the interim
financial statements presented in this Quarterly Report on Form 10-Q. These
financial statements should be read in conjunction with the Company's 1997
annual report on Form 10-K.
Note 2. Nature of Operations
=============================
In February 1994, the Company acquired all of the issued and outstanding capital
stock of SRC for $8.1 million in cash. In March 1996, the Company acquired all
of the issued and outstanding stock of Pulsarr for cash of $6.5 million and
notes payable of $1.3 million (see Note 6 regarding the sale of Pulsarr for $8.4
million in May 1997). In July 1996, the Company acquired the business and
certain assets of Ventek, subject to certain liabilities, for $5.1 million in
notes and other securities. The operations of each of the three acquired
entities are included in the consolidated financial results since their
respective acquisition dates, and in the case of Pulsarr, through its
disposition date. Through its subsidiaries, the Company designs, manufactures
and markets computer-aided vision defect detection and sorting and defect
removal equipment for use in a variety of industries, including food processing,
wood products and recycling. The Company's systems combine optical and
mechanical systems technologies to perform diverse scanning, analytical sensing,
measuring and sorting applications on a variety of products such as food, wood
and plastic. The Company sells its products throughout the world.
Note 3. Financing
==================
In April 1995, the Company borrowed $2,160,000 pursuant to a convertible
subordinated secured note. Interest on the note was 10.25% and was payable
semi-annually. The note was convertible into the Company's Class A Common Stock
at $1.875 per share. In connection with the borrowing, the Company issued
300,000 warrants to purchase Class A Common Stock at $1.875 per share. In
October 1996 and March 1997, $645,000 and $250,000 principal amounts of the note
were converted by the debtholders into 344,000 and 133,000 shares of Class A
Common Stock. The remaining principal amount of $1,265,000 was paid in April
1997. In August 1997, the warrants were repurchased by the Company (see Note 4).
In April 1996, the Company borrowed $3,400,000 pursuant to a convertible secured
note. Interest on the note was 6.75% and is payable quarterly. The interest rate
may be adjusted upward on each anniversary date of the note if the market price
of the Company's Class A Common Stock fails to reach certain levels. In April
1997, the interest rate was adjusted to 9.75%. The maximum possible coupon
interest rate is 11.25% if none of the market price thresholds are met. The note
is secured by 54% of the stock of ARC Netherlands BV. The note is convertible
into the Company's Class A Common Stock at $2.125 per share. In connection with
the borrowing, the Company issued 340,000 warrants to purchase Class A Common
Stock at $2.125 per share. In August and September 1997, AMV repurchased the
warrants and paid off $2,500,000 of this note leaving $900,000 outstanding,
which is due in April 2001 (see Note 4). In conjunction with this early pay-off,
AMV wrote off $233,000 of deferred debt issuance costs in the quarter ended
September 30, 1997.
In July 1996, AMV issued the following notes in connection with the acquisition
of Ventek: (i) a 6.75% $1,000,000 note due July 23, 1999; (ii) a 6.75%
$2,250,000 note due July 23, 1999 convertible into the Company's Class A Common
Stock at $2.25 per share; and (iii) a $1,125,000 note and stock appreciation
rights payable (a) by issuance of up to 1,800,000 shares of Class A Common Stock
or at the Company's option, in cash on July 23, 1999, or (b) solely in cash in
the event AMV Common Stock is delisted from the Nasdaq Stock Market. The
$1,125,000 note and stock appreciation rights payable were valued at $1,529,000
on the acquisition date based upon an independent appraisal received by the
Company. All three notes are secured by all of the issued and outstanding shares
of Ventek.
In April 1998, AMV entered into a credit relationship with Bank of America NT&SA
for a line of credit ("LOC") and a new mortgage. The LOC Business Loan Agreement
provides that AMV can borrow the lesser of $2,000,000 or the collateral value of
pledged marketable securities, for interest at prime rate or the bank's offshore
rate plus 1.85% and has an April 30, 1999 expiration date. The $3,000,000
mortgage replaced the 9.75% $2,680,000 prior mortgage, provides for fixed
interest at 8.3% and is due on May 1, 2008.
Note 4. Stock Transactions; Shares Eligible For Future Sale; Effect of
Warrants, Options and Convertible Securities; Possible Dilution
========================================================================
In January 1997, the 1997 Restricted Stock Plan ("1997 Plan") was established to
retain the services of selected employees, officers and directors of the Company
and provide them with strong incentives to enhance the Company's growth. The
total number of shares of Class A Common Stock issuable under the 1997 Plan
shall not exceed 2,000,000. In January 1997, the Company's Board of Directors
awarded 2,000,000 shares of restricted Class A Common Stock to three key
employees of the Company. On September 25, 1997, the three key employees
contributed back to the Company 1,800,000 shares which were canceled. The
remaining shares cannot be traded or transferred unless (i) the employee remains
in the employ of the Company until January 10, 2000 and (ii) a payment of $1.80
per share is made by the employee to AMV. If any of the conditions are not met,
the stock will be forfeited and returned to the Company.
On March 8, 1997, April 1, 1997, August 2, 1997 and March 9, 1998, 188,400 Unit
Purchase Options originally issued in connection with the Company's 1992 initial
public offering, 135,000 Laidlaw warrants, 300,000 Gerinda warrants and the
Company's Class A, B and C Warrants to purchase approximately 11.4 million
shares, respectively, expired unexercised.
In August 1997, the Company purchased 1,001,640 shares of its Class A Common
Stock, 300,000 Class F Warrants and 340,000 Class H Warrants in a private
transaction for $1.9 million.
In September 1997, the Company purchased at par $2.5 million of the $3.4 million
outstanding 6.75% Convertible Note.
Schedule of Outstanding Stock, Warrants and Potential Dilution:
The following table summarizes, as of March 31, 1998, outstanding common stock,
potential dilution to the outstanding common stock upon exercise of warrants or
conversion of convertible debt, and proforma proceeds from the exercise of
warrants. The table also sets forth the exercise or conversion prices and
warrant expiration and debt due dates.
<TABLE>
<CAPTION>
Proforma
Number or Principal Common Proceeds
Amount Outstanding Stock After Conversion or Debt
Security at March 31, 1998 Conversion Price Reduction
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock:
Class A 10,636,000 10,636,000
Class B 77,000 77,000
------------ ------------
Total currently outstanding 10,713,000 10,713,000
------------ ------------
Warrants (expiration date):
D (6/30/98-7/31/98) 275,000 275,000 $ 2.75 $ 756,000
G (2/28/99) 240,000 240,000 2.00 480,000
I (7/23/01) 1,000,000 (A) 1,000,000 2.25 2,250,000
J (9/30/99) 300,000 300,000 2.03 609,000
------------ ------------ ------------
1,815,000 4,095,000
------------ ------------
Convertible Debt (due date):
6.75% Notes (4/16/01) $ 900,000 423,000 2.13 900,000
6.75% Ventek Note (7/23/99) $ 2,250,000 1,000,000 2.25 2,250,000
Ventek Note (7/23/99) $ 1,529,000 (A) 1,800,000 1,529,000
------------ ------------
3,223,000 4,679,000
------------ ------------
Potentially outstanding shares
and proforma proceeds
or reduction of debt 15,751,000 $ 8,774,000
============ ============
(A) The Company issued the $1,529,000 note and Class I Warrant in connection
with the Ventek acquisition (see Note 4). The note is payable, (a) at the
Company's option, in cash or by delivery of up to 1,800,000 shares of Class
A Common Stock on the third anniversary date of the note; or (b) solely in
cash in the event AMV Common Stock is delisted from the Nasdaq Stock
Market. The Warrant vests 25% per year through 1999 if sales and earnings
objectives are achieved. As of December 31, 1997, the first 25% increment
(for 1996) of the Warrant was vested and the second 25% increment (for
1997) did not vest as the objectives were not met. The second increment
will only vest in the future if cumulative goals are achieved.
</TABLE>
The proforma amounts above are for illustrative purposes only. Unless the market
price of AMV's Class A Common Stock rises significantly above the exercise or
conversion prices, it is unlikely that any warrants will be exercised or that
the debt will be converted.
On March 31, 1998, AMV had outstanding options to purchase 3,426,000 shares of
Class A Common Stock, 2,944,000 of which are under its stock option plans.
The existence of these outstanding warrants, options, and convertible debt,
including those granted or to be granted under AMV's Stock Option Plans or
otherwise could adversely affect AMV's ability to obtain future financing. The
price which AMV may receive for the Class A Common Stock issued upon exercise of
options and warrants, or amount of debt forgiven in the case of conversion of
debt, may be less than the market price of Class A Common Stock at the time such
options and warrants are exercised or debt is converted. For the life of the
warrants, options and convertible debt, the holders are given, at little or no
cost, the opportunity to profit from a rise in the market price of their Class A
Common Stock without assuming the risk of ownership. Moreover, the holders of
the options and warrants might be expected to exercise them at a time when AMV
would, in all likelihood, be able to obtain needed capital by a new offering of
its securities on terms more favorable than those provided for by the options
and warrants.
Stock Rights Plan:
In February 1998, the Company implemented a stock rights program. Pursuant to
the program, stockholders of record on February 27, 1998 received a dividend of
one right to purchase for $15 one one-hundredth of a share of a newly created
Series A Junior Participating Preferred Stock. The rights are attached to AMV's
Class A Common Stock and will also become attached to shares issued in the
future. The rights will not be traded separately and will not become exercisable
until the occurrence of a triggering event, defined as an accumulation by a
single person or group of 20% or more of AMV's Class A Common Stock. The rights
will expire on February 26, 2008 and are redeemable at $.0001 per right.
After a triggering event, the rights will detach from the Class A Common Stock.
If AMV is then merged into, or is acquired by, another corporation, the Company
has the opportunity to either (i) redeem the rights or (ii) permit the rights
holder to receive in the merger stock of AMV or the acquiring company equal to
two times the exercise price of the right (i.e., $30). In the latter instance,
the rights attached to the acquirer's stock become null and void. The effect of
the rights program is to make a potential acquisition of the Company more
expensive for the acquirer if, in the opinion of AMV's Board of Directors, the
offer is inadequate.
Note 5. Earnings Per Share
===========================
Earnings per share is presented in the following table:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------------------------------------------
1998 1997
--------------------------------- --------------------------------
Income Shares Income Shares
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Calculation of EPS
Income (loss) available to
common shareholders $ 182,000 10,712,000 $ 769,000 13,398,000
Reduction for contingently
returnable shares as all conditions
were not met as of period end -- (200,000) -- (2,000,000)
------------- ------------- ------------- -------------
Income (loss) available to
common shareholders $ 182,000 10,512,000 $ 769,000 11,398,000
============= ============= ============= =============
- ----------------------------------------------------------------------------------------------------------------
Basic EPS $ 0.02 $ 0.07
- ----------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities:
Stock options and warrants $ -- 943,000 $ -- 686,000
Note and stock appreciation
rights agreement 25,000 1,800,000 25,000 1,800,000
Convertible debt -- -- 137,000 3,716,000
------------- ------------- ------------- -------------
Income available to common
shareholders and assumed
conversions $ 207,000 13,255,000 $ 831,000 17,600,000
============= ============= ============= =============
- ----------------------------------------------------------------------------------------------------------------
Diluted EPS $ 0.02 $ 0.05
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The number of shares of common stock, along with their respective exercise
prices, underlying options, warrants and convertible debt, which were excluded
from the computation of diluted EPS because their exercise prices were greater
than the average market price of common stock, are listed below.
March 31,
-----------------------------
1998 1997
------------- -------------
Number of shares of common stock exercisable from:
Options 645,000 1,439,000
Warrants 1,275,000 14,290,000
Convertible debt 1,424,000 --
------------- -------------
3,344,000 15,729,000
Exercise price ranges $2.13 - $4.94 $1.88 - $4.94
Note 6. Acquisition and Sale of Pulsarr
========================================
On March 1, 1996, the Company acquired all of the outstanding capital stock of
Pulsarr for cash of $6.5 million and notes payable of $1.3 million. This
acquisition was accounted for under the purchase method of accounting.
On May 6, 1997, the Company sold its Pulsarr subsidiary to Barco NV of Belgium
for $8.4 million, resulting in a gain of approximately $5.0 million. The sale
resulted in net cash proceeds to AMV of approximately $7 million and a reduction
of current and long-term debt of approximately $4.6 million. A $5 million gain
on the sale of Pulsarr in the quarter ended June 30, 1997 was largely a result
of previous reduction in the carrying value of AMV's investment in Pulsarr due
to the $4.9 million charge for acquired in-process technology the Company
recorded in the quarter ended March 31, 1996 in conjunction with this
acquisition.
The condensed combined statements of operations, shown below as supplemental
information, assume that Pulsarr was sold at the beginning of 1997. However, the
proforma combined balances are not necessarily indicative of balances which
would have resulted had the divestiture occurred as of the beginning of the
three-month period ending March 31, 1997. Condensed combined statements of
operations are presented below:
Three Months Ended
March 31,
-----------------------------
1998 1997
(Actual) (Proforma)
------------- -------------
Sales $ 7,103,000 $ 7,127,000
============= =============
Gross profit $ 3,333,000 $ 3,800,000
============= =============
Net income $ 182,000 $ 728,000
============= =============
Earnings per share:
Basic $ 0.02 $ 0.06
============= =============
Diluted $ 0.02 $ 0.05
============= =============
Note 7. Inventories
======================
Inventories are stated at the lower of cost or market and include material,
labor and related manufacturing overhead. The Company determines cost based on
the first-in, first-out (FIFO) method. Inventories consisted of:
Three Months Ended
March 31,
-----------------------------
1998 1997
------------- -------------
Raw materials $ 2,135,000 $ 1,584,000
Work-in-process 1,359,000 1,359,000
Finished goods 1,912,000 2,238,000
------------- -------------
$ 5,406,000 $ 5,181,000
============= =============
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
================================================================================
On March 1, 1996, the Company acquired Pulsarr. On July 24, 1996, the Company
acquired Ventek. In May 1997, the Company sold Pulsarr for $8.4 million (see
Note 6 to the Consolidated Financial Statements). The discussion below pertains
to the operations of AMV with Pulsarr and Ventek included from their respective
acquisition dates, and in the case of Pulsarr, through its disposition date.
The Company's backlog at March 31, 1998, was $8,824,000 compared to $6,616,000
as of March 31, 1997. After excluding Pulsarr, backlog was $3,820,000 at March
31, 1997. The 1998 backlog is expected to be shipped within nine months.
Results of Operations - Comparison between three months ended March 31, 1998 and
March 31, 1997
Sales for the three months ended March 31, 1998 ("Q1 1998") were $7,103,000,
down 24% when compared to sales for the three months ended March 31, 1997
("Q1 1997") of $9,337,000. Sales for Q1 1997 included Pulsarr sales of
$2,210,000, whereas sales for Q1 1998 did not include any sales for Pulsarr due
to its sale in May 1997. Sales at SRC increased by approximately $1.3 million
due to increased demand for SRC products. This increase was entirely offset by
decreased sales at Ventek of $1.3 million due to softness in the plywood
manufacturing markets.
Gross profit decreased by $1,274,000 to $3,333,000 in Q1 1998 when compared to
$4,607,000 of gross profit in Q1 1997. In Q1 1998, gross profit was 47% of sales
as compared to 49% in Q1 1997. The decrease in gross profits relates primarily
to Ventek's lower sales, which resulted in lower gross profits of nearly $1
million. Gross profit for Q1 1997 included Pulsarr's gross profits of $807,000,
whereas Q1 1998 did not include any gross profits due to the sale of Pulsarr in
May 1997. The decreases in gross profits from Ventek and Pulsarr were partially
offset by increased gross profits at SRC of $525,000.
Selling and marketing expense decreased by $316,000 in Q1 1998 from Q1 1997 to
$937,000 amounting to 13% of sales in Q1 1998. Similar expenses in Q1 1997 were
$1,253,000, or 13% of sales. The decrease in selling and marketing expenses was
primarily due to the sale of Pulsarr.
Research and development expenses were $1,150,000 and $1,019,000 in Q1 1998 and
Q1 1997, or 16% and 11% of sales, respectively. The increase in research and
development expenses is related to new projects, which include developing new
lighting, camera and software technologies. Q1 1997 research and development
expenses included $154,000 related to Pulsarr, whereas Q1 1998 did not include
any such expenses due to the sale of Pulsarr in May 1997.
General and administrative expenses decreased $256,000 to $776,000 in Q1 1998
from $1,032,000 in Q1 1997. The decrease in general and administrative expenses
is due principally to the sale of Pulsarr.
The decrease in amortization of intangible assets is primarily due to the sale
of Pulsarr.
The decrease in interest expense is due to reduced debt balances.
Net income for Q1 1998 was $182,000 as compared to net income of $769,000 in
Q1 1997 as a result of the factors discussed above.
Liquidity and Capital Resources
The Company's cash balance and working capital was $4,777,000 and $9,393,000,
respectively, at March 31, 1998 as compared to $6,045,000 and $9,133,000,
respectively, at December 31, 1997. The Company's long-term debt and equity
balances at March 31, 1998 and December 31, 1997 were similar.
During Q1 1998, net cash used in operating activities totaled $1,067,000
compared to cash provided by operating activities of $1,003,000 in Q1 1997. Net
income decreased by $587,000 from Q1 1997 to Q1 1998, which, coupled with the
net use of cash from working capital components, caused the change in cash
provided by operations in Q1 1997 to cash used in operations in Q1 1998.
Cash used in investment activities totaled $195,000 in 1998 compared to cash
used in investment activities of $142,000 in 1997 and related entirely to
acquisition of property and equipment. The Company has no material commitments
for capital expenditures at March 31, 1998 other than $458,000 to acquire 3.44
acres of land adjacent to the Company's current Medford, Oregon facility for
purposes of possible future expansion.
Cash used in financing activities totaled $46,000 in 1998 as compared to cash
used in financing activities of $60,000 in 1997. In April 1998, the Company
refinanced its existing $2,680,000 mortgage due 2003 with a new $3,000,000
mortgage due 2008. The mortgage interest rate was lowered from 9.75% to 8.3%.
Additionally, the Company obtained a $2,000,000 revolving line of credit that
will expire on April 30, 1999.
Management believes that the Company has sufficient cash to enable the Company
to sustain its operations and to adequately fund the cash flow expected to be
used in operating activities for the next twelve months.
Cautionary Statements and Risk Factors
The Company and its representatives may from time to time make written or oral
forward-looking statements with respect to long-term objectives or expectations
of the Company, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to stockholders.
The words or phrases "will likely," "are expected to," "is anticipated," "is
predicted," "forecast," "estimate," "project," "plans to continue," "believes,"
or similar expressions identify "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. In connection with the "Safe Harbor" provisions on the Private
Securities Litigation Reform Act of 1995, the Company is hereby identifying
important factors that could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements.
The Company cautions that the following list of important factors may not be all
inclusive, and it specifically declines to undertake any obligation to publicly
revise any forward-looking statements that have been made to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events. Among the factors that could have an impact
on the Company's ability to achieve its operating results and growth plan goals
and/or affect the market price of the Company's stock are:
* The Company's history of losses and negative cash flow.
* The uncertain ability to manage growth and integrate acquired businesses.
* Rapid technological change in the Company's markets and the need for new
product development.
* Market acceptance of the Company's new products.
* AMV's dependence on certain markets and the need to expand into new
markets.
* The lengthy sales cycle for the Company's products.
* The Company's highly competitive marketplace.
* The dependence on certain suppliers.
* The risks associated with dependence upon significant customers and
reliance on certain distributors.
* The risks associated with international sales.
* Fluctuations in quarterly operating results and seasonality in certain of
the Company's markets.
* Risks associated with acquisitions and other relationships.
* Dependence upon key personnel.
* The Company's ability to protect its intellectual property.
* The possibility of product liability or other legal claims.
* Exposure to possible warranty and litigation claims.
* The possible need for additional financing.
* The impact of the 1998 Shareholder Rights Plan.
* The inability of the Company or its suppliers or customers to remedy
potential problems with information systems related to the arrival of the
year 2000.
These risk factors are discussed in further detail below.
History of Losses; Negative Cash Flow:
Prior to 1995 and in 1996, the Company experienced losses and negative
operating cash flow. The Company believes it may operate at a negative cash flow
for certain periods in the future due to (i) the need to fund certain
development projects, (ii) cash required to enter new market areas, (iii)
irregular bookings by customers due to the relatively high per-unit cost of the
Company's products which may cause fluctuations in quarterly or yearly revenues,
(iv) cash required for the repayment of debt, especially $3.25 million due in
July 1999, and (v) possible cash needed to fully integrate SRC's and Ventek's
operations. If the Company is unable to consistently generate sustained positive
cash flow from operations, the Company must rely on debt or equity financing.
Although the Company achieved profitability in 1995 and 1997, there can be no
assurance as to the Company's profitability on a quarterly or annual basis in
the future. Furthermore, the non-recurring expenses in early 1996 resulted in a
significant loss for the 1996 year.
Uncertain Ability to Manage Growth and Integrate Acquired Businesses:
As part of its business strategy, the Company intends to pursue rapid
growth. In March and July 1996, the Company acquired Pulsarr and Ventek which
had sales in 1995 of approximately $11.4 million and $4.4 million, respectively,
and would have added approximately 80% to the Company's 1995 sales on a proforma
basis. Pulsarr was subsequently sold in May 1997. A growth strategy involving
the integration of new entities, such as Ventek, will require the establishment
of sales representatives and distribution relationships, expanded customer
service and support, increased personnel throughout the Company and the
continued implementation and improvement of the Company's operational, financial
and management information systems. There is no assurance that the Company will
be able to attract qualified personnel or to accomplish other measures necessary
for its successful integration of Ventek or other acquired entities or for
internal growth, or that the Company can successfully manage expanded
operations. As the Company expands, it may from time to time experience
constraints that will adversely affect its ability to satisfy customer demand in
a timely fashion. Failure to manage growth effectively could adversely affect
the Company's financial condition and results of operations.
Rapid Technological Change; Product Development:
The markets for the Company's machine vision products are characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions and enhancements. For example, the Company believes that
the 1995 introduction by Key Technology, Inc. of its new line of vision sorting
equipment adversely affected bookings in late 1995 and 1996. Sales of the
Company's products depend in part on the continuing development and deployment
of new technology and services and applications. The Company's success will
depend to a significant extent upon its ability to enhance its existing products
and develop new products that gain market acceptance. There can be no assurance
that the Company will be successful in selecting, developing and manufacturing
new products or enhancing its existing products on a timely or cost-effective
basis or that products or technologies developed by others will not render the
Company's products noncompetitive or obsolete. Moreover, the Company may
encounter technical problems in connection with its product development that
could result in the delayed introduction of new products or product
enhancements.
Market Acceptance of New Products:
The Company's future operating results will depend upon its ability to
successfully introduce and market, on a timely and cost-effective basis, new
products and enhancements to existing products. There can be no assurance that
new products or enhancements, if developed and manufactured, will achieve market
acceptance. The Company is currently in the initial prototype stage of
development on a new high-speed software and digital signal processing
technology designed to significantly improve system performance. There can be no
assurance that a market for this system will develop (i.e., that a need for the
system will exist, that the system will be favored over other products on the
market, etc.) or, if a market does develop, that the Company will be able,
financially or operationally, to market and support the system successfully.
Dependence on Certain Markets and Expansion Into New Markets:
The future success and growth of the Company is dependent upon continuing sales
in domestic and international food processing markets as well as successful
penetration of other existing and potential markets. A substantial portion of
the Company's historical sales has been in the potato and other vegetable
processing markets. Reductions in capital equipment expenditures by such
processors due to commodity surpluses, product price fluctuations, changing
consumer preferences or other factors could have an adverse effect on the
Company's results of operations. The Company also intends to expand the
marketing of its processing systems in additional food markets such as meat and
granular food products, as well as non-food markets such as plastics, wood
products and tobacco, and to expand its sales activities in foreign markets. In
the case of Ventek, the wood products market served is narrow and cyclical, and
saturation of that market and the potential inability to identify and develop
new markets could adversely affect Ventek's growth rate. The Company may not be
able to successfully penetrate additional food and non-food markets or expand
further in foreign markets.
Lengthy Sales Cycle:
The sales cycle in the marketing and sale of the Company's machine vision
systems, especially in new markets or in a new application, is lengthy and can
be as long as three years. Even in existing markets, due to the $150,000 to
$600,000 price range for each system and possibly significant ancillary costs
required for a customer to install the system, the purchase of a machine vision
system can constitute a substantial capital investment for a customer (which may
need more than one machine for its particular proposed application) requiring
lengthy consideration and evaluation. In particular, a potential customer must
develop a high degree of assurance that the product will meet its needs,
successfully interface with the customer's own manufacturing, production or
processing system, and have minimal warranty, safety and service problems.
Accordingly, the time lag from initiation of marketing efforts to final sales
can be lengthy.
Competition:
The markets for the Company's products are highly competitive. A major
competitor of the Company introduced several years ago a new flat-belt optical
sorter product which has increased the competition that the Company faces. In
the case of Ventek, the wood industry continues to develop alternative products
to plywood (e.g., oriented strand board) which do not require vision systems for
quality control. Some of the Company's competitors, including Pulsarr, which was
sold in May 1997 to a company significantly larger than AMV, may have
substantially greater financial, technical, marketing and other resources than
the Company. Important competitive factors in the Company's markets include
price, performance, reliability, customer support and service. Although the
Company believes that it currently competes effectively with respect to these
factors, the Company may not be able to continue to compete effectively in the
future.
Dependence Upon Certain Suppliers:
Certain key components and subassemblies used in the Company's products are
currently obtained from sole sources or a limited group of suppliers, and the
Company does not have any long-term supply agreements to ensure an uninterrupted
supply of these components. Although the Company seeks to reduce dependence on
sole or limited source suppliers, the inability to obtain sufficient sole or
limited source components as required, or to develop alternative sources if and
as required, could result in delays or reductions in product shipments which
could materially and adversely affect the Company's results of operations and
damage customer relationships. The purchase of certain of the components used in
the Company's products require an 8 to 12 week lead time for delivery. An
unanticipated shortage of such components could delay the Company's ability to
timely manufacture units, damage customer relations, and have a material adverse
effect on the Company. In addition, a significant increase in the price of one
or more of these components or subassemblies could adversely affect the
Company's results of operations.
Dependence Upon Significant Customers and Distribution Channel:
The Company sold equipment to an unaffiliated customer totaling 14% of sales
in 1997 and to two unaffiliated customers totaling 13% and 12% of sales in 1996.
Sales to another two unaffiliated customers totaled 19% and 16% of sales in
1995. Ventek's sales have been to a relatively small number of multi-location
plywood manufacturers. In the emerging pulp wood industry, the Company utilizes
a single exclusive distributor for its products in North America. In much of the
United States and in many areas in the rest of the world, the Company has
entered an agreement with FMC Corporation to be its exclusive sales
representative. While the Company strives to create long-term relationships with
its customers, distributors and representatives, there can be no assurance that
they will continue ordering or selling additional systems. The Company may
continue to be dependent on a small number of customers, distributors and
representatives, the loss of which would adversely affect the Company's
business.
Risk of International Sales:
Due to its export sales, the Company is subject to the risks of conducting
business internationally, including unexpected changes in regulatory
requirements; fluctuations in the value of the U. S. dollar which could increase
the sales prices in local currencies of the Company's products in international
markets; delays in obtaining export licenses, tariffs and other barriers and
restrictions; and the burdens of complying with a variety of international laws.
For example, the possibility of sales to Indonesian customers has been adversely
affected by the recent currency devaluation. In addition, the laws of certain
foreign countries may not protect the Company's intellectual property rights to
the same extent as do the laws of the United States.
Fluctuations in Quarterly Operating Results; Seasonality:
The Company has experienced and may in the future experience significant
fluctuations in revenues and operating results from quarter to quarter as a
result of a number of factors, many of which are outside the control of the
Company. These factors include the timing of significant orders and shipments,
product mix, delays in shipment, capital spending patterns of customers,
competition and pricing, new product introductions by the Company or its
competitors, the timing of research and development expenditures, expansion of
marketing and support operations, changes in material costs, production or
quality problems, currency fluctuations, disruptions in sources of supply,
regulatory changes and general economic conditions. These factors are difficult
to forecast, and these or other factors could have a material adverse effect on
the Company's business and operating results. Moreover, due to the relatively
fixed nature of many of the Company's costs, including personnel and facilities
costs, the Company would not be able to reduce costs in any quarter to
compensate for any unexpected shortfall in net sales, and such a shortfall would
have a proportionately greater impact on the Company's results of operations for
that quarter. For example, a significant portion of the Company's quarterly net
sales depends upon sales of a relatively small number of high-priced systems.
Thus, changes in the number of such systems shipped in any given quarter can
produce substantial fluctuations in net sales, gross profits, and net income
from quarter to quarter. In addition, in the event the Company's machine vision
systems' average selling price increases, of which there can be no assurance,
the addition or cancellation of sales may exacerbate quarterly fluctuations in
revenues and operating results.
The Company's operating results may also be affected by certain seasonal trends.
For example, the Company may experience lower sales and order levels in the
first quarter when compared with the preceding fourth quarter due to the
seasonality of certain harvested food items and the timing of annual or
semi-annual customer plant shut-downs during which systems are installed. The
Company expects these seasonal patterns to continue, though their impact on
revenues is expected to decline as the Company continues to expand its presence
in non-agricultural and other markets which are less seasonal.
Risks Associated With Acquisitions:
The Company may pursue strategic acquisitions or joint ventures in addition to
the acquisitions of Pulsarr (subsequently divested in May 1997) and Ventek as
part of its growth strategy. While the Company presently has no understandings,
commitments or agreements with respect to any further acquisition, the Company
anticipates that one or more potential opportunities may become available in the
future. Acquisitions and joint ventures would require investment of operational
and financial resources and could require integration of dissimilar operations,
assimilation of new employees, diversion of management resources, increases in
administrative costs and additional costs associated with debt or equity
financing. For these reasons, any acquisition or joint venture by the Company
may have an adverse effect on the Company's results of operations or may result
in dilution to existing shareholders. If additional attractive opportunities
become available, the Company may decide to pursue them actively. Any future
acquisitions or joint ventures may materially and adversely affect the Company.
Dependence Upon Key Personnel:
The Company's success depends to a significant extent upon the continuing
contributions of its key management, technical, sales and marketing and other
key personnel. Except for William J. Young, the Company's President and Chief
Executive Officer, Alan R. Steel, the Company's Chief Financial Officer, Dr.
James Ewan, SRC's President and Chief Executive Officer, and the four former
stockholders of Ventek, the Company does not have long-term employment
agreements or other arrangements with such individuals which would encourage
them to remain with the Company. The Company's future success also depends upon
its ability to attract and retain additional skilled personnel. Competition for
such employees is intense. The loss of any current key employees or the
inability to attract and retain additional key personnel could have a material
adverse effect on the Company's business and operating results.
Intellectual Property:
The Company's competitive position may be affected by its ability to protect
its proprietary technology. Although the Company has a number of United States
and foreign patents, such patents may not provide meaningful protection for its
product innovations. The Company may experience additional intellectual property
property risks in international markets where it may lack patent protection.
Product Liability and Other Legal Claims:
From time to time, the Company may be involved in litigation arising out of the
normal course of its business, including product liability, patent and other
legal claims. While the Company has a general liability insurance policy which
includes product liability coverage up to an aggregate amount of $10 million,
the Company may not be able to maintain product liability insurance on
acceptable terms in the future. Litigation, regardless of its outcome, could
result in substantial cost to and diversion of effort by the Company. Any
infringement claims or litigation against the Company could materially and
adversely affect the Company's business, operating results and financial
condition. If a substantial product liability or other legal claim against the
Company were sustained that was not covered by insurance, there could be an
adverse effect on the Company's financial condition and marketability of the
affected products.
Warranty Exposure and Performance Specifications:
The Company generally provides a one-year limited warranty on its products. In
addition, for certain custom-designed systems, the Company contracts to meet
certain performance specifications. In the past, the Company has incurred higher
warranty expenses related to new products than it typically incurs with
established products. The Company may incur substantial warranty expenses in the
future with respect to new products, as well as established products, or with
respect to its obligations to meet performance specifications, which may have an
adverse effect on its results of operations and customer relationships.
Possible Need for Additional Financing:
The Company may seek additional financing; however, the Company may not be able
to obtain any additional financing on terms satisfactory to the Company, if at
all. Potential increases in the number of outstanding shares of the Company's
Class A Common Stock due to convertible debt, warrants and stock options, a
substantial loss in 1996 and debt incurred for the acquisition of Ventek due in
1999, may limit the Company's ability to negotiate additional debt or equity
financing.
Shareholder Rights Plan:
In February 1998, the Company implemented a stock rights program. Pursuant to
the program, stockholders of record on February 27, 1998 received a dividend of
one right to purchase for $15 one one-hundredth of a share of a newly created
Series A Junior Participating Preferred Stock. The rights are attached to AMV's
Class A Common Stock and will also become attached to shares issued in the
future. The rights will not be traded separately and will not become exercisable
until the occurrence of a triggering event, defined as an accumulation by a
single person or group of 20% or more of AMV's Class A Common Stock. The rights
will expire on February 26, 2008 and are redeemable at $.0001 per right.
After a triggering event, the rights will detach from the Class A Common Stock.
If AMV is then merged into, or is acquired by, another corporation, the Company
has the opportunity to either (i) redeem the rights or (ii) permit the rights
holder to receive in the merger stock of AMV or the acquiring company equal to
two times the exercise price of the right (i.e., $30). In the latter instance,
the rights attached to the acquirer's stock become null and void. The effect of
the rights program is to make a potential acquisition of the Company more
expensive for the acquirer if, in the opinion of AMV's Board of Directors, the
offer is inadequate.
While the Company is not aware of any current intent to acquire a sufficient
number of shares of the Company's common stock to trigger distribution of the
Rights, existence of the Rights could discourage offers for the Company's stock
that may exceed the current market price of the stock, but that the Board of
Directors deems inadequate.
Year 2000 Issues:
AMV has established a company-wide initiative to examine the implications of
the Year 2000 on the Company's computing systems and related technologies,
and to assess the potential need for changes. The Company has identified areas
of potential business impact, and appropriate modifications to its computing
systems are underway. Management believes this will be accomplished in a timely
manner. The Company is also communicating with suppliers and customers to
coordinate Year 2000 conversion. Management does not currently believe that the
costs related to the Company's compliance with the Year 2000 issue will have a
material adverse effect on the Company's financial position, results of
operations or cash flows. However, in the event that the Company or any of the
Company's significant suppliers or customers experience disruptions due to the
Year 2000 issue, the Company's operations could be adversely affected.
PART II. OTHER INFORMATION
==========================
Item 6. Exhibits and Reports on Form 8-K
=========================================
(a) Exhibits
Exhibit
Number Description
------- -----------------------------
3.1 Restated Articles of Incorporation of the Company as amended to
date. (8)
3.2 Restated and Amended By-Laws of the Company. (2)
4.4 Form of Class D Warrant Agreement. (1)
4.6 Form of Class G Warrant Agreement. (3)
4.7 Form of Class H Warrant Agreement. (7)
4.8 Form of Class I Warrant Agreement. (5)
4.9 Form of Laidlaw Warrant Agreement. (5)
4.10 Form of stock option agreement. (4)
4.11 Form of 1997 Restricted Stock Plan and restricted stock agreement.
(6)
4.12 Rights Agreement dated February 27, 1998 between the Company and
American Stock Transfer and Trust Company. (12)
10.1 Form of Indemnity Agreement between the Company and each of its
officers and directors. (1)
10.2 Employment Agreement between Alan R. Steel and the Company dated
January 1, 1998. (13)
10.3 Employment Agreement between William J. Young and the Company dated
January 1, 1998. (13)
10.4 Employment Agreement between William J. Young and SRC VISION, Inc.
dated January 1, 1998. (13)
10.5 Employment Agreement between James Ewan and SRC VISION, Inc. dated
January 1, 1998. (13)
10.6 Subscription Agreement dated April 9, 1996, between the Company and
Swiss American Securities, Inc., as agent for Credit Suisse, related
to the private placement of $3,400,000 of convertible secured notes.
(3)
10.7 Convertible Secured Note dated April 17, 1996, between the Company
and Ilverton International, Inc. (7)
10.8 Asset Purchase Agreement dated July 24, 1996, by and among AMV,
Ventek and the shareholders of Ventek. (5)
10.9 $1,000,000 Note dated July 24, 1996, between AMV and Ventek. (5)
10.10 $2,250,000 Convertible Note dated July 24, 1996, between AMV and
Ventek. (5)
10.11 $1,125,000 Note dated July 24, 1996, between AMV and Ventek. (5)
10.12 Stock Appreciation Rights Agreement dated July 24, 1996 between AMV
and Ventek. (5)
10.13 Form of Employment Agreement dated July 24, 1996 between Ventek and
each of the four stockholders of Ventek. (5)
10.14 Pledge and Security Agreement dated July 24, 1996, by and among AMV,
AMV Subsidiary, Inc., Ventek and Solin and Associates, P.C. (5)
10.15 1997 SRC VISION, Inc. Stock Option Plan and forms of stock option
agreements. (11)
10.16 Plan of Merger between ARC Capital and AMV to effect an amendment to
the Company's Articles of Incorporation to change the Company's name
from ARC Capital to Advanced Machine Vision Corporation. (8)
10.17 Share Purchase Agreement dated April 29, 1997 between Barco NV and
ARC Netherlands BV. (9)
10.18 Settlement Agreement dated August 12, 1997. (10)
10.19 1997 Nonqualified Stock Option Plan and form of option agreement.
(10)
10.20 Business Loan Agreement dated April 30, 1998 between AMV and Bank of
America NT&SA, together with related documents.
10.21 Promissory Note dated April 24, 1998 to Bank of America NT&SA,
together with related documents.
27 Financial Data Schedule.
- ----------------------
(1) Previously filed as an exhibit to Form S-1 (File No. 33-45126).
(2) Previously filed as an exhibit to Form S-3 (File No. 333-10847).
(3) Filed with the SEC on April 14, 1996, as an exhibit to the Company's
Form 10-K for the year ended December 31, 1995.
(4) Filed with the SEC as an exhibit to form S-1 (File No. 33-45126).
(5) Filed with the SEC on July 30, 1996, as an exhibit to the Company's
Form 8-K dated July 24, 1996.
(6) Filed with the SEC on January 22, 1997, as an exhibit to the
Company's Form 8-K dated January 9, 1997.
(7) Filed with the SEC on May 14, 1996, as an exhibit to the Company's
Form 10-Q for the quarter ended March 31, 1996.
(8) Filed with the SEC on May 14, 1997 as an exhibit to the Company's
Form 10-Q for the quarter ended March 31, 1997.
(9) Filed with the SEC on May 9, 1997 as an exhibit to the Company's
Form 8-K regarding the sale of Pulsarr.
(10) Filed with the SEC on October 30, 1997 as an exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1997.
(11) Filed with the SEC on March 31, 1997 as an exhibit to the Company's
Form 10-K for the year ended December 31, 1996.
(12) Filed with the SEC on February 20, 1998 as an exhibit to the
Company's Form 8-A.
(13) Filed with the SEC on February 27, 1998 as an exhibit to the
Company's Form 8-K regarding implementation of a stock rights program
and employment contracts.
(b) Reports on Form 8-K:
On February 27, 1998, a Form 8-K was filed regarding the
implementation of a stock rights program and employment contracts.
<PAGE>
SIGNATURE
=========
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 7, 1998 /s/ Alan R. Steel
- ----------------------------- ------------------------------
Alan R. Steel
Vice President, Finance
(Principal Financial and duly
Authorized Officer)
================================================================================
Bank of America NT&SA Business Loan Agreement
- --------------------------------------------------------------------------------
This Agreement dated as of April 30, 1998 is between Bank of America NT&SA (the
"Bank") and Advanced Machine Vision Corporation (the "Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is the lesser of:
(i) Two Million Dollars ($2,000,000) or
(ii) the loan value of marketable securities pledged to the Bank. The
loan value of a marketable security will be a percentage of its fair market
value. The fair market value will be determined by the Bank from time to
time in its sole discretion. The percentage applied to a particular
marketable security will be set by the Bank at the time it is pledged to
the Bank. The percentage can be changed by the Bank at any time for
reasonable cause. The Bank's records of the applicable percentage will be
controlling.
If at any time the total amount of principal outstanding under the line of
credit exceeds this limit, the Borrower will immediately either increase the
loan value of marketable securities or other acceptable collateral pledged to
the Bank, or reduce the total amount outstanding in order to comply with this
limit. If any of the pledged assets are margin stock, the Borrower will provide
the Bank a Form U-1 Purpose Statement, and the Bank and the Borrower will comply
with the restrictions imposed by Regulation U of the Federal Reserve, which may
require a reduction in the loan value of the margin stock pledged to the Bank.
(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of
the line of credit to exceed the Commitment.
1.2 Availability Period.
The line of credit is available between the date of this Agreement and
April 30, 1999 (the "Expiration Date") unless the Borrower is in default.
1.3 Interest Rate.
(a) Unless the Borrower elects an Optional interest rate as described
below, the interest rate is the Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time
to time by Bank as its Reference Rate. The Reference Rate is set based on
various factors, including Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans. The Bank may price loans to its customers at, above, or below the
Reference Rate. Any change in the Reference Rate shall take effect at the
opening of business on the day specified in the public announcement of a change
in the Reference Rate.
1.4 Repayment Terms.
(a) The Borrower will pay interest on May 1, 1998, and then monthly
thereafter until payment in full of any principal outstanding udner this line of
credit.
(b) The Borrower will repay in full all principal and any unpaid interest
or other charges outstanding under this line of credit no later than the
Expiration Date.
(c) The Borrower may prepay the loan in full or in part at any time. The
prepayment will be applied to the most remote installment of principal due under
this Agreement.
1.5 Optional Interest Rates. Instead of the interest rate based on the Reference
Rate, the Borrower may elect to have all or portions of the line of credit
(during the availability period) bear interest at the rate(s) described below
during an interest period agreed to by the Bank and the Borrower. Each interest
interest rate is a rate per year. Interest will be paid on the first day of
every month and on the last day of each interest period. At the end of any
interest period, the interest rate will revert to the rate based on the
Reference Rate, unless the Borrower has designated another optional interest
rate for the portion.
1.6 Offshore Rate. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Offshore Rate plus
1.85 percentage points.
Designation
of an Offshore Rate portion is subject to the following requirements:
(a) The interest period during which the Offshore Rate will be in effect
will be no shorter than 30 days and no longer than 360 days. The last day of the
interest period will be determined by the Bank using the practices of the
offshore dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(c) The "Offshore Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the
calculation will be determined by the Bank as of the first day of the interest
period.)
Offshore Rate = Grand Cayman Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the Bank's Grand Cayman Branch,
Grand Cayman, British West Indies, would offer U.S. dollar deposits for the
applicable interest period to other major banks in the offshore dollar
inter-bank market.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member banks
of the Federal Reserve System for Eurocurrency Liabilities, as defined in
the Federal Reserve Board Regulation D, rounded upward to the nearest 1/100
of one percent. The percentage will be expressed as a decimal, and will
include, but not be limited to, marginal, emergency, supplemental, special,
and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to any portion
of the principal balance of the line of credit which is scheduled to be repaid
before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already
bearing interest at the Offshore Rate will not be converted to a different rate
during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the interest
period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the offshore dollar market for a
period starting on the date on which it was prepaid and ending on the last
day of the interest period for such portion.
(g) The Bank will have no obligation to accept an election for an Offshore
Rate portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal to
the interest period, of an Offshore Rate portion are not available in the
offshore Dollar inter-bank market; or
(ii) the Offshore Rate does not accurately reflect the cost of an
Offshore Rate portion.
2. FEES AND EXPENSES
2.1 Loan fee. The Borrower agrees to pay a One Thousand Dollar ($1,000) fee due
on the date of this Agreement and a One Thousand Five Hundred Dollar ($1,500)fee
due on the date funds are advanced.
2.2 Expenses.
(a) The Borrower agrees to immediately repay the Bank for expenses that
include, but are not limited to, filing, recording and search fees, appraisal
fees, title report fees and documentation fees.
(b) The Borrower agrees to reimburse the Bank for any expenses it incurs in
the preparation of this Agreement and any agreement or instrument required by
this Agreement. Expenses include, but are not limited to, reasonable attorneys'
fees, including any allocated costs of the Bank's in-house counsel.
3. COLLATERAL.
3.1 Personal Property. The Borrower's obligations to the Bank under this
Agreement will be secured by securities pledged pursuant to Section 1.1(a)(ii).
The collateral is further defined in security agreement(s) executed by the
Borrower. In addition, all personal property collateral securing this Agreement
shall also secure all other present and future obligations of the Borrower to
the Bank (excluding any consumer credit covered by the Federal Truth in Lending
law, unless the Borrower has otherwise agreed in writing). All personal property
collateral securing any other present or future obligations of the Borrower to
the Bank shall also secure this Agreement. If at any time the outstanding
balance of the line of credit is less than the Commitment, securities pledged
under Section 1.1(a)(ii) may be released from pledge upon request by Borrower,
so long as the loan value of the remaining securities equals or exceeds the
outstanding principal balance of the line of credit. Securities so released may
not be counted for purposes of determining availability under Section
1.1(a)(ii).
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 Requests for Credit. Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable
to the Bank.
4.2 Disbursements and Payments. Each disbursement by the Bank and each payment
by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from
time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory notes.
4.3 Telephone Authorization.
(a) The Bank may honor telephone instructions for advances or repayments or
for the designation of optional interest rates given by the individual signer(s)
of this Agreement or a person or persons authorized by the signer(s) of this
Agreement.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 28013-00995, or such other accounts with the Bank as
designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) for, from and against all liability, loss, and costs in
connection with any act resulting from telephone instructions it reasonably
believes are made by a signer of this Agreement or a person authorized by a
signer. This indemnity and excuse will survive this Agreement's termination.
4.4 Direct Debit
(a) The Borrower agrees that interest will be deducted automatically on the
due date from checking account number 28013-00995.
(b) The Bank will debit the account on the dates the payments become due.
If a due date does not fall on a banking day, the Bank will debit the account on
the first banking day following the due date.
(c) The Borrower will maintain sufficient funds in the account on the dates
the Bank enters debits authorized by this Agreement. If there are insufficient
funds in the account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
4.5 Banking Days. Unless otherwise provided in this Agreement, a banking day
is a day other than a Saturday or a Sunday on which the Bank is open for
business in Oregon and banks are open for busi(&ness in California. For amounts
bearing interest at an offshore rate (if any), a banking day is a day other than
a Saturday or a Sunday on which the Bank is open for business in Oregon and the
Bank is dealing in offshore dollars. All payments and disbursements which would
be due on a day which is not a banking day will be due on the next banking day.
All payments received on a day which is not a banking day will be applied to the
credit on the next banking day.
4.6 Taxes. The Borrower will not deduct any taxes from any payments it makes
to the Bank. If any government authority imposes any taxes or charges on any
payments made by the Borrower, the Borrower will pay the taxes or charges.
Upon request by the Bank, the Borrower will confirm that it has paid the taxes
by giving the Bank official tax receipts (or notarized copies) within 30 days
after the due date. However, the Borrower will not pay the Bank's net income
taxes.
4.7 Additional Costs. The Borrower will pay the Bank, on demand, for the Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency. The costs and losses will be allocated to
the loan in a manner determined by the Bank, using any reasonable method. The
costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments
for credit.
4.8 Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.
4.9 Interest on Late Payments. At the Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at the Reference Rate. This may result in compounding
of interest.
4.10 Default Rate. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 2.0 percentage points
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any event of default.
5. CONDITIONS
The Bank must receive the following items, in form and content acceptable
to the Bank, before it is required to extend any credit to the Borrower under
this Agreement:
5.1 Authorizations. Evidence that the execution, delivery and performance by
the Borrower and each guarantor or subordinating creditor of this Agreement and
any instrument or agreement required under this Agreement have been duly
authorized.
5.2 Security Agreements. Signed original security agreements, financing
statements and fixture filings (together with collateral in which the Bank
requires a possessory security interest), which the Bank requires.
5.3 Evidence of Priority. Evidence that security interests and liens in favor
of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
5.4 Insurance. Evidence of insurance coverage, as required in the "Covenants"
section of this Agreement.
5.5 Environmental Questionnaire. A completed Bank form Environmental
Questionnaire and Disclosure Statement.
5.6 Guaranties. Guaranties signed by SRC Vision, Inc. and Ventek, Inc.,
each in the amount of Two Million Dollars ($2,000,000).
5.7 Other Items. Any other items that the Bank reasonably requires.
6. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in
full, the Borrower makes the following representations and warranties. Each
request for an extension of credit constitutes a renewed representation:
6.1 Organization of Borrower. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
6.2 Authorization. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and
do not conflict with any of its organizational papers.
6.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
6.4 Good Standing. In each state in which the Borrower does business, it is
properly licensed, in existence and in good standing, and, where required, in
compliance with fictitious name statutes.
6.5 No Conflicts. This Agreement does not conflict with any law, agreement,
or obligation by which the Borrower is bound.
6.6 Financial Information. All financial and other information that has been
or will be supplied to the Bank, including the Borrower's financial statement
dated as of December 31, 1997, is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's and any guarantor's financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
Since the date of the financial statement specified above, there has been no
material adverse change in the assets or the financial condition of the
Borrower or any guarantor.
6.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank, or as disclosed in Borrower's audited financial
statements.
6.8 Collateral. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
6.9 Permits, Franchises. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade
name rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged without conflict with the rights
of others.
6.10 Other Obligations. The Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
6.11 Income Tax Returns. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year, except as have been
disclosed in writing to the Bank.
6.12 No Event of Default. There is no event which is, or with notice or lapse
of time or both would be, a default under this Agreement.
6.13 ERISA Plans.
(a) The Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and is in
compliance in all material respects with the presently applicable provisions of
ERISA and the Code, and has not incurred any liability with respect to any Plan
under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA for
which the PBGC requires 30 day notice.
(c) No action by the Borrower to terminate or withdraw from any Plan has
been taken and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section
4042 of ERISA, and no event has occurred or condi" tion exists which might
constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(ii) "ERISA" means the Employee Retirement Income Act of 1974, as
amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension Benefit Guaranty
Corporation under Title IV of ERISA.
6.14 Year 2000 Compliance. The Borrower has conducted a comprehensive review
and assessment of the Borrower's computer applications. The Borrower will make
inquiry of the Borrower's key suppliers, vendors and customers with respect to
the "year 2000 problem" (that is, the risk that computer applications may not be
able to properly perform date-sensitive function$"s after December 31, 1999) by
September 30, 1998. Based on the review to date, the Borrower does not believe
the year 2000 problem will result in a material adverse change in the Borrower's
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit.
7. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement
and until the Bank is repaid in full:
7.1 Use of Proceeds. To use the proceeds of the credit only for short term
working capital.
7.2 Financial Information. To provide the following financial information and
statements and such additional information as requested by the Bank from time
to time:
(a) Within 120 days of the Borrower's period end, the Borrower's annual
financial statements. These financial statements must be audited by a Certified
Public Accountant ("CPA") acceptable to the Bank.
(b) Within 45 days of the period's end, the Borrower's quarterly financial
statements. These financial stateme $nts may be Borrower prepared. nking day
following the due date.
7.3 Total Liabilities to Tangible Net Worth. To maintain a ratio of total
liabilities to tangible net worth not exceeding the amounts indicated for each
quarterly period specified below:
Period Ratio
------ -----
March 31, 1998 through December 30, 1998 2.75:1.0
December 31, 1998 through December 30, 1999 2.20:1.0
December 31, 1999 through December 30, 2000 1.75:1.0
December 31, 2000 through December 30, 2001 1.50:1.0
December 31, 2001 1.25:1.0
"Total liabilities" means the sum of current liabilities plus long term
liabilities, excluding debt subordinated to the Borrower's obligations to the
Bank in a manner acceptable to the Bank, using the Bank's standard form."T0,red
under this Agreement have been duly authorized.
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles, and
monies due from affiliates, officers, directors or shareholders of the Borrower)
plus liabilities subordinated to the Bank in a manner acceptable to the Bank
(using the Bank's standard form) less total liabilities, including but not
limited to accrued and deferred income taxes, and any reserves against assets.
7.4 Minimum Trading Asset Ratio. To maintain a minimum trading asset ratio of
at least 2.65:1.0.
"Minimum Trading Asset ratio" means the ratio of Accounts Receivable plus
Inventory divided by Accounts Payable plus Short Term Bank Debt.
7.5 Cash Flow Ratio. To maintain a cash flow ratio of at least 1.20:1.0.
"Cash flow ratio" means the ratio of Cash Flow to Current Portion of Long
Term Debt plus Interest Expense plus Income Taxes plus Dividends plus Capital
Expenditures. "Cash flow" is defined as Earnings before Interest Expense, Income
Taxes, Depreciation and Amortization. This ratio will be calculated at the end
of each fiscal quarter, using the results of that quarter and each of the 3
immediately preceding quarters. The current portion of long term debt will be
measured as of the first day of the fiscal year in which the quarter falls. The
current portion of long term debt will exclude the Notes to Veneer Technology,
Inc.
7.6 Liquidity. To maintain at least Three Million Two Hundred Fifty Thousand
Dollars ($3,250,000) in liquid assets through July 31, 1999 as measured by the
sum of borrowing capacity under the line of credit plus unpledged cash and
marketable securities held by the Borrower.
"Liquid assets" means the following assets of Borrower:
(a) cash an certificates of deposit;
(b) U.S. treasury bills and other obligations of the federal government;
(c) readily marketable securities (including commercial paper, but
excluding restricted stock and stock subject to the provisions of Rule 144 of
the Securities and Exchange Commission).
(d) Borrowing capacity under the line of credit.
7.7 Other Debts. Not to have outstanding or incur any direct or contingent
debts (other than those to the Bank and its affiliates), or become liable for
the debts of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(e) Additional debts and lease obligations for the acquisition of fixed or
capital assets, to the extent permitted elsewhere in this Agreement.
(f) Accrual of normal expenses incurred in the ordinary course of business,
including but not limited to payroll, payroll taxes, and deferred taxes.
7.8 Other Liens. Not to create, assume, or allow any security interest or lien
(including judicial liens) on property the Borrower now or later owns, except:
(a) Deeds of trust and security agreements in favor of the Bank and its
affiliates.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to
the Bank.
(d) Additional purchase money security interests in property acquired after
the date of this Agreement if the principal amount of debts secured by such
liens does not exceed Five Hundred Thousand Dollars ($500,000) at any one time.
7.9 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit over One Million Dollars ($1,000,000) against the Borrower.
(b) any substantial dispute between the Borrower or any guarantor and any
government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrowe=;r's or any guarantor's
financial condition or operations.
(e) any change in the Borrower's name, address or legal structure.
7.10 Books and Records. To maintain adequate books and records.
7.11 Audits. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
7.12 Compliance with Laws. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
7.14 Maintenance of Properties. To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.
7.15 Perfection of Liens. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
7.16 Cooperation. To take any action requested by the Bank to carry out the
intent of this Agreement.
7.17 Insurance.
(a) Insurance Covering Collateral. To maintain all risk property damage
insurance policies covering the tangible property comprising the collateral.
Each insurance policy must be in an amount acceptable to the Bank.
(b) General Business Insurance. To maintain insurance as is usual for the
business it is in.
(c) Evidence of Insurance. Upon the request of the Bank, to deliver to the
Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
7.18 Additional Negative Covenants. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate,
or other combination.
(d) acquire or purchase a business or its assets for a consideration,
including assumption of debt, in excess of Two Million Dollars ($2,000,000) in
any fiscal year.
(e) sell or otherwise dispose of any assets for less than fair market
value, or enter into any sale and leaseback agreement covering any of its fixed
or capital assets.
7.19 ERISA Plans. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of ERISA
for which the PBGC requires 30 day notice.
(b) Any action by the Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan under Section
4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under Section
4042 of ERISA.
8. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank for, from, and against
any loss or liability directly or indirectly arising out of the use,
generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence of a hazardous substance. This indemnity will
apply whether the hazardous substance is on, under or about the Borrower's
property or operations or property leased to the Borrower. The indemnity
includes but is not limited to attorneys' fees (including the reasonable
estimate of the allocated cost of in-house counsel and staff). The indemnity
extends to the Bank, its parent, subsidiaries and all of their directors,
officers, employees, agents, successors, attorneys and assigns. For these
purposes, the term "hazardous substances" means any substance which is or
becomes designated as "hazardous" or "toxic" under any federal, state or local
law, or any petroleum products, including crude oil and any product derived
directly or indirectly from, or any fraction or distillate of, crude oil. This
indemnity will survive repayment of the Borrower's obligations to the Bank.
9. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. Bank will not exercise its default
remedies because of a default under Sections 9.2 through 9.13 of this Agreement
unless the default is not cured within 15 days of the date on which Bank mails
or delivers written notice of the default to Borrower. If a bankruptcy petition
is filed with respect to the Borrower, the entire debt outstanding under this
Agreement will automatically become due immediately.
9.1 Failure to Pay. The Borrower fails to make a payment under this Agreement
when due.
9.2 Non-compliance. The Borrower or any guarantor fails to meet the conditions
of, or fails to perform any obligation under:
(a) this Agreement,
(b) any other agreement made in connection with this loan, or
(c) any other agreement the Borrower or any guarantor has with the Bank or
any affiliate of the Bank.
9.3 Cross-default. Any default occurs under any agreement in connection with
any credit the Borrower or any guarantor has obtained from anyone else or which
the Borrower or any guarantor has guaranteed, unless Borrower (or such
guarantor, as the case may be) is actively contesting such default, and has set
aside adequate reserves for the payment of a judgement resulting from such
default.
9.4 Lien Priority. The Bank fails to have an enforceable first lien (except for
any prior liens to which the Bank has consented in writing) on or security
interest in any property given as security for this loan.
9.5 False Information. The Borrower has given the Bank false or misleading
information or representations.
9.6 Bankruptcy. The Borrower or any guarantor files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower or any guarantor, or the
Borrower or any guarantor makes a general assignment for the benefit of
creditors.
9.7 Receivers. A receiver or similar official is appointed for the Borrower's
or any guarantor's business, or the business is terminated.
9.8 Judgments. Any judgments or arbitration awards are entered against the
Borrower or any guarantor; or the Borrower or any guarantor enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of One Million Dollars ($1,000,000) or more in excess of any
insurance coverage, and any such judgement is not discharged, vacated, or
reversed, or i Its execution stayed pending appeal, within 60 days after entry,
or is not discharged within 60 days after the expiration of such stay.
9.9 Government Action. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's or any guarantor's
financial condition or ability to repay.
9.10 Default under Guaranty or Subordination Agreement. Any guaranty,
subordination agreement, security agreement, deed of trust, or other document
required by this Agreement is violated or no longer in effect.
9.11 Material Adverse Change. A material adverse change occurs in the
Borrower's or any guarantor's business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the credit; or if
Borrower's representations in Section 6.14 regarding the "year 2000 problem"
cease to be true, whether or not true when made, and as a result Bank reasonably
believes the Borrower's financial condition or its ability to pay its debts as
they come due will thereby be materially impaired.
9.12 ERISA Plans. The occurrence of any one or more of the following events with
respect to the Borrower, provided such event or events could reasonably be
expected, in the judgment of the Bank, to subject the Borrower to any tax,
penalty or liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial condition of
the Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which is, in the
reasonable judgment of the Bank likely to result in the termination of such Plan
for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to terminate a
Plan) or the Borrower's full or partial withdrawal from a Plan.
10. ENFORCING THIS AGREEMENT; MISCELLANEOUS
10.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
10.2 Oregon Law. This Agreement is governed by Oregon law.
10.3 Successors and Assigns. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent. The Bank may sell participa-
tions in or assign this loan, and may exchange financial information about the
Borrower with actual or potential participants or assignees. If a participa-
tion is sold or the loan is assigned, the purchaser will have the right of set-
off against the Borrower.
10.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those that arise
from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury to persons,
property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though this
Agreement provides that it is governed by Oregon law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated under
this paragraph is subject to any applicable statute of limitations. The
arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss the
arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) a provisional or interim remedy; and/or
(B) additional or supplementary remedies.
(h) The pursuit of or a successful action for provisional, interim,
additional or supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including the
suing party, to submit the controversy or claim to arbitration if the other
party contests the lawsuit.
(i) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under the deed
of trust or mortgage, or to proceed by judicial foreclosure.
10.5 Severability; Waivers. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even
if it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
10.6 Costs. If the Bank incurs any expenses in connection with enforcing this
Agreement or administering this Agreement (including in connection with extend-
ing, amending, renewing or modifying this Agreement), or if the Bank takes
collection action under this Agreement, it is entitled to costs and reasonable
attorneys' fees, including any allocated costs of in-house counsel.
10.7 Attorneys' Fees. In the event of a lawsuit or arbitration proceeding, the
prevailing party is entitled to recover costs and reasonable attorneys' fees
(including any allocated costs of in-house counsel) incurred in connection with
the lawsuit or arbitration proceeding, as determined by the court or arbitrator
(and not by a jury). Such costs and attorneys' fees shall include, without
limitation, those incurred on any appeal, as determined by the appellate court,
and any anticipated costs and attorneys' fees to pursue or collect any
judgement.
10.8 One Agreement. This Agreement and any related security or other agreements
required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them. In the event of any conflict
between this Agreement and any other agreements required by this Agreement, this
Agreement will prevail.
10.9 Exchange of Information. The Borrower agrees that the Bank may exchange
financial information about the Borrower with BankAmerica Corporation affiliates
and other related entities.
10.10 Notices. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on
the signature page of this Agreement, or to such other addresses as the Bank and
the Borrower may specify from time to time in writing.
10.11 Headings. Article and paragraph headings are for reference only and shall
not affect the interpretation or meaning of any provisions of this Agreement.
10.12 Counterparts. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counter-
parts each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
10.13 Written Agreements. Under Oregon Law, most agreements, promises and
commitments made by the Bank after October 3, 1989, concerning loans and other
credit extensions which are not for personal, family or household purposes or
secured solely by the borrower's residence must be in writing, express
consideration and be signed by that Bank to be enforceable.
This Agreement is executed as of the date stated at the top of the first page.
Bank of America NT & SA Advanced Machine Vision Corporation
/s/ Ronald L. Farmer /s/ William J. Young
- ---------------------------------- -----------------------------------
By: Ronald L. Farmer By: William J. Young
Title: Vice President Title: Chairman, President and CEO
Address where notices to the
Bank are to be sent: /s/ Alan R. Steel
P.O. Box 768 -----------------------------------
Eugene, Oregon 97440 By: Alan R. Steel
Title: Vice President, Finance
and CFO
Address where notices to the
Borrower are to be sent:
2067 Commerce Drive
Medford, Oregon 97504
<PAGE>
================================================================================
Bank of America NT&SA Security and Pledge Agreement:
Secured Party in Possession
- --------------------------------------------------------------------------------
(1) In consideration of any financial accommodation given, to be given or
continued to the undersigned (hereinafter called Debtor) by Bank of America
NT&SA, (hereinafter called Secured Party), or any subsidiary or affiliate of
BankAmerica Corporation which has extended or may hereafter extend credit to
Debtor ("Lending Banks"), and as collateral security for the payment of all
debts, obligations or liabilities now or hereafter existing, absolute or
contingent (except, unless Debtor shall otherwise agree in writing, such debts,
obligations or liabilities which are or may hereafter be "consumer credit"
subject to the disclosure requirements of the Federal Truth-in-Lending law and
do not arise as a result of any action taken, sum expanded or expense or
liability incurred by Secured Party as provided herein), of Debtor or any one or
more of them to Secured Party or any other Lending Bank (hereinafter called
indebtedness), Debtor pursuant to the provisions of the Uniform Commercial Code
of the State of Oregon and other applicable Oregon law does hereby grant a
security interest in and assign and transfer to Secured Party all money and
property this day delivered to and deposited with Secured Party or any Lending
Bank, and all money and property heretofore delivered or which shall hereafter
be delivered to or come into the possession, custody or control of Secured Party
or any Lending Bank in any manner or for any purpose whatever during the
existence of this Security and Pledge Agreement, and any deposit account into
which such money may be deposited whether held in a general or special account
or deposit or for safe-keeping or otherwise, together with any stock rights,
rights to subscribe, liquidating dividends, stock dividends, dividends,
dividends paid in stock, new securities or other property to which Debtor is or
may hereafter become entitled to receive on account of such property, and in the
event that debtor receives any such property, Debtor will immediately deliver it
to Secured Party to be held by Secured Party hereunder in the same manner as the
property originally delivered hereunder. All money and property so delivered to
Secured Party under this paragraph is hereinafter called collateral. Securities
and deposit accounts evidenced by book-entries shall be considered "delivered
to" Secured Party for purposes of this Agreement upon execution and delivery of
this Agreement to Secured Party or, as to such securities which are thereafter
acquired by Debtor, upon Debtor's acquisition thereof. Portions of the
collateral may be released from pledge from time to time pursuant to the terms
of Section 3.1 of the Business Loan Agreement dated April 30, 1998, between
Debtor and Secured Party, as it may be amended or restated from time to time.
(2) At any time, without notice, and at the expense of Debtor, Secured
Party in its name or in the name of Debtor may, but shall not be obligated to:
(a) collect by legal proceedings or otherwise, endorse, receive and receipt for
all dividends, interest, principal payments and other sums now or hereafter
payable upon or on account of said collateral; (b) make any compromise or
settlement it deems desirable or proper with reference to the collateral; (c)
insure, process and preserve the collateral; (d) participate in any
recapitalization, reclassification, reorganization, consolidation, redemption,
stock split, merger or liquidation of any issuer of securities which constitute
collateral, and in connection therewith may deposit or surrender control of the
collateral, accept money or other property in exchange for the collateral, and
take such action as it deems proper in connection therewith, and any other money
or property received in exchange for the collateral shall be applied to the
indebtedness or held by Secured Party thereafter as collateral pursuant to the
provisions hereof; (e) cause collateral to be transferred to its name or to the
name of its nominee; (f) exercise as to the collateral all the rights, powers
and remedies of an owner necessary to exercise its rights under this paragraph
(3), but, except pursuant to paragraph (7) hereof, Secured Party shall not vote
any securities constituting collateral except as instructed by Debtor.
(3) The Debtor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the collateral, and upon the failure of Debtor to do so
Secured Party at its option may pay any of them and shall be the sole judge of
the legality or validity thereof and the amount necessary to discharge the same.
(4) All advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by Secured Party or any Lending Bank in
exercising any right, power or remedy conferred by this Security and Pledge
Agreement or in the enforcement thereof, shall become a part of the indebtedness
secured hereuder and shall be paid to Secured Party by Debtor immediately and
without demand, with interest thereon at an annual rate equal to the highest
rate of interest of any indebtedness secured by this agreement . Such costs and
attorneys' fees shall include, without limitation, those incurred on any appeal,
as determined by the appellate court, and any anticipated costs and attorneys'
fees to pursue or collect and judgment, and shall include the allocated cost of
in-house counsel.
(5) At the option of Secured Party and without necessity of demand or
notice, all or any part of the indebtedness of Debtor shall immediately become
due and payable irrespective of any agreed maturity upon the happening of any of
the following events ("Events of Default"): (a) failure to keep or perform any
of the terms or provisions of this Security and Pledge Agreement; (b) default in
the payment of principal or interest or any indebtedness of Debtor when due; (c)
any deterioration or impairment of the collateral or any part thereof or any
decline or depreciation in the value or market price thereof (whether actual or
reasonably anticipated), which causes the collateral in the judgment of Secured
Party to become unsatisfactory as to character or value; (d) the levy of any
attachment, execution or other process against Debtor, or any of the collateral;
(e) the death, insolvency, failure in business, commission of an act of
bankruptcy, general assignment for the benefit of creditors, filing of any
petition in bankruptcy or for relief under the provisions of the Bankruptcy
Code, of, by, or against Debtor or any comaker, accommodation maker, surety or
guarantor of the indebtedness or any endorser of any note or other document
evidencing the indebtedness. Upon the happening of any of the foregoing
specified events any agreement for further financial accommodation by Secured
Party or any Lending Bank shall terminate at its option.
(6) Upon the happening of any Event of Default, Secured Party may then
exercise as to such collateral all the rights, powers and remedies of an owner
and all rights, powers and remedies of a secured party under the Oregon Uniform
Commercial Code and other laws, including the right to vote any securities
constituting collateral, and may elect to sell the collateral in one or more
sales after giving a notice in writing by mail to Debtor of such sale at least
five (5) days before the date fixed for such sale, provided, however, that if
the collateral is perishable, or threatens to decline speedily in value, or is
of a type customarily sold on a recognized market, then such notice may be
dispensed with; the proceeds of such sale shall be applied to: (a) the
reasonable expenses of retaking, holding, preparing for sale, selling and the
like, reasonable attorneys' fees and legal expenses incurred by Secured Party
and (b) the indebtedness secured by the security interest herein created and the
surplus if any to the person or persons entitled thereto; if there be a
deficiency, Debtor will promptly pay the same to Secured Party; the Secured
Party may buy at any public sale and if the collateral is customarily sold in a
recognized market, or is the subject of widely or regularly distributed standard
price quotations, Secured Party may buy at private sale. Any sale may be
conducted by an auctioneer or by an officer, attorney or agent of Secured Party.
Secured Party and any Lending Bank may exercise any rights of setoff, without
notice, against any funds in any deposit account maintained by debtor with
Secured Party or any Lending Bank.
(7) Secured Party shall be under no duty or obligation whatsoever, (a) to
make or give any presentment, demands for performances, notices of
nonperformance, protests, notices of protest or notices of dishonor in
connection with any obligations or evidences of indebtedness held by Secured
Party as collateral, or in connection with any obligation or evidences of
indebtedness which constitute in whole or in part the indebtedness secured
hereunder, or (b) to give Debtor notice of, or to exercise any subscription
rights or privileges, any rights or privileges to exchange, convert or redeem or
any other rights or privileges relating to or affecting any collateral held by
Secured Party.
(8) Secured Party may at any time deliver the collateral or any part
thereof to Debtor and the receipt of Debtor shall be a complete and full
acquittance for the collateral so delivered, and Secured Party shall thereafter
be discharged from any liability or responsibility therefor.
(9) Upon the transfer of all or any part of the indebtedness Secured Party
or the Lending Bank may transfer all or any part of the collateral and shall be
fully discharged thereafter from all liability and responsibility with respect
to such collateral so transferred, and the transferee shall be vested with all
the rights and powers of Secured Party or the Lending Bank hereunder with
respect to such collateral so transferred; but with respect to any collateral
not so transferred Secured Party and the Lending Banks shall retain all rights
and powers hereby given.
(10) This is a continuing Security and Pledge Agreement and all the rights,
powers and remedies hereunder shall apply to all past, present and future
indebtedness of Debtor, including that arising under successive transactions
which shall either continue the indebtedness, increase or decrease it, or from
time to time create new indebtedness after all or any prior indebtedness has
been satisfied, and notwithstanding the death, incapacity, or bankruptcy of
Debtor, or any other event or proceeding affecting Debtor.
(11) Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Secured Party hereunder
shall continue to exist and may be exercised by Secured Party at the time
specified hereunder irrespective of the fact that the indebtedness or any part
thereof may have become barred by any statute of limitations, or that the
personal liability of Debtor may have ceased.
(12) The rights, powers and remedies given to Secured Party by this
Security and Pledge Agreement shall be in addition to all rights, powers and
remedies given to Secured Party by virtue of any statute or rule of law. Any
forbearance or failure or delay by Secured Party in exercising any right, power
or remedy hereunder shall not be deemed to be a waiver of such right, power or
remedy, and any single or partial exercise of any right, power or remedy
hereunder shall not preclude the further exercise thereof; and every right,
power and remedy of Secured Party shall continue in full force and effect until
such right, power or remedy is specifically waived by an instrument in writing
executed by Secured Party.
(13) Debtor represents and warrants that Debtor resides in, or, if Debtor
is not an individual, has its chief executive office in the state specified on
the signature page hereof. Debtor agrees to give Secured Party at least thirty
(30) days notice before changing its state of residence or chief executive
office.
(14) In all cases where more than one party executes this Security and
Pledge Agreement all words used herein in the singular shall be deemed to have
been used in the plural where the context and construction so require, and the
obligations and undertakings hereunder are joint and several.
IN WITNESS WHEREOF, Debtor has executed this Security and Pledge Agreement
this 30th day of April, 1998.
Advanced Machine Vision Corporation
/s/ Alan R. Steel
- ------------------------------- -------------------------------
William J. Young Alan R. Steel
Chairman, President & CEO Vice President, Finance and CFO
Loan No. 3032893
PROMISSORY NOTE
$3,000,000.00 April 24, 1998
Portland, Oregon
FOR VALUE RECEIVED, the undersigned ("Maker" or "Borrower") promise(s) to
pay to the order of BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION
("Lender" or "Bank"), at its principal office in Portland, Oregon, or at such
other place or places or to such other party as the "Holder" (defined below) may
from time to time designate in writing, the principal sum of THREE MILLION AND
NO/100 DOLLARS ($3,000,000.00) or so much thereof as may be advanced, in lawful
money of the United States of America, together with interest thereon, on the
following agreements, terms and conditions. The term "Holder" as used in this
Note means Lender or any future holder of this Note, and their successors and
assigns.
1. TERM. The unpaid principal balance of this Note and all unpaid accrued
interest thereon and other sums payable by Maker in connection with this Note
shall be due and payable in full on May 1, 2008 ("Maturity Date").
2. INTEREST AND PAYMENTS. Interest shall commence to run on each advance
under this Note from the date of the advance and will be computed on the
outstanding balance of this Note as it exists from time to time. After maturity
or after default, interest shall accrue on the outstanding principal balance of
this Note at an annual rate equal to four percentage points (4%) per annum above
the interest rate(s) otherwise applicable to this Note.
a. Interest. Interest shall accrue at the rate of eight and
three-tenths percentage points (8.30%) per year (the "Note Rate").
b. Monthly Payments. If the Deed of Trust records on any day but the
first day of a month, Borrower will pay interest in advance from the date
of recording to the first day of the next month. Thereafter, principal and
interest shall be payable in monthly installments of Twenty-Three Thousand
Seven Hundred Fifty-Three and 83/100ths Dollars ($23,753.83), beginning on
the first (1st) day of June, 1998, and continuing on the first (1st) day of
each month thereafter, with a final payment of all remaining unpaid
principal, interest and other sums due under this Note due and payable on
the Maturity Date.
c. Interest Apportionment and Allocation. The amount of each year's
interest on the Note will, as it accrues, be apportioned among calendar
months on the basis of a year consisting of 12 thirty-day months. The early
or late date of making a monthly payment will be disregarded for purposes
of allocating the payment between principal and interest. For this purpose,
the payment will be treated as though made on the date due.
3. PREPAYMENT. Borrower may prepay principal on the Loan in whole or in
part in minimum amounts equal to or greater than twenty percent (20%) of the
face amount of this Note. Borrower shall give Bank irrevocable written notice of
Borrower's intention to make the prepayment, specifying the date and amount of
the prepayment. The notice must be received by Bank at least five (5) Banking
Days in advance of the prepayment. All prepayments of principal on the Loan
shall be applied to the most remote principal installment or installments then
unpaid. Each such prepayment shall be accompanied by the Prepayment Fee
described in this subsection.
a. Except for any required principal repayment under Section 2.10 of
the Standing Loan Agreement of even date, each prepayment of the Loan,
whether voluntary, by reason of acceleration or otherwise, shall be
accompanied by payment of all accrued interest on the amount of the
prepayment, a prepayment servicing fee of $250 and the Prepayment Fee
described below.
b. The Prepayment Fee shall be the sum of fees calculated separately
for each Prepaid Installment, as follows:
(1) Determine the amount of interest which would have accrued
each month for the Prepaid Installment had it remained outstanding
until the applicable Original Payment Date, using the Fixed Rate;
(2) Subtract from each monthly interest amount determined in (1),
above, the amount of interest which would accrue for that Prepaid
Installment if it were reinvested from the date of prepayment through
the Original Payment Date at the Treasury Rate;
(3) If (1) minus (2) for the Prepaid Installment is greater than
zero, discount the monthly difference to the date of prepayment by the
rate used in (2). The sum of the discounted monthly differences is the
Prepayment Fee for that Prepaid Installment; plus
(4) An amount equal to all costs and expenses Bank reasonably
expects to incur in liquidation and reinvestment of any prepaid funds.
c. For purposes of this subsection,
(1) "Treasury Rate" means the interest rate yield for U.S.
Government Treasury Securities which Bank determines could be obtained
by reinvesting a specified Prepaid Installment in such securities from
the date of prepayment through the Original Payment Date.
(2) "Original Payment Dates" mean the dates on which the
applicable Fixed Rate period would have expired if there had been no
prepayment.
(3) "Prepaid Installment" means the portion of the prepaid
principal of the Loan which would have been paid on a single Original
Payment Date.
(4) "Banking Day" means a day, other than a Saturday or Sunday,
on which Bank is open for business for all banking functions in
Oregon.
d. Bank may adjust the Treasury Rate to reflect the compounding,
accrual basis, or the costs of the Loan. The rate is Bank's estimate only,
and Bank is under no obligation to actually reinvest any prepayment. The
rate shall be based on information from either the Telerate or Reuters
information services, The Wall Street Journal, or other information sources
the Bank deems appropriate.
4. BORROWER'S WAIVER OF PREPAYMENT RIGHT. By its signature below, Borrower
expressly waives any right to prepay the Loan except on the express terms set
forth above. Borrower agrees to pay the Prepayment Fee even if the prepayment is
made following Bank's acceleration of the Note due to a default by Borrower, or
by reason of any transfer giving Bank the right to accelerate the maturity of
this Note pursuant to the terms of the Deed of Trust. Borrower acknowledges that
prepayment of the Loan may result in Bank incurring additional costs (including
lost opportunity costs), expenses or liabilities. Borrower therefore agrees that
the Prepayment Fee represents a reasonable estimate of the prepayment costs,
expenses or liabilities Bank may suffer on a prepayment. Borrower agrees that
Bank's willingness to offer a fixed interest rate to Borrower is sufficient and
independent consideration for this waiver. Borrower understands that Bank would
not offer a fixed interest rate to Borrower absent this waiver.
SRC VISION, INC., an Oregon corporation
By: /s/ Alan R. Steel
- ---------------------------------------
ALAN R. STEEL, Chief Financial Officer
5. LATE CHARGES; RETURNED ITEM FEE. If any payment due hereunder is not
received by the Holder within fifteen (15) days of the due date, at the option
of the Holder without waiving such default or any of its remedies, a late charge
shall be added to the delinquent payment in the amount of four percent (4%) of
the full payment not timely paid. Any such late charge shall be due and payable
on demand, and the Holder, at its option, may (a) refuse any late payment or any
subsequent payment unless accompanied by the applicable late charge, (b) add the
late charge to the principal balance of this Note, (c) pay any late charge with
advances of the undisbursed proceeds of the Loan, if any, or (d) treat the
failure to pay the late charge as demanded as a default under this Note. If a
late charge is added to the principal balance of this Note, it shall bear
interest at the same rate as the principal balance of this Note. Any payment to
Holder by check, draft or other item shall be received by Holder subject to
collection and will constitute payment when collected not when received. For
each "nsf" or returned check, draft or other item, in addition to any applicable
late charge, Maker shall pay to the Holder on demand a returned item fee in
accordance with the Holder's schedule of such fees then in effect.
6. DEFAULT. After a default under any of the Loan Documents, or if Maker
fails to make any payment under this Note when due, the then Holder, at its
option, without notice to Maker (except as provided below), may declare the
entire principal balance of this Note and all unpaid accrued interest thereon
and other charges payable by Maker pursuant to this Note or any other Loan
Document, immediately due and payable in full, and the Holder may exercise any
and all other rights or remedies available to it under any Loan Document, at law
or in equity. Any additional interest due because of a default shall accrue from
the date of default and shall be paid as a condition to the curing of the
default. Notwithstanding the foregoing, the Holder will not accelerate the
Maturity Date (a) because of a monetary default by Maker under this Note or any
other Loan Document unless the default is not cured within ten (10) days of the
date on which the Holder mails or delivers written notice of the default to
Maker, or (b) because of a nonmonetary default by Maker under this Note or any
other Loan Document unless the default is not cured within fifteen (15) days of
the date on which the Holder mails or delivers written notice of the default to
Maker. For purposes of this Note, the term "monetary default" means a failure by
Maker to make any payment required pursuant to this Note or any other Loan
Document, and the term "nonmonetary default" shall mean a failure by Maker to
perform any obligation contained in this Note or any other Loan Document, other
than the obligation to make the payments provided for in this Note or any other
Loan Document. If the nonmonetary default is capable of being cured and cannot
reasonably be made within the thirty (30)-day cure period, the cure period shall
be extended up to ninety (90) days so long as Maker has commenced action to cure
within the fifteen (15)-day cure period, and in the Holder's opinion, Maker is
proceeding to cure the default with due diligence. None of the foregoing shall
be construed to obligate the Holder to forbear in any other manner from
exercising its remedies and the Holder may pursue any other rights or remedies
which the Holder may have because of the default.
7. CUMULATIVE REMEDIES. The rights and remedies of any Holder under this
Note or any other Loan Document, or at law or in equity, shall be cumulative and
concurrent, may be pursued singly, successively or together against Maker, any
guarantor of this Note, or any security for this Note. A failure by any Holder
to exercise its option to accelerate this Note upon the occurrence of a default
or to exercise any other rights to which it may be entitled shall not constitute
a waiver of the right to exercise such option or any such rights in the event of
any subsequent default, whether of the same or a different nature.
8. WAIVERS. Maker and all endorsers, guarantors and all other persons or
entities who may become liable for all or any part of the obligations evidenced
by this Note, jointly and severally: waive diligence, presentment, protest and
demand, and also notice of protest, demand, non-payment, dishonor or maturity
and also recourse to suretyship defenses generally; and consent to any and all
renewals, extensions and modifications of the terms of this Note or any other
Loan Document, including the time for payment, and agree any such renewal,
extension or modification or the release or substitution of any security for the
indebtedness evidenced by this Note or any other indulgences, shall not affect
the liability of said parties for the indebtedness evidenced by this Note. Any
such renewals, extensions, modifications, releases or indulgences may be made
without notice to such parties.
9. COSTS AND EXPENSES. Whether or not suit is brought Maker shall pay on
demand all reasonable costs and expenses, including attorneys' fees and costs
and allocated costs of in-house legal counsel, incurred by or on behalf of the
Holder in connection with this Note, including without limitation costs incurred
in the collection of this Note, in protecting the security for this Note or in
foreclosing or enforcing this Note or any other Loan Document, or resulting from
the Holder being made a party to any litigation because of the existence of this
Note or any other Loan Document. Without limiting the generality of the
foregoing, if Maker becomes the subject of any bankruptcy or insolvency
proceeding, Maker shall pay all reasonable fees and expenses incurred by the
Holder in connection with such bankruptcy or insolvency proceeding.
10. MAXIMUM INTEREST. Maker represents and warrants the proceeds of this
Note shall be used solely for commercial, investment and business purposes, and
not for personal, family or household purposes. Notwithstanding any other
provision of this Note or any other Loan Document, interest, loan fees and
charges payable by reason of the indebtedness evidenced by this Note shall not
exceed the maximum, if any, permitted by applicable law. If by virtue of
applicable law, sums in excess of such maximum would otherwise be payable, then
such excess sums shall be construed as having been immediately applied by the
Holder to the principal balance of this Note when received. If at the time any
such sum is received by the Holder, the principal balance of this Note has been
paid in full, such sums shall be promptly refunded by the Holder to Maker, less
any sums due to the Holder.
11. SECURITY. This Note is secured by a commercial deed of trust of even
date (the "Deed of Trust") encumbering certain real property located in Jackson
County, Oregon (the "Property"). Unless otherwise specified in this Note, all
notices given pursuant to this Note must be in writing and will be effectively
given if given in accordance with the terms of the Deed of Trust.
12. GENERAL. This Note shall be binding upon Maker and Maker's successors
and assigns. If Maker consists of more than one person or entity, all of such
persons and entities shall be jointly and severally liable for Maker's
obligations under this Note. This Note is governed by and shall be construed in
accordance with the laws of the State of Oregon. Each person or entity executing
this Note consents to the non-exclusive personal jurisdiction and venue of the
courts of the State of Oregon and the United States federal courts located
therein, in any action relating to or arising out of the enforcement or
interpretation of this Note or any other Loan Document. Each such person or
entity further agrees not to assert in any such action that the proceeding has
been brought in an inconvenient forum.
13. ARBITRATION. Any dispute relating to this Note or the Loan (whether in
contract or tort) shall be settled by arbitration if requested by Maker, the
Holder or any other party to the dispute (such as a guarantor); provided, both
Maker and the Holder must consent to a request for arbitration relating to an
obligation secured by real property. The arbitration proceedings shall be held
in Portland, Oregon in accordance with the commercial arbitration rules of the
Arbitration Services of Portland, Inc., and the United States Arbitration Act
(i.e., Title 9, U.S.C.). There shall be one arbitrator who shall decide whether
an issue is arbitrable or whether any claim is barred by a statute of
limitations. Judgment on the arbitration award may be entered in any court
having jurisdiction. Commencement of a lawsuit shall not constitute a waiver of
the right of any party to request arbitration if the lawsuit is contested. Each
party shall have the right before, during and after the commencement of any
arbitration proceeding to exercise any of the following remedies, in any order
or concurrently: (i) self-help remedies such as setoff or repossession; (ii)
judicial or nonjudicial foreclosure against real or personal property
collateral; and (iii) provisional remedies including injunction, appointment of
receiver, attachment, claim and delivery and replevin. The exercise of any such
remedy shall not waive a party's right to request arbitration. Nothing in this
paragraph shall limit in any way any right the Holder may have to foreclose the
Deed of Trust judicially as a mortgage, or nonjudicially pursuant to the power
of sale.
14. DISPUTED OBLIGATIONS. All communications concerning disputed debts and
obligations of Maker under this Note or any other Loan Document, including
without limitation disputes as to the amount of any payment, fee or charge, and
including an instrument tendered as full satisfaction of a disputed debt, must
be in writing and must be sent to the following address, or to such other
address as the Holder may hereafter specify:
Bank of America National Trust & Savings Association
Eugene Commercial Banking, Unit 2091
201 East 11th Avenue, 2nd Floor
Eugene, Oregon 97401
Any such communication should include the name of Maker, the applicable loan
number, a description of the dispute and the relief or remedy requested, and an
address and telephone number where the person sending the notice can be
contacted.
15. CROSS-DEFAULT. A default under this Note and/or the Loan Documents will
constitute a default under any and all documents (the "Other Loan Documents")
relating to, evidencing or securing (a) any and all loans by Lender to Maker,
and (b) the $2,000,000.00 revolving line of credit loan (Loan No. 0041962870) by
Lender to Advanced Machine Vision Corporation, a California corporation ("AMVC")
(the "Line of Credit") (collectively, the "Other Loan"). Any default under the
Other Loan Documents will constitute a default under this Note and the Loan
Documents. Any default under this Note will give rise to any and all of Lender's
rights and remedies hereunder and/or under the Other Loan Documents. Any default
under any of the Other Loan Documents shall give rise to any and all of Lender's
rights under such Loan Document, the Other Loan Documents, and/or this Note.
16. CROSS-COLLATERALIZATION. Maker agrees that the Property secured by the
Deed of Trust securing this Note will constitute collateral under the Other Loan
Documents, as if said property was encumbered as collateral for the Other Loan
transactions. Maker further agrees that the property which serves as collateral
under the Other Loan Documents shall constitute collateral for this Loan as if
said property was encumbered as collateral for this Loan transaction. Thus, the
collateral for the Other Loan secures the Loan evidenced by this Note and the
Property which secures this Note shall also secure the Other Loan.
17. ACKNOWLEDGMENT AND WAIVER. Maker represents and warrants to Holder that
although the maker of the Other Loan is not the same entity as Maker, Maker is a
wholly-owned subsidiary of AMVC. AMVC is a guarantor of this Loan and the maker
of the Other Loan. Maker acknowledges and agrees that at Maker's request and
solely as an accommodation to Maker, Holder has agreed that the borrower for the
Other Loan may be a separate entity, so long as Maker remains a wholly-owned
subsidiary of AMVC. Maker hereby waives any and all claims or defenses it may
have to the cross-defaulting and cross-collateralization of this Loan and the
Other Loan based on the fact that Maker and the maker for the Other Loan are
separate entities. Maker acknowledges that it has received actual and sufficient
consideration in exchange for the cross-defaulting and cross-collateralization
of this Loan to the Other Loan.
18. TOTAL LIABILITIES-TO-TANGIBLE NET WORTH RATIO. Borrower agrees that
AMVC (together with its consolidated subsidiaries hereinafter collectively
referred to as "AMVC") shall maintain a ratio of total liabilities to total
tangible net worth not exceeding the amounts indicated for each period specified
below, as measured on a quarterly basis:
a. 2.75:1 for the period December 31, 1997 through December 30, 1998;
b. 2.20:1 for the period December 31, 1998 through December 30, 1999;
c. 1.75:1 for the period December 31, 1999 through December 30, 2000;
d. 1.50:1 for the period December 31, 2000 through December 30, 2001; and
e. 1.25:1 thereafter.
"Total liabilities" means the sum of current liabilities plus long term
liabilities, excluding debt subordinated to AMVC's obligations to the Bank in a
manner acceptable to the Bank, using the Bank's standard form.
"Tangible net worth" means the gross book value of the AMVC's assets (excluding
goodwill, patents, trademarks, trade names, organization expense, treasury
stock, unamortized debt discount and expense, deferred research and development
costs, deferred marketing expenses, and other like intangibles, and monies due
from affiliates, officers, directors or shareholders of the AMVC) plus
liabilities subordinated to the Bank in a manner acceptable to the Bank (using
the Bank's standard form) less total liabilities, including but not limited to
accrued and deferred income taxes and any reserves against assets.
19. MINIMUM TRADING ASSET RATIO. Borrower agrees that AMVC shall maintain a
minimum trading asset ratio of at least 2.65:1 "Minimum trading asset ratio"
means the ratio of accounts receivable plus inventory divided by accounts
payable plus short term bank debt.
20. CASH FLOW RATIO. Borrower agrees that AMVC shall maintain a cash flow
ratio of at least 1.20:1. "Cash flow ratio" means the ratio of cash flow to the
current portion of long term debt plus interest expense plus income taxes plus
dividends plus capital expenditures. "Cash flow" is defined as earnings before
interest expense, income taxes, depreciation and amortization. This ratio will
be calculated at the end of each fiscal quarter, using the results of that
quarter and each of the three (3) immediately preceding quarters. The current
portion of long term debt will be measured as of the first day of the fiscal
year in which the quarter falls. The current portion of long term debt will
exclude the Notes payable to Veneer Technology, Inc.
21. LIQUIDITY. Borrower agrees that AMVC shall (on a consolidated basis)
maintain unencumbered liquid assets equal to at least Three Million Two Hundred
Fifty Thousand and No/100 Dollars ($3,250,000.00) through July 31, 1999, as
measured by the sum of AMVC's borrowing capacity under the Line of Credit, plus
unpledged cash and marketable securities held by AMVC.
22. ORS 41.580 Disclosure. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND
COMMITMENTS BY HOLDER AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES, OR SECURED
SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND
BE SIGNED BY AN AUTHORIZED REPRESENTATIVE OF HOLDER TO BE ENFORCEABLE.
MAKER:
SRC VISION, INC., an Oregon corporation
By: /s/ Alan R. Steel
- ---------------------------------------
ALAN R. STEEL, Chief Financial Officer
<PAGE>
AFTER RECORDING RETURN TO:
BANK OF AMERICA NATIONAL
TRUST & SAVINGS ASSOCIATION
Real Estate Industries Division, Unit 2098
Attention: Ms. Deanne L. Hildebrand
P.O. BOX 6400
PORTLAND, OR 97228 Loan No. 3032893
COMMERCIAL DEED OF TRUST, SECURITY AGREEMENT
AND FIXTURE FILING WITH ASSIGNMENT
OF LEASES AND RENTS
THIS COMMERCIAL DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING WITH
ASSIGNMENT OF LEASES AND RENTS ("Deed of Trust") is made April 24, 1998 by SRC
VISION, INC., an Oregon corporation, as "Grantor", whose address is 2067
Commerce Drive, Medford, Oregon 97504; to JOSEPHINE-CRATER TITLE COMPANIES,
INC., an Oregon corporation, as "Trustee", whose address is c/o Crater Title
Insurance, 300 West Main, P.O. Box 250, Medford, Oregon 97501; for the benefit
of BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, as "Beneficiary", whose
address is Eugene Commercial Banking, Unit 2091, 201 East 11th Avenue, 2nd
Floor, Eugene, Oregon 97401.
The Tax Account Number for the property subject to the lien of this
instrument is: 1-71150-9.
Notice to Recorder:
THIS DOCUMENT CONSTITUTES A FIXTURE FILING IN ACCORDANCE WITH ORS
79.4020(6).
ARTICLE I
1. Granting Clause. Grantor irrevocably grants, bargains, sells and conveys
to Trustee and its successors and assigns in trust, with power of sale and with
right of entry and possession as provided herein, all Grantor's estate, right,
title, interest, claim and demand, now owned or hereafter acquired, in and to
the following (the "Property"):
(a) The real property in Jackson County, Oregon, described in Exhibit A
attached and any and all improvements now or hereafter located thereon (the
"Real Property").
(b) All land lying in streets and roads adjoining the Real Property, and
all access rights and easements pertaining to the Real Property.
(c) All the lands, tenements, privileges, reversions, remainders,
irrigation and water rights and stock, oil and gas rights, royalties, minerals
and mineral rights, all development rights and credits, air rights,
hereditaments and appurtenances belonging or in any way pertaining to the Real
Property.
(d) All buildings, structures, improvements and fixtures now or hereafter
attached to or used in connection with the use, occupancy or operation of the
Real Property including, but not limited to, heating and incinerating apparatus
and equipment, boilers, engines, motors, generating equipment, telephone and
other communication systems, piping and plumbing fixtures, ranges, cooking
apparatus and mechanical kitchen equipment, refrigerators, cooling, ventilating,
sprinkling and vacuum cleaning systems, fire extinguishing apparatus, gas and
electric fixtures, irrigation equipment, carpeting, underpadding, elevators,
escalators, partitions, mantles, built-in mirrors, window shades, blinds,
screens, storm sash, awnings, furnishings of public spaces, halls and lobbies,
and shrubbery and plants. All property mentioned in this subsection (d) shall be
deemed part of the realty and not severable wholly or in part without material
injury to the Real Property.
(e) All rents, issues and profits of the Real Property, all existing and
future leases of the Real Property (including extensions, renewals and
subleases), all agreements for use and occupancy of the Real Property (all such
leases and agreements whether written or oral, are hereafter referred to as the
"Leases"), and all guaranties of lessees' performance under the Leases, together
with the immediate and continuing right to collect and receive all of the rents,
income, receipts, revenues, issues, profits and other income of any nature now
or hereafter due (including any income of any nature coming due during any
redemption period) under the Leases or from or arising out of the Real Property
including minimum rents, additional rents, percentage rents, parking or common
area maintenance contributions, tax and insurance contributions, deficiency
rents, liquidated damages following default in any Lease, all proceeds payable
under any policy of insurance covering loss of rents resulting from
untenantability caused by destruction or damage to the Real Property, all
proceeds payable as a result of exercise of an option to purchase the Real
Property, all proceeds derived from the termination or rejection of any Lease in
a bankruptcy or other insolvency proceeding, all security deposits or other
deposits for the performance of any lessee's obligations under the Leases, and
all proceeds from any rights and claims of any kind which Grantor may have
against any lessee under the Leases or any occupants of the Real Property (all
of the above are hereafter collectively referred to as the "Rents"). This
subsection (e) is subject to the right, power and authority given to the
Beneficiary in the Loan Documents (as defined herein) to collect and apply the
Rents.
(f) All of Grantor's rights to further encumber said Real Property for debt
and all Grantor's rights to enter into any lease agreement which would create a
tenancy that is or may become subordinate in any respect to any mortgage or deed
of trust other than this Deed of Trust.
2. Collateral. The following described estate, property and rights of
Grantor are also included as security for the performance of each covenant and
agreement of Grantor contained herein and the payment of all sums of money
secured hereby:
(a) All compensation, awards, damages, rights of action and proceeds
(including insurance proceeds and any interest on any of the foregoing) arising
out of or relating to a taking or damaging of the Property by reason of any
public or private improvement, condemnation proceeding (including change of
grade), fire, earthquake or other casualty, injury or decrease in the value of
the Property.
(b) All returned premiums or other payments on any insurance policies
pertaining to the Property and any refunds or rebates of taxes or assessments on
the Property, greater than $10,000.00.
(c) All rights to the payment of money, accounts receivable, deferred
payments, refunds, cost savings, payments and deposits, whether now or later to
be received from third parties (including all utility deposits), architectural
and engineering plans, specifications and drawings, contract rights,
governmental permits and licenses, and agreements and purchase orders which
pertain to or are incidental to the design or construction of any improvements
on the Property, Grantor's rights under any payment, performance, or other bond
in connection with construction of improvements on the Property, and all
construction materials, supplies, and equipment delivered to the Property or
intended to be used in connection with the construction of improvements on the
Property wherever actually located.
(d) All contracts and agreements pertaining to or affecting the Property
including, but not limited to, management, operating and franchise agreements,
licenses, trade names and trademarks.
(e) All of Grantor's interest in and to the proceeds of the loan (the
"Loan") evidenced by the Note (defined below), whether disbursed or not.
(f) All loan commitments or other agreements, now or hereafter in
existence, which will provide Grantor with proceeds to satisfy the Secured
Obligations (defined below) and the right to receive the proceeds due under such
commitments or agreements including refundable deposits and fees.
(g) All books and records pertaining to any and all of the Property and the
other collateral described above.
(h) All additions, accessions, replacements and substitutions of the
Property described in this Section 2.
The Property and all of the property and rights described in Sections 1 and
2 above are referred to collectively in this Deed of Trust as the "Collateral".
3. Financing Statement. This Deed of Trust shall also constitute a
financing statement filed for record in the real estate records as a fixture
filing pursuant to the Uniform Commercial Code. This Deed of Trust may be given
to secure an obligation incurred for the construction of improvements on the
Property, including the acquisition of the Property, or to secure an obligation
incurred to refinance an obligation incurred for the construction of
improvements on the Property, including the acquisition of the Property.
4. Obligations Secured. The following obligations ("Secured Obligations")
are secured by this Deed of Trust:
(a) Payment of the sum of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00)
with interest thereon according to the terms of a promissory note of even date
herewith, payable to Beneficiary or order and made by Grantor, including all
renewals, amendments, modifications, extensions and substitutions therefor (the
"Note"). The maturity date of the Note and this Deed of Trust shall be May 1,
2008. THE NOTE MAY CONTAIN PROVISIONS ALLOWING FOR CHANGES IN THE INTEREST RATE.
(b) Payment of any further sums now or hereafter advanced or loaned by
Beneficiary to Grantor, or any of its successors or assigns, and payment of
every other present and future obligation owing by Grantor to Beneficiary of any
kind, and all renewals, modifications, and extensions thereof, including any
interest, fees, costs, service charges, indemnifications and expenses connected
with such obligations, if (i) the promissory note or other written document
evidencing the future advance or loan or other obligation specifically states
that it is secured by this Deed of Trust, or (ii) the advance, including costs
and expenses incurred by Beneficiary, is made pursuant to the Note, this Deed of
Trust or any other documents executed by Grantor evidencing, securing, or
relating to the Loan, and/or the Collateral, whether executed prior to,
contemporaneously with, or subsequent to this Deed of Trust (this Deed of Trust,
the Note and all such other documents, including any construction or other loan
agreement, and all renewals, amendments, modifications or extensions thereof,
are hereafter collectively referred to as the "Loan Documents"), together with
interest thereon at the rate set forth in the Note, unless otherwise specified
in the Loan Documents or agreed in writing.
(c) Performance of each agreement, term and condition set forth or
incorporated by reference in the Loan Documents, as such may be amended.
(d) Performance and payment of the obligations of Grantor (or any other
obligor under the Note) under each and every existing or future "swap
transaction" (i.e., any transactions governed by an ISDA master agreement) to
which Grantor (or the obligor under the Note) and Beneficiary are parties, if
this Deed of Trust is referenced in such transaction as a credit support
document.
Notwithstanding any of the foregoing, the Secured Obligations shall not
include the obligations of Grantor under any Certificate and Indemnity Agreement
Regarding Building Laws and Hazardous Substances now or hereafter executed by
Grantor (or any other person or entity) in connection with the loan evidenced by
the Note.
ARTICLE II
1. Assignment of Rents and Leases. Grantor hereby absolutely and
irrevocably assigns to Beneficiary all Grantor's interest in the Rents and
Leases. The foregoing assignment is subject to the terms and conditions of any
separate assignment of the Leases and/or Rents, whenever executed, in favor of
Beneficiary and covering the Property. Grantor warrants it has made no prior
assignment of the Rents or the Leases and will make no subsequent assignment
(other than to Beneficiary) without the prior written consent of Beneficiary. At
Beneficiary's request, Grantor shall execute and deliver to Beneficiary a
separate assignment of rents containing such terms and conditions as Beneficiary
may reasonably require.
(a) Unless otherwise provided in any separate assignment of the Leases
and/or the Rents, and so long as Grantor is not in default under the Loan
Documents, Grantor may collect the Rents as the Rents become due. Grantor shall
use the Rents to pay normal operating expenses for the Property and sums due and
payments required under the Loan Documents. No Rents shall be collected for a
period subsequent to the current one month rental period and first or last
month's rent. Grantor's right to collect the Rents shall not constitute
Beneficiary's consent to the use of cash collateral in any bankruptcy
proceeding.
(b) If Grantor is in default under this Deed of Trust or any other Loan
Document, without notice to Grantor, Beneficiary or its agents, or a court
appointed receiver, may collect the Rents. In doing so, Beneficiary may (i)
evict lessees for nonpayment of rent, (ii) terminate in any lawful manner any
tenancy or occupancy, (iii) lease the Property in the name of the then owner on
such terms as it may deem best, (iv) institute proceedings against any lessee
for past due rent, and (v) do all other acts and things as Beneficiary deems
necessary or desirable. The Rents received shall be applied to payment of the
costs and expenses of collecting the Rents, including a reasonable fee to
Beneficiary, a receiver or an agent, operating expenses for the Property and any
sums due or payments required under the Loan Documents, in such order as
Beneficiary may determine. Any excess shall be paid to Grantor, however,
Beneficiary may withhold from any excess a reasonable amount to pay sums
anticipated to become due which exceed the anticipated future Rents.
Beneficiary's failure to collect or discontinuing collection at any time shall
not in any manner affect the subsequent enforcement by Beneficiary of its rights
to collect the Rents. The collection of the Rents by or for Beneficiary shall
not cure or waive any default under the Loan Documents. Any Rents paid to
Beneficiary or a receiver shall be credited against the amount due from the
lessees under the Leases. In the event any lessee under a Lease becomes the
subject of any proceeding under the Bankruptcy Code or any other federal, state
or local statute which provides for the possible termination or rejection of any
Lease assigned hereby, Grantor covenants and agrees that in the event any of the
Leases are so rejected, no damages settlement shall be made without the prior
written consent of Beneficiary; any check in payment of damages for rejection or
termination of any such Lease will be made payable both to the Grantor and
Beneficiary; and Grantor hereby assigns any such payment to Beneficiary and
further covenants and agrees that upon request of Beneficiary, it will duly
endorse to the order of Beneficiary any such check, the proceeds of which will
be applied to any portion of the indebtedness secured hereunder in such manner
as Beneficiary may elect.
(c) Regardless of whether or not Beneficiary, in person or by agent, takes
actual possession of the Property or any part thereof, Beneficiary is not and
shall not be deemed to be: (i) "a mortgagee in possession" for any purpose; (ii)
responsible for performing any of the obligations of the lessor under any Lease;
(iii) responsible for any waste committed by lessees or any other parties, any
dangerous or defective condition of the Property, or any negligence in the
management, upkeep, repair or control of the Property; or (iv) liable in any
manner for the Property or the use, occupancy, enjoyment or operation of all or
any part of it. In exercising its rights under this Section 1 Beneficiary shall
be liable only for the proper application of and accounting for the Rents
collected by Beneficiary or its agents.
2. Leases. Grantor shall fully comply with all of the terms, conditions and
provisions of the Leases so that the same shall not become in default and do all
things necessary to preserve the Leases in force. Unless otherwise agreed in
writing by Beneficiary, without Beneficiary's prior written consent, Grantor
will not enter into any Lease (i) on a form of Lease not previously approved by
Beneficiary, (ii) for a term of three (3) years or more, or (iii) containing an
option or right to purchase all or any part of the Collateral in favor of any
lessee. With respect to any Lease of the whole or any part of the Property
involving an initial term of three (3) years or more, Grantor shall not, without
the prior written consent of Beneficiary, (a) permit the assignment or
subletting of all or part of the lessee's rights under the Lease unless the
right to assign or sublet is expressly reserved by the lessee under the Lease,
(b) modify or amend the Lease for a lesser rental or term, or (c) accept
surrender of the Lease or terminate the Lease except in accordance with the
terms of the Lease providing for termination in the event of a default. Any
proceeds or damages resulting from a lessee's default under any Lease, at
Beneficiary's option, shall be paid to Beneficiary and applied against sums owed
under the Loan Documents even though such sums may not be due and payable.
Except for real estate taxes and assessments, without Beneficiary's prior
written consent, Grantor shall not permit any lien to be created against the
Property which may be or may become prior to any Lease. If the Property is
partially condemned or suffers a casualty, Grantor shall promptly repair and
restore the Property in order to comply with the Leases.
ARTICLE III
1. Non-Agricultural Use. Grantor represents and warrants to Beneficiary
that neither the Property nor any other Collateral is used principally or
primarily for agricultural or farming purposes.
2. Performance of Obligations. Grantor shall promptly and timely pay all
sums due pursuant to the Loan Documents, strictly comply with all the terms and
conditions of the Loan Documents, and perform each Secured Obligation in
accordance with its terms.
3. Warranty of Title. Grantor warrants that it has good and marketable
title to an indefeasible fee simple estate in the Property (unless Grantor's
present interest in the Property is described in Exhibit A as a leasehold
interest, in which case Grantor warrants that it lawfully possesses and holds a
valid leasehold interest in the Property as described in Exhibit A), subject to
no liens, encumbrances, easements, assessments, security interests, claims or
defects of any kind prior or subordinate to the lien of this Deed of Trust,
except those listed in Beneficiary's title insurance policy or approved by
Beneficiary in writing (the "Exceptions") and real estate taxes and assessments
for the current year. Grantor warrants the Exceptions and the real estate taxes
and assessments are not delinquent or in default, and Grantor has the right to
convey the Property to Trustee for the benefit of Beneficiary. Grantor will
warrant and defend title to the Collateral and will defend the validity and
priority of the lien of this Deed of Trust and the security interests granted
herein against any claims or demands.
4. Prohibited Liens.
(a) Subject to Grantor's rights under subsection (b) below, Grantor shall
not permit any governmental or statutory liens (including taxes, mechanic's or
materialmen's liens) to be filed against the Collateral except for real estate
taxes and assessments not yet due and liens permitted by the Loan Documents or
approved by Beneficiary in writing. Notwithstanding any provision to the
contrary, Grantor expressly agrees not to have outstanding or incur any direct
or contingent debts (other than those to Beneficiary and its affiliates), or
become liable for the debts of others without Beneficiary's prior written
consent. This does not prohibit Grantor from: (i) acquiring goods, supplies, or
merchandise on normal trade credit; (ii) endorsing negotiable instruments
received in the usual course of business; (iii) obtaining surety bonds in the
usual course of business; (iv) incurring additional debts and lease obligations
for the acquisition of fixed or capital assets, to the extent permitted herein
and in the Loan Documents; and (v) accrual of normal expenses incurred in the
ordinary course of business, including but not limited to payroll, payroll
taxes, and deferred taxes. Grantor further expressly agrees to not create,
assume, or allow any security interest or lien (including judicial liens) on the
Property or any other property the Borrower now or later owns, except: (i) deeds
of trust and security agreements in favor of Beneficiary and its affiliates;
(ii) liens for taxes not yet due; (iii) liens outstanding on the date of the
recording of this Deed of Trust as disclosed in writing to Beneficiary; and (iv)
additional purchase money security interests in property acquired after the date
of the recording of this Deed of Trust if the aggregate principal amount of
debts secured by such liens does not exceed Five Hundred Thousand Dollars
($500,000.00) per year.
(b) Grantor will have the right to contest in good faith by appropriate
legal or administrative proceeding the validity of any prohibited lien,
encumbrance or charge so long as (i) no default exists under the Loan Documents,
(ii) Grantor first deposits with Beneficiary a bond or other security
satisfactory to Beneficiary in the amount reasonably required by Beneficiary,
but not more than the amounts specified by Oregon law, as now or hereafter
amended; (iii) Grantor immediately commences its contest of such lien,
encumbrance or charge, applies to court for a show cause as provided for by
Oregon law, as now or hereafter amended, and continuously pursues the contest in
good faith and with due diligence; (iv) foreclosure of the lien, encumbrance or
charge is stayed; and (v) Grantor pays any judgment rendered for the lien
claimant or other third party within ten (10) days after the entry of the
judgment. If the contested item is a mechanic's or materialmen's lien, Grantor
will furnish Beneficiary with an endorsement to its title insurance policy which
insures the priority of this Deed of Trust over the lien being contested.
Grantor will discharge or elect to contest and post an appropriate bond or other
security within twenty (20) days of written demand by Beneficiary.
5. Payment of Taxes and Other Encumbrances. Grantor shall pay the real
estate taxes and any assessments or ground rents at least seven (7) days prior
to delinquency unless otherwise provided for in the reserve account described in
Section 15 below. All other encumbrances, charges and liens affecting the
Collateral, including mortgages and deeds of trust, whether prior to or
subordinate to the lien of this Deed of Trust, shall be paid when due and shall
not be in default. On request Grantor shall furnish evidence of payment of these
items.
6. Maintenance--No Waste. Grantor shall protect and preserve the Collateral
and maintain it in good condition and repair. Grantor shall do all acts and take
all precautions which, from the character and use of the Collateral, are
reasonable, proper or necessary to so maintain, protect and preserve the
Collateral. Grantor shall not commit or permit any waste of the Collateral.
7. Alterations, Removal and Demolition. Unless otherwise agreed in writing
by Beneficiary, Grantor shall not structurally alter, remove or demolish any
building or improvement on the Property without Beneficiary's prior written
consent, except that alterations under $300,000.00, in the aggregate, will not
require Beneficiary's prior written approval. Grantor shall not remove any
material fixture or other item of property which is part of the Collateral
without Beneficiary's prior written consent unless the fixture or item of
property is replaced by an article of equal suitability, owned by Grantor free
and clear of any lien or security interest.
8. Completion, Repair and Restoration. Grantor shall promptly complete or
repair and restore in good workmanlike manner any building or improvement on the
Property which may be constructed or damaged or destroyed and shall pay all
costs incurred therefor. Prior to commencement of any construction Grantor shall
submit the plans and specifications for Beneficiary's approval and furnish
evidence of sufficient funds to complete the work, except that repairs under
$300,000, in the aggregate, will not require Beneficiary's prior written
approval.
9. Compliance with Laws. Grantor shall comply with all laws, ordinances,
regulations, covenants, conditions, and restrictions affecting the Collateral,
including, without limitation, all applicable requirements of the Fair Housing
Act of 1968 (as amended) and the Americans With Disabilities Act of 1990 (as the
same may be amended from time to time), and shall not commit or permit any act
upon or concerning the Collateral in violation of any such laws, ordinances,
regulations, covenants, conditions, and restrictions. Grantor shall defend,
indemnify and hold Beneficiary harmless from and against all liability
threatened against or suffered by Beneficiary by reason of a breach by Grantor
of the foregoing representations, warranties, covenants and agreements. The
foregoing indemnity shall include the cost of all alterations to the Collateral
(including architectural, engineering, legal and accounting costs), all fines,
fees and penalties, and all legal and other expenses (including attorneys' fees,
including on appeal or otherwise) incurred in connection with the Property being
in violation of any such laws, ordinances, regulations, covenants, conditions
and restrictions. If Beneficiary or its designee shall become the owner of or
acquire an interest in or rights to the Collateral by foreclosure or deed in
lieu of foreclosure of this Deed of Trust or by other means, the foregoing
indemnification obligation shall survive such foreclosure or deed in lieu of
foreclosure or other acquisition of the Collateral. Notwithstanding the
preceding sentence, Grantor shall have no obligation to defend, indemnify or
hold Beneficiary harmless from any liability arising from or out of the
activities of Beneficiary or its agents with respect to the Collateral on or
after the transfer of the Collateral to Beneficiary pursuant to foreclosure
proceedings or in lieu thereof.
10. Impairment of Collateral. Grantor shall not, without Beneficiary's
prior written consent, change the general nature of the occupancy of the
Property, initiate, acquire or permit any change in any public or private
restrictions (including without limitation a zoning reclassification) limiting
the uses which may be made of the Collateral, or take or permit any action which
would impair the Collateral or Beneficiary's lien or security interest in the
Collateral.
11. Inspection of Collateral. Beneficiary and/or its representatives may
enter on to and inspect the Collateral (including taking and removing soil,
groundwater and other samples) at reasonable times after reasonable notice. If
any of the Collateral is in the possession of a third party, Grantor authorizes
the third party to permit Beneficiary and/or its representatives to have access
to and perform inspections of the Collateral and to respond fully and freely to
Beneficiary's and/or its representatives requests for information concerning the
Collateral. Grantor agrees that Beneficiary neither has nor undertakes any duty
or obligation to examine or inspect the Collateral or any records, books or
papers relating thereto. In the event that Beneficiary inspects the Collateral
or examines, audits or copies any records, books or papers relating thereto, the
Beneficiary will be acting solely for the purposes of protecting the
Beneficiary's security and Beneficiary's rights under this Deed of Trust and the
other Loan Documents. Neither the Grantor nor any other party is entitled to
rely on any inspection or other inquiry by Beneficiary and/or its
representatives. Neither Beneficiary nor its representatives owes a duty of care
to protect the Grantor or any other party against, or to inform the Grantor or
any other party of, any adverse condition that may be observed or discovered as
affecting the Collateral or the Grantor's or such third party's business. If
Beneficiary and/or its representatives believes it has a duty or obligation to
disclose any report or findings made as a result of, or in connection with any
inspection of the Collateral, then Beneficiary and/or its representative may
make such disclosure. Any failure by Grantor or a third party to permit
Beneficiary to exercise its rights herein, following five (5) days written
demand from Beneficiary, shall entitle Beneficiary without further notice to
Grantor to make ex parte application to the court of applicable jurisdiction
where the Collateral Beneficiary seeks to inspect is located for immediate
issuance of any order, without bond, granting specific performance of
Beneficiary's rights to enter on and inspect the Collateral.
12. Grantor's Defense of Collateral. Grantor shall appear in and defend any
action or proceeding which may affect the Collateral or the rights or powers of
Beneficiary or Trustee under this Deed of Trust.
13. Beneficiary's Right to Protect Collateral. Beneficiary may commence,
appear in, and defend any action or proceeding which may affect the Collateral
or the rights or powers of Beneficiary or Trustee under this Deed of Trust.
Beneficiary may pay, purchase, contest or compromise any encumbrance, charge or
lien not listed as an Exception which in its judgment appears to be prior or
superior to the lien of this Deed of Trust. If Grantor fails to make any payment
or do any act required under the Loan Documents, Beneficiary, without any
obligation to do so and without releasing Grantor from any obligations under the
Loan Documents, may make the payment or cause the act to be performed in such
manner and to such extent as Beneficiary may deem necessary to protect the
Collateral. Beneficiary is authorized to enter upon the Property for such
purposes. In exercising any of these powers Beneficiary may incur such expenses,
in its absolute discretion, it deems necessary.
14. Hazardous Substances.
(a) Grantor represents and warrants to Beneficiary, to the best of
Grantor's knowledge after due and diligent inquiry, no hazardous or toxic waste
or substances are being stored on the Property or any adjacent property nor have
any such waste or substances been stored or used in, on, under, over or about
the Property or any adjacent property prior to or during Grantor's ownership,
possession or control of the Property, other than the use or storage of
hazardous or toxic waste or substances generally used in the ordinary course of
operating, maintaining or developing properties such as the Property, all of
which Grantor covenants have and will be used, stored and disposed of in
accordance with commercially reasonable practices and all applicable federal,
state and local laws, regulations and ordinances. Grantor shall provide written
notice to Beneficiary immediately upon Grantor becoming aware that the Property
or any adjacent property is being or has been contaminated with hazardous or
toxic waste or substances. Grantor will not cause nor permit any activities on
the Property which directly or indirectly could result in the Property or any
other property becoming contaminated with hazardous or toxic waste or
substances. For purposes of this Deed of Trust, the term "hazardous or toxic
waste or substances" means any chemical, substance or material classified or
designated as hazardous, toxic or radioactive, or similar term, and now or
hereafter regulated under any applicable federal, state or local statute,
regulation, ordinance or requirement, now or hereafter in effect, pertaining to
environmental protection, contamination or cleanup.
(b) Grantor shall comply, at Grantor's expense, with all statutes,
regulations and ordinances which apply to Grantor or the Collateral, and with
all orders, decrees or judgments of governmental authorities or courts having
jurisdiction which Grantor is bound by, relating to the use, collection storage,
treatment, control, removal or cleanup of hazardous or toxic substances in, on,
under, over or about the Property or in, on, under, over or about any adjacent
property that becomes contaminated with hazardous or toxic substances as a
result of construction, operations or other activities on, or the contamination
of, the Property. Beneficiary may, but is not obligated to, enter upon the
Property to inspect it for compliance and to take such actions and incur such
costs and expenses to effect such compliance as it deems advisable to protect
its interest as Beneficiary; and whether or not Grantor has actual knowledge of
the existence of hazardous or toxic substances in, on, under, over or about the
Property or any adjacent property as of the date hereof, Grantor shall reimburse
Beneficiary on demand for the full amount of all costs and expenses incurred by
Beneficiary prior to Beneficiary acquiring title to the Property through
foreclosure or deed in lieu of foreclosure, in connection with such compliance
activities.
(c) Grantor's obligations under this Section 14 are unconditional and shall
not be limited by a non-recourse or other limitations of liability provided for
in this Deed of Trust or any other Loan Document.
15. Reserve Account.
(a) Subject to subsection (d) below, if Beneficiary so requires, Grantor
shall pay to Beneficiary monthly, together with and in addition to any payments
due under the Note, a sum, as estimated by Beneficiary, equal to the ground
rents, if any, the real estate taxes and assessments next due on the Property
and the premiums next due on insurance policies required under the Loan
Documents, less all sums already paid therefor, divided by the number of months
to elapse before two (2) months prior to the date when the ground rents, real
estate taxes, assessments and insurance premiums will become delinquent. The
monthly reserve accounts payments and any other payments due under the Note
shall be paid in a single payment and applied by Beneficiary, at its option, in
the following order: (1) ground rents, real estate taxes, assessments and
insurance premiums, (2) expenditures made pursuant to the Loan Documents and
interest thereon, (3) interest on the Note, and (4) principal due on the Note.
Grantor shall promptly deliver to Beneficiary all bills and notices pertaining
to the ground rents, taxes, assessments and insurance premiums.
(b) The reserve account is solely for the protection of Beneficiary.
Beneficiary shall have no responsibility except to credit properly the sums
actually received by it. No interest will be paid on the funds in the reserve
account and Beneficiary shall have no obligation to deposit the funds in an
interest-bearing account. Upon assignment of this Deed of Trust by Beneficiary,
any funds in the reserve account shall be turned over to the assignee and any
responsibility of Beneficiary with respect thereto shall terminate. Each
transfer of the Property shall automatically transfer to the grantee all rights
of Grantor to any funds in the reserve account.
(c) If the total of the payments to the reserve exceeds the amount of
payments actually made by Beneficiary, plus such amounts as have been reasonably
accumulated in the reserve account toward payments to become due, such excess
may, at Beneficiary's election, be (1) credited by Beneficiary against sums then
due and payable under the Loan Documents, or (2) refunded to Grantor as its name
appears on the records of Beneficiary. If, however, the reserve account does not
have sufficient funds to make the payments when they become due, Grantor shall
pay to Beneficiary the amount necessary to make up the deficiency within fifteen
(15) days after written notice to Grantor. If this Deed of Trust is foreclosed
or if Beneficiary otherwise acquires the Collateral, the Beneficiary shall, at
the time of commencement of the proceedings or at the time the Collateral is
otherwise acquired, apply the remaining funds in the reserve account, less such
sums as will become due during the pendency of the proceedings, against the sums
due under the Loan Documents and/or to make payments required under the Loan
Documents.
(d) Unless required by the terms of Beneficiary's loan commitment or any
other Loan Document, Grantor shall not be required to pay monthly reserve
account payments so long as there has been no more than four (4) late payments
due under the Note throughout the term of the Loan and there is no other default
under the Loan and so long as Grantor remains in ownership of the Collateral,
provided receipted bills evidencing the payment of all taxes and/or assessments
and insurance premiums are exhibited to Beneficiary within fifteen (15) days
after Beneficiary's request therefor. Upon any change in any of these
conditions, Beneficiary may, at its option then or thereafter exercised, require
the payment of reserves pursuant to this Section 15.
16. Repayment of Beneficiary's Expenditures. Grantor shall pay within ten
(10) days after written notice from Beneficiary all reasonable sums expended by
Beneficiary and all costs and expenses incurred by Beneficiary in taking any
actions pursuant to the Loan Documents including attorneys' fees (including fees
on appeal or otherwise), accountants' fees, appraisal and inspection fees, and
the costs for title reports. If any laws or regulations are passed subsequent to
the date of this Deed of Trust which require Beneficiary to incur out-of-pocket
expenses in order to maintain, modify, extend or foreclose this Deed of Trust,
revise the terms of the Loan or consent to an Accelerating Transfer (as defined
below), Grantor shall reimburse Beneficiary for such expenses within fifteen
(15) days after written notice from Beneficiary. Expenditures by Beneficiary
shall bear interest from the date of such advance or expenditure at the default
interest rate in the Note, shall constitute advances made under this Deed of
Trust and shall be secured by and have the same priority as the lien of this
Deed of Trust. If Grantor fails to pay any such expenditures, costs and expenses
and interest thereon, Beneficiary may, at its option, without foreclosing the
lien of this Deed of Trust, commence an independent action against Grantor for
the recovery of the expenditures and/or advance any undisbursed Loan proceeds to
pay the expenditures.
17. Accelerating Transfers.
(a) "Accelerating Transfer" means any sale, contract to sell, conveyance,
encumbrance, transfer of full possessory rights, or other transfer of all or any
material part of the Collateral or any interest in it, whether voluntary,
involuntary, by operation of law or otherwise and whether or not for record or
for consideration. If Grantor is a corporation, "Accelerating Transfer" also
means any transfer or transfers of shares possessing, in the aggregate, more
than fifty percent (50%) of the voting power. If Grantor is a partnership,
"Accelerating Transfer" also means withdrawal or removal of any general partner,
dissolution of the partnership under Oregon law, or any transfer or any
transfers of, in the aggregate, more than fifty percent (50%) of the partnership
interests. If Grantor is a limited liability company or other form of limited
liability entity, "Accelerating Transfer" also means any transfer or transfers
of membership or management units, shares or other forms of interest in such
entity, possessing, in the aggregate, more than fifty (50%) of the voting power.
If Grantor is the majority owner of a business, either through ownership of
shares of a corporation or interest in a partnership, limited liability company
or other entity, which occupies seventy-five percent (75%) or more of the
improvements on the Property, "Accelerating Transfer" also means any sale,
contract to sell, or other transfer of the business or substantial assets of the
business, other than in the ordinary course, or the failure of the business to
continue to occupy the Property.
(b) Grantor acknowledges Beneficiary is taking actions in reliance on the
expertise, skill, experience and reliability of Grantor, and the obligations
secured hereby include material elements similar in nature to a personal service
contract or ownership interest. In consideration of Beneficiary's reliance,
Grantor agrees that Grantor shall not make any Accelerating Transfer without
Beneficiary's prior written consent, which Beneficiary may withhold in its sole
discretion. If Beneficiary consents, it may charge the Grantor a fee as
consideration for such consent and condition its consent on such changes to the
terms and conditions of the Note and other Loan Documents as Beneficiary may
require, including without limitation increasing the interest rate on the Note.
Grantor shall pay Beneficiary's actual costs incurred in making its decision to
consent to an Accelerating Transfer, including but not limited to the cost of
credit reports, an updated appraisal of the Property, an updated environmental
assessment and documentation. If any Accelerating Transfer occurs without
Beneficiary's prior written consent, Beneficiary in its sole discretion may
declare an immediate default and all sums secured by this Deed of Trust to be
immediately due and payable, and Beneficiary may invoke any rights and remedies
provided herein. This provision shall apply to each and every Accelerating
Transfer regardless of whether or not Beneficiary has consented or waived its
rights, whether by action or nonaction, in connection with any previous
Accelerating Transfer(s).
(c) If all or any part of this Section 17 relevant to a particular
Accelerating Transfer is unenforceable according to the law in effect at the
time of the Accelerating Transfer, then Grantor shall reimburse Beneficiary for
its actual reasonable costs incurred in processing the Accelerating Transfer on
its records, including but not limited to the cost of modifications of Loan
Documents, an appraisal, and obtaining relevant credit and financial
information.
18. Release of Parties or Collateral. Without affecting the obligations of
any party under the Loan Documents and without affecting the lien of this Deed
of Trust and Beneficiary's security interest in the Collateral, Beneficiary
and/or Trustee may, without notice (a) release all or any Grantor and/or any
other party now or hereafter liable for any of the Secured Obligations
(including guarantors), (b) release all or any part of the Collateral, (c)
subordinate the lien of this Deed of Trust or Beneficiary's security interest in
the Collateral, (d) take and/or release any other security for or guarantees of
the Secured Obligations, (e) grant an extension of time for performance of the
Secured Obligations, (f) modify, waive, forbear, delay or fail to enforce any of
the Secured Obligations, (g) sell or otherwise realize on any other security or
guaranty prior to, contemporaneously with or subsequent to a sale of all or any
part of the Collateral, (h) make advances pursuant to the Loan Documents
including advances in excess of the Note amount, (i) consent to the making of
any map or plat of the Property, and (j) join in the grant of any easement on
the Property. Any subordinate lienholder shall be subject to all such releases,
extensions or modifications without notice to or consent from the subordinate
lienholder. Grantor shall pay any Trustee's, attorneys', title insurance,
recording, inspection or other fees or expenses incurred in connection with
release of Collateral, the making of a map, plat or the grant of an easement.
ARTICLE IV
1. Insurance.
(a) Grantor shall maintain such insurance on the Collateral as may be
required from time to time by Beneficiary, with premiums prepaid, providing
replacement cost coverage and insuring against loss by fire and such other risks
covered by extended coverage insurance, and such other perils and risks as
Beneficiary may require from time to time, including earthquake, loss of rents
and business interruption. Grantor also shall maintain comprehensive general
public liability insurance and if the Property is located in a designated flood
hazard area, flood insurance. All insurance shall be with companies satisfactory
to Beneficiary and in such amounts and with such coverages as Beneficiary may
require from time to time, with lender's loss payable clauses in favor of and in
form satisfactory to Beneficiary. At least thirty (30) days prior to the
expiration of the term of any insurance policy, Grantor shall furnish
Beneficiary with written evidence of renewal or issuance of a satisfactory
replacement policy. If requested Grantor shall deliver copies of all policies to
Beneficiary. Each policy of insurance shall provide Beneficiary with no less
than thirty (30) days prior written notice of any cancellation, expiration,
non-renewal or modification.
(b) In the event of foreclosure of this Deed of Trust all interest of
Grantor in any insurance policies pertaining to the Collateral and in any claims
against the policies and in any proceeds due under the policies shall pass to
Beneficiary.
(c) If under the terms of any Lease the lessee is required to maintain
insurance of the type required by the Loan Documents and if the insurance is
maintained for the benefit of both the lessor and Beneficiary, Beneficiary will
accept such policies provided all of the requirements of Beneficiary and the
Loan Documents are met. In the event the lessee fails to maintain such
insurance, Grantor shall promptly obtain such policies as are required by the
Loan Documents.
(d) If Grantor fails to maintain any insurance required of it by
Beneficiary, or fails to pay any premiums with respect to such insurance,
Beneficiary may obtain such replacement insurance as it deems necessary or
desirable, or pay the necessary premium on behalf of Grantor, and any sums
expended by Beneficiary in so doing shall be added to the principal balance of
the Note and bear interest at the default interest rate set forth in the Note.
2. Damages and Condemnation and Insurance Proceeds.
(a) Grantor hereby absolutely and irrevocably assigns to Beneficiary, and
authorizes the payor to pay to Beneficiary, the following claims, causes of
action, awards, payments and rights to payment: (i) all awards of damages and
all other compensation payable directly or indirectly because of a condemnation,
proposed condemnation or taking for public or private use which affects all or
part of the Collateral or any interest in it; (ii) all other awards, claims and
causes of action, arising out of any warranty affecting all or any part of the
Collateral, or for damage or injury to or decrease in value of all or part of
the Collateral or any interest in it; (iii) at Beneficiary's election, all
proceeds of any insurance policies payable because of loss sustained to all or
part of the Collateral; and (iv) all interest which may accrue on any of the
foregoing.
(b) Grantor shall immediately notify Beneficiary in writing if: (i) any
damage occurs or any injury or loss is sustained in the amount of $25,000 or
more to all or part of the Collateral, or any action or proceeding relating to
any such damage, injury or loss is commenced; or (ii) any offer is made, or any
action or proceeding is commenced, which relates to any actual or proposed
condemnation or taking of all or part of the Collateral. If Beneficiary chooses
to do so, it may in its own name appear in or prosecute any action or proceeding
to enforce any cause of action based on warranty, or for damage, injury or loss
to all or part of the Collateral, and it may make any compromise or settlement
of the action or proceeding. Beneficiary, if it so chooses, may participate in
any action or proceeding relating to condemnation or taking of all or part of
the Collateral, and may join Grantor in adjusting any loss covered by insurance.
(c) All proceeds of these assigned claims, other property and rights which
Grantor may receive or be entitled to shall be paid to Beneficiary. In each
instance, Beneficiary shall apply those proceeds first toward reimbursement of
all of Beneficiary's costs and expenses of recovering the proceeds, including
attorneys' fees, on appeal or otherwise.
(d) If, in any instance, each and all of the following conditions are
satisfied in Beneficiary's reasonable judgment, Beneficiary shall permit Grantor
to use the balance of the proceeds ("Net Claims Proceeds") to pay costs of
repairing or reconstructing the Collateral in the manner described below: (i)
the plans and specifications, cost breakdown, construction contract,
construction schedule, contractor and payment and performance bond for the work
of repair or reconstruction must all be acceptable to Beneficiary; (ii)
Beneficiary must receive evidence satisfactory to it that after repair or
reconstruction, the Collateral will be at least as valuable as it was
immediately before the damage or condemnation occurred; (iii) the Net Claims
Proceeds must be sufficient in Beneficiary's determination to pay for the total
cost of repair or reconstruction, including all associated development costs and
interest projected to be payable on the Note until the repair or reconstruction
is complete; or Grantor must provide its own funds in an amount equal to the
difference between the Net Claims Proceeds and a reasonable estimate, made by
Grantor and found acceptable by Beneficiary, of the total cost of repair or
reconstruction; (iv) Beneficiary must receive evidence satisfactory to it that
all Leases which it may find acceptable will continue after the repair or
reconstruction is complete; (v) Beneficiary has received evidence satisfactory
to it, that reconstruction and/or repair can be completed at least three (3)
months prior to the date the Note secured by this Deed of Trust is due and
payable; and (vi) no default under any of the Loan Documents shall have occurred
and be continuing. If the foregoing conditions are met to Beneficiary's
satisfaction, Beneficiary shall hold the Net Claims Proceeds and any funds which
Grantor is required to provide and shall disburse them to Grantor to pay costs
of repair or reconstruction upon presentation of evidence reasonably
satisfactory to Beneficiary that repair or reconstruction has been completed
satisfactorily and lien-free. However, if Beneficiary finds that one or more of
the conditions are not satisfied, it may apply the Net Claims Proceeds to pay or
prepay some or all of the Note.
ARTICLE V
1. Default-Remedies.
(a) Grantor will be in default under this Deed of Trust if (i) Grantor
fails to make any payment when due under the Note, this Deed of Trust or any
other Loan Document; (ii) there is a default under, a breach of, or failure to
perform any other covenant, agreement or obligation to be performed under this
Deed of Trust or any other Loan Document or under any guaranty of all or any
part of the Secured Obligations; (iii) any representation or warranty contained
in this Deed of Trust or any other Loan Document, or any financial information
furnished by Grantor or its agents to Beneficiary in connection with the Loan,
proves to be false or misleading in any material respect or Grantor's
representations regarding the "year 2000 problem" shall cease to be true,
whether or not true when made, and as a result the Beneficiary reasonably
believes that Grantor's financial condition or its ability to pay its debts as
they become due will thereby be materially impaired; (iv) Grantor defaults under
any lease or other contract or agreement relating to the Collateral, and such
default is not cured within the applicable cure period, if any; (v) Grantor is
in default with respect to any other loan from Beneficiary to Grantor or Grantor
defaults under any other Loan Document; (vi) Grantor or any guarantor of the
Loan fails to pay his, her or its debts generally as they become due, or files a
petition or action for relief under any bankruptcy, reorganization or insolvency
laws or makes an assignment for the benefit of creditor; and (vii) an
involuntary petition is filed against Grantor or any guarantor of the Loan under
any bankruptcy, reorganization or other insolvency laws, or a custodian,
receiver or trustee is appointed to take possession, custody or control of the
Collateral or any other properties of Grantor, or the assets of any guarantor of
the Loan, and such petition or appointment is not set aside, withdrawn or
dismissed within fifteen (15) days from the date of filing or appointment.
Notwithstanding anything contained herein to the contrary, Beneficiary shall not
exercise its default remedies provided herein and in the Loan Documents because
of a default pursuant to subsection (ii) through (vii) herein (excepting the
filing of a petition or action by Grantor seeking relief under any bankruptcy,
reorganization or insolvency laws), unless such default is not cured within
fifteen (15) days of the date on which Beneficiary mails or delivers written
notice of the default to Grantor. If a bankruptcy petition or action is filed
with respect to the Grantor or Grantor defaults pursuant to subsection (i)
herein, the entire debt outstanding under the Note shall automatically become
due and payable.
(b) In the event of a default Beneficiary may declare the Secured
Obligations, including the Loan and all other indebtedness evidenced by the Note
or any other Loan Document, immediately due and payable after notice as set
forth in Section 2 below, and/or exercise its rights and remedies under the Loan
Documents and applicable law including foreclosure of this Deed of Trust
judicially as a mortgage or non-judicially pursuant to the power of sale.
Beneficiary's exercise of any of its rights and remedies shall not constitute a
waiver or cure of a default. Beneficiary's failure to enforce any default shall
not constitute a waiver of the default or any subsequent default. In the event
of foreclosure, the cost of the title premium for the trustee's sale guarantee
(or equivalent title policy or report) shall be paid for by Grantor. If the Loan
Documents are referred to an attorney for enforcement or preservation of
Beneficiary's rights or remedies, whether or not suit is filed or any
proceedings are commenced, Grantor shall pay all Beneficiary's costs and
expenses including Trustee's and attorneys' fees (including attorneys' fees for
any appeal, bankruptcy proceeding or any other proceeding), accountants' fees,
appraisal and inspection fees and cost of title report.
2. Notice and Opportunity to Cure. Notwithstanding any other provision of
this Deed of Trust, Beneficiary shall not accelerate the maturity of one or more
of the Secured Obligations (a) because of a monetary default (defined below) by
Grantor unless Grantor fails to cure the default within ten (10) days of the
date on which Beneficiary mails or delivers written notice of the default to
Grantor, or (b) because of a nonmonetary default (defined below) by Grantor
unless Grantor fails to cure the default within thirty (30) days of the date on
which Beneficiary mails or delivers written notice of the default to Grantor.
For purposes of this Deed of Trust, the term "monetary default" means a failure
by Grantor to make any payment required of it pursuant to the Note or any other
Loan Document, and the term "nonmonetary default" means a failure by Grantor or
any other person or entity to perform any obligation contained in the Note or
any other Loan Document, other than the obligation to make payments provided for
in the Note or any other Loan Document. If a nonmonetary default is capable of
being cured and the cure cannot reasonably be completed within the thirty (30)
day cure period, the cure period shall be extended up to ninety (90) days so
long as Grantor has commenced action to cure within the thirty (30) day cure
period, and in Beneficiary's opinion, Grantor is proceeding to cure the default
with due diligence. None of the foregoing shall be construed to obligate
Beneficiary to forebear in any other manner from exercising its remedies and
Beneficiary may pursue any other rights or remedies which Beneficiary may have
because of a default.
3. Cumulative Remedies. To the fullest extent allowed by law, all
Beneficiary's and Trustee's rights and remedies specified in the Loan Documents
(including this Deed of Trust) are cumulative, not mutually exclusive and not in
substitution for any rights or remedies available at law or in equity. Without
waiving its rights in the Collateral, Beneficiary may proceed against Grantor or
may proceed against any other security or guaranty for the Secured Obligations,
in such order and manner as Beneficiary may elect. The commencement of
proceedings to enforce a particular remedy shall not preclude the discontinuance
of the proceedings and the commencement of proceedings to enforce a different
remedy.
4. Entry. After a default, Beneficiary, in person, by agent or by court
appointed receiver, may enter, take possession of, manage and operate all or any
part of the Collateral, and may also do any and all other things in connection
with those actions that Beneficiary may consider necessary and appropriate to
protect the security of this Deed of Trust, including taking and possessing all
of Grantor's or the then owner's books and records; entering into, enforcing,
modifying, or canceling Leases on such terms and conditions as Beneficiary may
consider proper; obtaining and evicting tenants; fixing or modifying Rents;
collecting and receiving any payment of money owing to Grantor; completing any
unfinished construction; and/or contracting for and making repairs and
alterations. Grantor hereby irrevocably constitutes and appoints Beneficiary as
its attorney-in-fact to perform such acts and execute such documents as
Beneficiary in its sole discretion may consider to be appropriate in connection
with taking these measures. Although the foregoing power of attorney is
effective immediately, Beneficiary shall not exercise the power until the
occurrence of a default.
5. Appointment of Receiver. In the event of a default, Grantor consents to,
and Beneficiary, to the fullest extent permitted by applicable law, shall be
entitled, without notice, bond or regard to the adequacy of the Collateral, to
the appointment of a receiver for the Collateral. The receiver shall have, in
addition to all the rights and powers customarily given to and exercised by a
receiver, all the rights and powers granted to Beneficiary by the Loan
Documents. The receiver shall be entitled to receive a reasonable fee for
management of the Property. If Grantor is an occupant of the Property,
Beneficiary has the right to require Grantor to pay rent at fair market rates
and the right to remove Grantor from Property if Grantor fails to pay rent.
6. Sale of Property After Default. Following a default and the foreclosure
of this Deed of Trust, either judicially or non-judicially, the Collateral may
be sold separately or as a whole, at the option of Beneficiary. In the event of
a trustee's sale, Grantor, and the holder of any subordinate liens or security
interest with actual or constructive notice hereof, waive any equitable,
statutory or other right they may have to require marshaling of assets in
connection with the exercises of any of the remedies permitted by applicable law
or provided herein, or to direct the order in which any of the Collateral will
be sold in the event of any sale under this Deed of Trust or foreclosure in the
inverse order of alienation.
7. Foreclosure of Lessee's Rights-Subordination. Beneficiary shall have the
right, at its option, to foreclose this Deed of Trust subject to the rights of
any lessees of the Property. Beneficiary's failure to foreclose against any
lessee shall not be asserted as a claim against Beneficiary or as a defense
against any claim by Beneficiary in any action or proceeding. Beneficiary at any
time may subordinate this Deed of Trust to any or all of the Leases except that
Beneficiary shall retain its priority claim to any condemnation or insurance
proceeds.
8. Repairs During Redemption. In the event of a judicial foreclosure the
purchaser during any redemption period may make such repairs and alterations to
the Property as may be reasonably necessary for the proper operation, care,
preservation, protection and insuring of the Property. Any sums so paid,
together with interest from the date of the expenditure at the rate provided in
the judgment, shall be added to the amount required to be paid for redemption of
the Property.
ARTICLE VI
1. Additional Security Documents. Grantor shall within fifteen (15) days
after request by Beneficiary execute and deliver any financing statement,
renewal, affidavit, certificate, continuation statement, or other document
Beneficiary may request in order to perfect, preserve, continue, extend, or
maintain security interests or liens granted herein to Beneficiary and the
priority of such security interests or liens. Grantor shall pay all reasonable
costs and expenses incurred by Beneficiary in connection with the preparation,
execution, recording, filing, and refiling of any such document.
2. Reconveyance After Payment. Upon written request of Beneficiary stating
that all obligations secured by this Deed of Trust have been paid, Trustee shall
reconvey, without warranty, the Collateral then subject to the lien of this Deed
of Trust. Grantor shall pay any costs, trustee's fees and recording fees
incurred in so reconveying the Property.
3. Nonwaiver of Terms and Conditions. Time is of the essence with respect
to performance of the obligations under the Loan Documents. Beneficiary's
failure to require prompt enforcement of any such obligation shall not
constitute a waiver of the obligation or any subsequent required performance of
the obligation. No term or condition of this Deed of Trust or any other Loan
Documents may be waived, modified or amended except by a written agreement
signed by Grantor and Beneficiary. Any waiver of any term or condition of the
Loan Documents shall apply only to the time and occasion specified in the waiver
and shall not constitute a waiver of the term or condition at any subsequent
time or occasion.
4. Waivers by Grantor. Without affecting any of Grantor's obligations under
the Loan Documents, Grantor waives the following: (a) any right to require
Beneficiary to proceed against any specific party liable for sums due under the
Loan Documents or to proceed against or exhaust any specific security for sums
due under the Loan Documents; (b) notice of new or additional indebtedness of
any Grantor or any other party liable for sums due under the Loan Documents to
Beneficiary; (c) any defense arising out of Beneficiary entering into additional
financing or other arrangements with any Grantor or any other party liable for
sums due under the Loan Documents and any action taken by Beneficiary in
connection with any such financing or other arrangements or any pending
financing or other arrangements; (d) any defense arising out of the absence,
impairment, or loss of any or all rights of recourse, reimbursement,
contribution or subrogation or any other rights or remedies of Beneficiary
against any Grantor or any other party liable for sums due under the Loan
Documents or any Collateral; and (e) any obligation of Beneficiary to see to the
proper use and application of any proceeds advanced pursuant to the Loan
Documents.
5. Right of Subrogation. Beneficiary is subrogated to the rights, whether
legal or equitable, of all beneficiaries, mortgagees, lienholders and owners
directly or indirectly paid off or satisfied in whole or in part by any proceeds
advanced by Beneficiary under the Loan Documents, regardless of whether such
parties assigned or released of record their rights or liens upon payment.
6. Joint and Several Liability. If there is more than one Grantor of this
Deed of Trust, their obligations shall be joint and several.
7. Statement of Amount Owing. Grantor within fifteen (15) days after
request by Beneficiary will furnish Beneficiary a written statement of the
amount due under the Loan Documents, any offsets or defenses against the amount
claimed by Grantor, and such other factual matters as Beneficiary may reasonably
request.
8. Books and Records; Financial Statements. Grantor will keep and maintain,
at Grantor's address stated above, or such other place as Beneficiary may
approve in writing, accurate books and records of the operations of Grantor and
of the Property, and copies of all leases, contracts, agreements and other
documents which affect the operation of the Property, subject to examination and
copying at any reasonable time by Beneficiary. Grantor shall deliver to
Beneficiary, for Grantor's parent, Advanced Machine Vision Corporation, (a)
within 120 days of each fiscal year end (or within 20 days of Beneficiary's
request therefor if Grantor is in default) annual CPA-audited consolidated
financial statements, including a year-end balance sheet and profit and loss
statement, (b) within 45 days of each fiscal quarter end (or within 20 days of
Beneficiary's request therefor if Grantor is in default) quarterly
internally-prepared financial statements, and (c) within 30 days of filing same,
a copy of the most recent federal income tax return and related schedules, in
each case certified in a manner acceptable to Beneficiary as true and correct.
In addition to the foregoing, in the event the Property or any portion thereof
is leased or rented, within 120 days of each fiscal year end (or within 20 days
of Beneficiary's request therefor if Grantor is in default) Grantor shall
provide to Beneficiary a current statement of income and expenses for the
Property, a statement of changes in financial position with respect to the
Property for the prior year, and a current rent roll for the Property showing
the name and mailing address of each tenant, the space occupied, lease
commencement and expiration dates including a description of any extension or
renewal rights, the current monthly rent and the date to which rent has been
paid, the date on which the rent will next change and the amount, any deposit,
prepaid rent or other sum paid by the tenant including the amount and the place
where held, and describing any right which a tenant may have or may claim to
reduce, offset, abate or withhold any rent or other sum payable under the lease
with tenant. Grantor has conducted a comprehensive review and assessment of
Grantor's computer applications and made inquiry of Grantor's key suppliers,
vendors, and customers with respect to the "year 2000 problem" (that is, the
risk that computer applications may not be able to properly perform
date-sensitive functions after December 31, 1999) and based on that review and
inquiry, Grantor does not believe the year 2000 problem will result in a
material adverse change in Grantor's business condition (financial or
otherwise), operations, properties, or prospects, or ability to repay the
Secured Obligations. If any change occurs in the basis for Grantor's belief in
this regard, Grantor will give Beneficiary notice of such change.
9. Appraisals. In the event of a default Beneficiary may obtain a current
regulatory conforming appraisal of the Collateral. In addition, appraisals may
be commissioned by Beneficiary when required by laws and regulations which
govern Beneficiary's lending practices. The cost of all such appraisals (and
related internal review fees and costs) will be paid by Grantor within fifteen
(15) days after request by Beneficiary.
10. Evasion of Prepayment Fee. If Grantor is in default, whether
Beneficiary has accelerated the maturity of the indebtedness or not, any tender
of payment sufficient to satisfy all sums due under the Loan Documents made at
any time prior to foreclosure sale shall constitute an evasion of the prepayment
terms of the Note, if any, and shall be deemed a voluntary prepayment. Any such
payment, to the extent permitted by law, shall include the additional payment
required under the prepayment fee provision in the Note, if any, or if at that
time prepayment is not permitted, then such payment, to the extent permitted by
law, will include an additional payment of five percent (5%) of the then
principal balance.
11. Payment of New Taxes. If any federal, state or local law is passed
subsequent to the date of this Deed of Trust which requires Beneficiary to pay
any tax because of this Deed of Trust or the sums due under the Loan Documents
(excluding income taxes), then Grantor shall pay to Beneficiary on demand any
such taxes if it is lawful for Grantor to pay them, or, in the alternative
Grantor may repay all sums due under the Loan Documents plus any prepayment fee
within thirty (30) days of such demand. If it is not lawful for Grantor to pay
such taxes, then at its option Beneficiary may declare a default under the Loan
Documents.
12. In-House Counsel Fees. Whenever Grantor is obligated to pay or
reimburse Beneficiary or Trustee for any attorneys' fees, including on appeal or
otherwise, those fees shall include the allocated reasonable costs for services
of in- house counsel.
13. Notices. Any notice given by Grantor, Trustee or Beneficiary shall be
in writing and shall be effective (1) on personal delivery to the party
receiving the notice or (2) on the third day after deposit in the United States
mail, postage prepaid with return receipt requested, addressed to the party at
the address set forth above (or such other address as a party may specify by
written notice given pursuant to this paragraph), or with respect to the
Grantor, to the address at which Beneficiary customarily or last communicated
with Grantor.
14. Controlling Document. In the event of a conflict or inconsistency
between the terms and conditions of this Deed of Trust and the terms and
conditions of any other of the Loan Documents (except for any separate
assignment of the Rents and/or the Leases and any loan agreement which shall
prevail over this Deed of Trust), the terms and conditions of this Deed of Trust
shall prevail.
15. Invalidity of Terms and Conditions. If any term or condition of this
Deed of Trust is found to be invalid, the invalidity shall not affect any other
term or condition of the Deed of Trust and the Deed of Trust shall be construed
as if not containing the invalid term or condition.
16. Legislation Affecting Beneficiary's Rights. If enactment or expiration
of applicable laws has the effect of rendering any material provision of the
Note or this Deed of Trust unenforceable according to its terms, Beneficiary, at
its option, may require immediate payment in full of all sums secured by this
Deed of Trust and may invoke any remedies permitted herein.
17. Cross-Default. A default under this Deed of Trust will constitute a
default under any and all documents (the "Other Loan Documents") relating to,
evidencing or securing (a) any and all loans by Beneficiary to Grantor and (b)
the revolving line of credit loan in the sum of $2,000,000.00 (Loan No.
0041962870) by Beneficiary to Advanced Machine Vision Corporation, a California
corporation ("AMVC") (the "Other Loan") secured by property owned by Advanced
Machine Vision Corporation, a California corporation. Any default under the
Other Loan Documents will constitute a default under this Deed of Trust. Any
default under this Deed of Trust will give rise to any and all of Beneficiary's
rights and remedies hereunder and/or under the Other Loan Documents. A default
under any of the Other Loan Documents shall give rise to any and all of
Beneficiary's rights under such loan document, the Other Loan Documents, and/or
this Deed of Trust.
18. Cross-Collateralization. Grantor agrees that the Property secured by
this Deed of Trust will constitute collateral under the Other Loan Documents, as
if said property was encumbered as collateral for the Other Loan transactions.
Grantor further agrees that the property which serves as collateral under the
Other Loan Documents shall constitute collateral for this loan as if said
property was encumbered as collateral for this Loan transaction. Thus, the
collateral for the Other Loan secures the loan evidenced and secured by this
Deed of Trust and the Property securing this Deed of Trust shall also secure the
Other Loan.
19. Acknowledgment and Waiver. Grantor represents and warrants to
Beneficiary that although the maker of the Other Loan is not the same entity as
Grantor, Grantor is a wholly-owned subsidiary of AMVC. AMVC is a guarantor of
this Loan and the Grantor of the Other Loan. Grantor acknowledges and agrees
that at Grantor's request and solely as an accommodation to Grantor, Beneficiary
has agreed that the borrower for the Other Loan may be a separate entity, so
long as Grantor remains a wholly-owned subsidiary of AMVC. Grantor hereby waives
any and all claims or defenses it may have to the cross-defaulting and
cross-collateralization of this Loan and the Other Loan based on the fact that
Grantor and the maker for the Other Loan are separate entities. Grantor
acknowledges that it has received actual and sufficient consideration in
exchange for the cross-defaulting and cross-collateralization of this Loan to
the Other Loan.
20. Rules of Construction. This Deed of Trust shall be construed so that,
whenever applicable, the use of the singular shall include the plural, the use
of the plural shall include the singular, and the use of any gender shall be
applicable to all genders and shall include corporations, limited liability
companies, partnerships and limited partnerships. This Deed of Trust inures to
the benefit of, and binds all parties named herein and their successors and
assigns. The headings to the various sections have been inserted for convenience
of reference only and shall not be used to construe this Deed of Trust.
21. Applicable Law. This Deed of Trust and remaining Loan Documents shall
be governed by and construed in accordance with the laws of the State of Oregon.
22. ORS 41.580 Disclosure. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND
COMMITMENTS BY BENEFICIARY AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER
CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES, OR
SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY AN AUTHORIZED REPRESENTATIVE OF BENEFICIARY TO BE
ENFORCEABLE.
23. ORS 93.040 Warning. THIS INSTRUMENT WILL NOT ALLOW USE OF THE PROPERTY
DESCRIBED IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS AND
REGULATIONS. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING
FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY
PLANNING DEPARTMENT TO VERIFY APPROVED USES AND TO DETERMINE ANY LIMITS ON
LAWSUITS AGAINST FARMING OR FOREST PRACTICES AS DEFINED IN ORS 30.930.
WARNING
UNLESS YOU PROVIDE US WITH EVIDENCE OF THE INSURANCE COVERAGE AS
REQUIRED BY OUR CONTRACT OR LOAN AGREEMENT, WE MAY PURCHASE INSURANCE AT
YOUR EXPENSE TO PROTECT OUR INTEREST. THIS INSURANCE MAY, BUT NEED NOT,
ALSO PROTECT YOUR INTEREST. IF THE COLLATERAL BECOMES DAMAGED, THE COVERAGE
WE PURCHASE MAY NOT PAY ANY CLAIM YOU MAKE OR ANY CLAIM MADE AGAINST YOU.
YOU MAY LATER CANCEL THIS COVERAGE BY PROVIDING EVIDENCE THAT YOU HAVE
OBTAINED PROPERTY COVERAGE ELSEWHERE.
YOU ARE RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY US. THE
COST OF THIS INSURANCE MAY BE ADDED TO YOUR CONTRACT OR LOAN BALANCE. IF
THE COST IS ADDED TO YOUR CONTRACT OR LOAN BALANCE, THE INTEREST RATE ON
THE UNDERLYING CONTRACT OR LOAN WILL APPLY TO THIS ADDED AMOUNT. THE
EFFECTIVE DATE OF COVERAGE MAY BE THE DATE YOUR PRIOR COVERAGE LAPSED OR
THE DATE YOU FAILED TO PROVIDE PROOF OF COVERAGE.
THE COVERAGE WE PURCHASE MAY BE CONSIDERABLY MORE EXPENSIVE THAN
INSURANCE YOU CAN OBTAIN ON YOUR OWN AND MAY NOT SATISFY ANY NEED FOR
PROPERTY DAMAGE COVERAGE OR ANY MANDATORY LIABILITY INSURANCE REQUIREMENTS
IMPOSED BY APPLICABLE LAW.
GRANTOR
SRC VISION, INC., an Oregon corporation
By: /s/ Alan R. Steel
- ---------------------------------------
ALAN R. STEEL, Chief Financial Officer
[NOTARY ACKNOWLEDGMENT ON NEXT PAGE.]
<PAGE>
STATE OF OREGON )
) ss.
COUNTY OF )
This instrument was acknowledged before me on , 1998, by ALAN R. STEEL as
Chief Financial Officer of SRC VISION, INC., an Oregon corporation.
________________________
Notary Public for Oregon
My Commission Expires:_________________
<PAGE>
EXHIBIT A
EXHIBIT ATTACHED TO AND FORMING A PART OF COMMERCIAL DEED OF TRUST, SECURITY
AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS DATED APRIL 24,
1998, AMONG SRC VISION, INC., AN OREGON CORPORATION, AS GRANTOR,
JOSEPHINE-CRATER TITLE COMPANIES, INC., AN OREGON CORPORATION, AS TRUSTEE, AND
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, AS BENEFICIARY.
- --------------------------------------------------------------------------------
LEGAL DESCRIPTION:
TRACT A:
Lot 2 of KING CENTER SUBDIVISION, UNIT NO. 1, to the City of
Medford, Jackson County, Oregon, according to the Official Plat
thereof, now of record.
TRACT B:
The East Half of Lot 3 in KING CENTER SUBDIVISION UNIT NO. 1, to the
City of Medford, Jackson County, Oregon, according to the Official Plat
thereof, now of record.
<PAGE>
Bank of America Standing Loan Agreement
- --------------------------------------------------------------------------------
This Loan Agreement dated as of April 24, 1998, is between SRC VISION, INC., an
Oregon corporation ("Borrower") and Bank of America National Trust & Savings
Association ("Bank").
I. LOAN TERMS
1.1 Amount and Purpose
Bank shall make a loan to Borrower in the principal amount of THREE MILLION AND
NO/100THS DOLLARS ($3,000,000.00) (the "Loan") to be used for the following
purpose: Real estate investment. The Loan will be evidenced by a promissory note
(the "Note") payable to Bank in the original principal amount of the Loan
secured by a Commercial Deed of Trust, Security Agreement and Fixture Filing
with Assignment of Leases and Rents ("Deed of Trust") covering certain real
property commonly known as 2067 Commerce Drive, Medford, Oregon 97504 (the
"Property"). Advanced Machine Vision Corporation, a California corporation and
Ventek, Inc., an Oregon corporation (collectively, "Guarantors") will guaranty
(the "Guaranties") Borrower's obligations to Bank. This Agreement, the Note, the
Deed of Trust, the Guaranties, and all other documents evidencing, securing or
otherwise pertaining to the Loan will be referred to as the "Loan Documents."
1.2 Documentation
At the closing of this transaction, Borrower will deliver the following
documents and other items, executed and acknowledge as appropriate, all in form
and substance satisfactory to Bank:
(a) This Loan Agreement;
(b) The Promissory Note;
(c) The Commercial Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Leases and Rents;
(d) A UCC-1 Financing Statement;
(e) The Guaranties;
(f) Certificate and Indemnity Agreement;
(g) An ALTA extended coverage title insurance policy insuring Bank that the
Deed of Trust constitutes a valid and enforceable lien on the Property
subject and subordinate only to such liens or other matters as Bank has
approved in writing;
(h) If the Deed of Trust is to be junior to any other lien or deed of trust on
the Property, a Beneficiary's Statement from the holder of such prior lien
or deed of trust;
(i) Evidence of the casualty and other insurance coverage required under this
Agreement;
(j) If Borrower is anything other than a natural person, evidence of Borrower's
due formation and good standing, as well as due authorization and execution
of the Loan Documents;
(k) If applicable, Subordination Agreements from tenants leasing space in the
Property;
(l) A loan fee in the amount of $15,000.00; and
(m) Such other documents and assurances as Bank may require.
II. COVENANTS OF THE BORROWER
Borrower promises to keep each of the following covenants:
2.1 Compliance with Law
Borrower shall comply with all existing and future laws, regulations, orders,
and requirements applicable to the Property and to Borrower's business.
2.2 Site Visits
(a) Borrower shall allow Bank access to the Property at any reasonable time
for the purposes of performing an appraisal, inspecting the Property, taking
soil or groundwater samples, and conducting tests, among other things, to
investigate for the presence of Hazardous Substances, as defined in Article IV.
Borrower shall also allow Bank to examine, copy and audit its books and records.
(b) Bank is under no duty to visit or observe the Property, or to examine
any books or records. Any site visit, observation or examination by Bank shall
be solely for the purpose of protecting Bank's security and preserving Bank's
rights under the Loan Documents. Bank owes no duty of care to protect Borrower
or any other person against, or to inform Borrower or any other person of, any
adverse condition affecting the Property, including any defects in the design or
construction of any improvements on the Property or the presence of any
Hazardous Substances on the Property.
2.3 Insurance
Borrower shall provide and maintain in force at all times all risk property
damage insurance on the Property; Comprehensive General Liability coverage,
including an additional insured endorsement in favor of Bank, written on an
occurrence basis, not claims made; and such other type of insurance on the
Property or Borrower as may be required by Bank in its reasonable judgment. At
Bank request, Borrower shall provide Bank with a counterpart original of any
policy, together with a certificate of insurance setting forth the coverage, the
limits of liability, the carrier, the policy number and the expiration date.
Each such policy of insurance shall be in an amount, for a term, and in form and
content satisfactory to Bank, and shall be written only by companies approved by
Bank. In addition, each policy of hazard insurance shall include a Form 438BFU
or equivalent loss payable endorsement in favor of Bank.
2.4 Payment of Expenses
Borrower shall pay all costs and expenses incurred by Bank in connection with
the making, disbursement and administration of the Loan, as well as any
revisions, extensions, renewals or "workouts" of the Loan, and in the exercise
of any of Bank's rights or remedies under this Agreement. Such costs and
expenses include title insurance, recording and escrow charges, fees for
appraisal, legal fees and expenses of Bank's counsel and any other reasonable
fees and costs for services, regardless of whether such services are furnished
by Bank's employees or by independent contractors. Borrower acknowledges that
the Loan fee does not include amounts payable by Borrower under this section.
2.5 Financial and Other Information
On request, Borrower shall promptly provide Bank with such financial or other
information concerning its and each Guarantor's affairs and properties as Bank
may request.
2.6 Notices
Borrower shall promptly notify Bank in writing of:
(a) any litigation affecting Borrower, any Guarantor or the Property, and,
if Borrower or Guarantor is a partnership, any general partner of Borrower or
Guarantor where the amount claimed is One Million Dollars ($1,000,000) or more;
(b) any notice that the Property or Borrower's business fails in any
respect to comply with any applicable law, regulation or court order; and
(c) any material adverse change in the physical condition of the Property
of Borrower's or any Guarantor's financial condition or operations or other
circumstance that adversely affects Borrower's intended use of the Property or
Borrower's ability to repay the Loan.
2.7 Indemnity
Borrower agrees to indemnify and hold Bank harmless from and against all
liabilities, claims, actions, damages, costs and expenses (including all legal
fees and expenses of Bank's counsel) arising out of or resulting from the
ownership, operation, or use of the Property, whether such claims are based on
theories of derivative liability, comparative negligence or otherwise.
Notwithstanding anything to the contrary in any other Loan Document, the
provisions of this Section 2.7 shall not be secured by the Deed of Trust, and
shall survive the termination of this Agreement and the repayment of the Loan or
foreclosure of the Deed of Trust.
2.8 Business Operation
Without Bank's prior written consent, Borrower shall not:
(a) engage in any business activities substantially different from Borrower's
present business;
(b) liquidate or dissolve Borrower's business;
(c) lease or dispose of all or a substantial part of Borrower's business or
Borrower's assets;
(d) sell or dispose any assets for less than fair market price;
(e) enter into any sale or leaseback agreement covering a substantial portion
of its fixed or capital assets;
(f) enter into any consolidation, merger, pool, joint venture, syndicate or
other combination; or
(g) Acquire or purchase a business or its assets in excess of $2,000,000.00 in
any fiscal year.
2.9 Performance of Acts
Upon request by Bank, Borrower shall perform all acts which may be necessary or
advisable to perfect any lien or security interest provided for in this
Agreement or to carry out the intent of this Agreement.
2.11 Further Encumbrances
Borrower acknowledges that Bank has relied upon the Property not being subject
to additional liens or encumbrances for reasons which include, but are not
limited to, the possibility of competing claims or the promotion of plans
disadvantageous to Bank in bankruptcy; the risks to Bank in a junior
lienholder's bankruptcy; questions which involve the priority of future
advances, the priority of future leases of the Property, the marshaling of
Borrower's assets, and Bank's rights to determine the application of
condemnation awards and insurance proceeds; the impairment of Bank's option to
accept a deed in lieu of foreclosure; and Bank's requirements concerning
Borrower's preservation of its equity in the Property and the absence of debt
which could increase the likelihood of Borrower's inability to perform its
obligations when due. Therefore, as a principal inducement to Bank to make the
Loan and with the knowledge that Bank will materially rely upon this section in
so doing. Borrower covenants not to voluntarily or involuntarily encumber the
Property or any part thereof. Without limiting the generality of the foregoing
and irrespective of the priority thereof, no mortgages, deeds of trust or other
forms of security interests shall encumber any real or personal property which
is the subject of any lien or security interest granted to Bank as security for
the Note. Encumbrances and hypothecations of stock or partnership interests in
Borrower or any successor of Borrower, sale lease-backs, transfers by leases
with purchase options, and conveyances by real estate contract shall each be
deemed an encumbrance for the purposes of this Section.
III. USE OF THE PROPERTY; LEASING
3.1 Use of the Property
Unless required by applicable law or unless Bank has otherwise agreed in
writing, Borrower shall not allow changes in the use for which all or any part
of the Property was intended at the time this Loan Agreement was executed.
Borrower shall not initiate or acquiesce in a change in the zoning or land use
classification of the Property without Bank's prior written consent.
3.2 Leasing
At Bank's request, Borrower shall provide Bank copies of all lease agreements
and the Bank reserves the right to approve the Borrower's form of lease.
Borrower shall not materially deviate from the Bank's approved form of lease or
from a current Bank approved schedule of rents, without Bank's prior written
consent. If Borrower leases any portion of the Property to third parties, all
such leases shall be with bona fide third party tenants financially capable of
performing their obligations under the lease and shall reflect arm's-length
transactions at the then current market rate for comparable space.
3.3 Delivery of Leasing Information and Documents
Borrower shall promptly deliver to Bank such monthly rent rolls, leasing
schedules and reports, operating statements or other leasing information as Bank
from time to time may request. In addition, Borrower shall promptly obtain and
deliver to Bank such estoppel certificates and subordination and attornment
agreements from tenants as Bank from time to time may require.
IV. HAZARDOUS SUBSTANCES
The provisions of this Article IV shall survive termination of this Agreement
and repayment of the Loan, and shall also survive as unsecured obligations after
any acquisition by Bank of the Property or any part of it by foreclosure or any
other means.
4.1 Definition of Hazardous Substance
For purposes of this Agreement, a "Hazardous Substance" is defined to mean any
substance, material or waste, including petroleum (including crude oil or any
fraction thereof), which is or becomes designated, classified or regulated as
being "toxic", "hazardous", a "pollutant" or similar designation under any
federal, state or local law, regulation or ordinance.
4.2 Indemnity Regarding Hazardous Substances
Borrower agrees to indemnify and hold Bank harmless from and against all
liabilities, claims, actions, foreseeable and unforeseeable consequential
damages, costs and expenses (including attorney's fees) or loss directly or
indirectly arising out of or resulting from the presence of any Hazardous
Substance in or around any part of the Property, or in the soil or groundwater
under the Property, including expenses incurred in connection with any
investigation of site conditions or any clean-up, remedial, removal or
restoration work, including any resulting damages or injuries to the person or
property of any third persons or to any natural resources.
4.3 Representation and Warranty
Before signing this Agreement, Borrower researched and inquired into the
previous uses and ownership of the Property. Based on that due diligence,
Borrower represents and warrants that, to the best of its knowledge, no
Hazardous Substance has been disposed of, released onto or otherwise exists in,
on, or under the Property, except as Borrower has disclosed to Bank in writing.
4.4 Compliance with Law; Notices
Borrower has complied, and shall comply and cause all occupants of the Property
to comply, with all laws, regulations and ordinances governing or applicable to
Hazardous Substances as well as the recommendations of any qualified
environmental engineer or other expert.
Borrower shall promptly notify Bank if it knows or suspects there may be any
Hazardous Substance in or around the Property, or in the soil or groundwater
under the Property, or if any action or investigation by any governmental agency
or third party pertaining to Hazardous Substances is pending or threatened.
V. REPRESENTATIONS AND WARRANTIES
Borrower promises that each representation and warranty set forth below is true,
accurate and correct as of the date of this Agreement and will be true as of the
date of any request for disbursement of Loan proceeds.
5.1 Authority
Borrower is authorized to execute, deliver and perform its obligations under
each of the Loan Documents.
5.2 No Violation
Neither Borrower nor the Property is in violation of any law, regulation or
ordinance, any order of any court or governmental entity, or any covenant or
agreement affecting Borrower or the Property. There are no claims, actions,
proceedings or investigations pending or threatened against Borrower or
affecting the Property except for those previously disclosed by Borrower to Bank
in writing.
5.3 Financial Information
All financial information which has been and will be delivered to Bank,
including all information relating to the financial condition of Borrower or any
of its partners or joint venturers, any Guarantor, or the Property, fairly and
accurately represents the financial condition being reported on. All such
information was prepared in accordance with accounting principles consistently
applied, acceptable to Bank. There has been no material adverse change in any
financial condition reported at any time to Bank.
5.4 Borrower Not a "Foreign Person"
Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of
the Internal Revenue Code of 1986, as amended from time to time.
VI. DEFAULT AND REMEDIES
6.1 Events of Default
Borrower will be in default under this Agreement upon the occurrence of any one
or more of the following events (some or all collectively, "Events of Default:"
any one singly, an "Event of Default"):
(a) Borrower fails to make any payment of principal or interest under the Note
within ten (10) days after the date demanded; or
(b) Borrower fails to comply with any covenant contained in this Agreement
other than those referred to in clause (a), and does not either cure that
failure within thirty (30) days after written notice from Bank, or if the
default cannot be cured in thirty (30) days, within ninety (90); or
(c) An assignment for the benefit of creditors is made by, or any bankruptcy,
reorganization, receivership, moratorium or other debtor-relief proceedings
are commenced by or against, Borrower or any Guarantor; or
(d) Borrower or any Guarantor becomes insolvent, dissolves or liquidates, or
any of these events happens to Borrower's or any Guarantor's managing
general partner or shareholder; or
(e) Any representation or warranty made or given in any of the Loan Documents
proves to be false or misleading in any material respect; or
(f) Any Guarantor revokes its Guaranty or any Guaranty becomes ineffective for
any reason; or
(g) Under any of the Loan Documents, an event of default occurs; or
(h) Borrower and Guarantor fail to meet the conditions of, or fail to perform
any obligation under, any other agreement Borrower or Guarantor has with
Bank or any affiliate of Bank; or
(i) There is a material adverse change in Borrower's or any Guarantor's
financial condition, or event or condition that materially impairs
Borrower's intended use of the Property or Borrower's ability to repay the
Loan.
6.2 Remedies
If an Event of Default occurs under this Agreement,
(a) Bank may exercise any right or remedy which it has under any of the
Loan Documents, or which is otherwise available at law or in equity or by
statute, and all of Bank's rights and remedies shall be cumulative. Bank's
obligation to lend shall automatically terminate, and Bank in its sole
discretion may withhold any one or more disbursements. Bank may also withhold
any one or more disbursements after an event occurs that with notice or the
passage of time could become an Event of Default, if Bank in its reasonable
judgment determines that the event is a default, breach or failure of a nature
which is not susceptible of cure. Notwithstanding anything contained herein to
the contrary, Bank shall not exercise its default remedies provided herein and
in the Loan Documents because of a default pursuant to paragraph 6.1 (b) through
(i) (excepting the filing of a petition or action by Borrower seeking relief
under any bankruptcy, reorganization or insolvency laws), unless such default is
not cured within fifteen (15) days of the date on which Bank mails or delivers
written notice of the default to Borrower. If a bankruptcy petition or action is
filed with respect to the Borrower or Borrower defaults pursuant to paragraph
6.1(a) herein, the entire debt outstanding under the Note shall automatically
become due and payable.
(b) Bank shall have the right in its sole discretion to enter the Property
and take possession of it, whether in person, by agent or by court-appointed
receiver, collect rents and otherwise protect its collateral. If Bank exercises
any of the rights or remedies provided in this clause (b), that exercise shall
not make Bank, or cause Bank to be deemed to be, a partner or joint venturer of
Borrower. All sums which are expended by Bank in preserving its collateral shall
be considered an additional loan to Borrower bearing interest at the Default
Rate provided in the Note and secured by the Deed of Trust.
VII. ARBITRATION
7.1
This paragraph concerns the resolution of any controversies or claims between
the Borrower and the Bank, including but not limited to those that arise from:
(a) This Agreement (including any renewals, extensions or modifications of this
Agreement); (b) Any document, agreement or procedure related to or delivered in
connection with this Agreement; (c) Any violation of this Agreement; or (d) Any
claims for damages resulting from any business conducted between the Borrower
and the Bank, including claims for injury to person, property or business
interests (torts).
7.2
At the request of the Borrower or the Bank, any such controversies or claims
will be settled by arbitration in accordance with the United States Arbitration
Act. The United States Arbitration Act will apply even though this agreement
provides that it is governed by Oregon law.
7.3
Arbitration proceedings will be administered by the Arbitration Service of
Portland, Inc., and will be subject to its commercial rules of arbitration.
7.4
For the purposes of the application of the statute of limitations, the filing of
an arbitration pursuant to this paragraph is the equivalent of the filing of a
lawsuit and any claim or controversy which may be arbitrated under this
paragraph is subject to any applicable statute of limitations. The arbitrators
will have the authority to decide whether any such claim or controversy is
barred by the statute of limitations and, if so, to dismiss the arbitration on
that basis.
7.5
If there is a dispute as to whether an issue is arbitrable, the arbitrators will
have the authority to resolve any such dispute.
7.6
The decision that results from an arbitration proceeding may be submitted to any
authorized court of law to be confirmed and enforced.
7.7
This provision does not limit the right of the Borrower or the Bank to: (a)
exercise self-help remedies such as setoff; (b) foreclosure against or sell any
real or personal property collateral; or (c) act in a court of law, before,
during or after the arbitration proceeding to obtain (i) a provisional or
interim and/or (ii) additional or supplementary remedies.
7.8
The pursuit of or a successful action for interim, additional or supplementary
remedies, or the filling of a court action, does not constitute a waiver of the
right of the Borrower or the Bank, including the suing party, to submit the
controversy or claim to arbitration if the other party contests the lawsuit.
7.9
If the Bank forecloses against any real property securing this Agreement, the
Bank has the option to exercise the power of sale under the deed of trust or
mortgage, or to proceed by judicial foreclosure.
VIII. MISCELLANEOUS PROVISIONS
8.1 No Waiver; Consents
Each waiver by Bank must be in writing, and no waiver shall be construed as a
continuing waiver. No waiver shall be implied from any delay or failure by Bank
to take action on account of any default of Borrower. Consent by Bank to any act
or omission by Borrower shall not be construed as a consent to any other or
subsequent act or omission.
8.2 No Third Parties Benefitted
This Agreement is made and entered into for the sole protection and benefit of
Bank and Borrower and their successors and assigns. No trust fund is created by
this Agreement and no other persons or entities shall have any right of action
under this Agreement or any right to the Loan funds.
8.3 Notices
All notices given under this Agreement shall be in writing and shall be
effectively served upon delivery, or if mailed, upon receipt of certified United
States mail, postage prepaid, sent to the party at its address appearing below
its signature. Those addresses may be changed by either Party by notice to the
other Party.
8.4 Attorneys' Fees
If any lawsuit, reference, arbitration, bankruptcy or any other proceeding is
commenced which arises out of, or which relates to or affects, this Agreement,
the Loan Documents or the Loan, the prevailing party shall be entitled to
recover from each other party such sums as the court, reference judge,
arbitrator, or other decision maker may adjudge to be reasonable attorneys' fees
in the action, reference or arbitration, in addition to costs and expenses
otherwise allowed by law, including appeal or rehearing or any other review or
proceeding.
8.5 Heirs, Successors and Assigns
The terms of this Agreement shall bind and benefit the heirs, legal
representatives, successors and assigns of the parties; provided, however, that
Borrower may not assign this Agreement without the prior written consent of
Bank. Bank shall have the right to transfer the Loan to any other persons or
entities without the consent of or notice to Borrower. Without the consent of or
notice to Borrower, Bank may disclose to any prospective purchaser of any
securities issued by Bank, and to any prospective or actual purchaser of any
interest in the Loan or any other loans made by Bank to Borrower, any financial
or other information relating to Borrower, the Loan or the Property.
8.6 Interpretation
The language of this Agreement shall be construed as a whole according to its
fair meaning, and not strictly for or against any party. The word "include(s)"
means "include(s), without limitation," and the word "including" means
"including, but not limited to." Time is of the essence in the performance of
this Agreement by Borrower. Whenever Borrower is obligated to pay or reimburse
Bank for any attorneys' fees, those fees shall include the allocated costs for
services of in-house counsel. This Agreement shall be governed by Oregon law.
8.7 Miscellaneous
This Agreement may not be modified or amended except by a written agreement
signed by the parties. The invalidity or unenforceability of any one or more
provisions of this Agreement shall in no way affect any other provision. If
Borrower consists of more than one person or entity, each shall be jointly and
severally liable to Bank for the faithful performance of this Agreement.
8.8 Year 2000 Compliance
The Borrower has conducted a comprehensive review and assessment of the
Borrower's computer applications and will make inquiry of the Borrower's key
suppliers, vendors and customers with respect to the "year 2000 problem" (that
is, the risk that computer applications may not be able to properly perform
date-sensitive functions after December 31, 1999) by September 30, 1998. Based
on year to date review and inquiry, the Borrower does not believe the year 2000
problem will result in a material adverse change in the Borrower's business
condition (financial or otherwise), operations, properties or prospects, or
ability to repay the credit.
8.9 Integration and Relation to Loan Commitment
The Loan Documents fully state all of the terms and conditions of the parties'
agreement regarding the matters mentioned in or incidental to this Agreement.
The Loan Documents supersede all oral negotiations and prior writings concerning
the subject matter of the Loan Documents, including Bank's loan commitment to
Borrower.
Under Oregon law, most agreements, promises and commitments made by us after
October 3, 1989, concerning loans and other credit extensions which are not for
personal, family or household purposes or secured solely by the borrowers'
residence must be in writing, express consideration and be signed by us to be
enforceable.
WARNING
UNLESS YOU PROVIDE US WITH EVIDENCE OF THE INSURANCE COVERAGE AS
REQUIRED BY OUR CONTRACT OR LOAN AGREEMENT, WE MAY PURCHASE INSURANCE AT
YOUR EXPENSE TO PROTECT OUR INTEREST. THIS INSURANCE MAY, BUT NEED NOT,
ALSO PROTECT YOUR INTEREST. IF THE COLLATERAL BECOMES DAMAGED, THE COVERAGE
WE PURCHASE MAY NOT PAY ANY CLAIM YOU MAKE OR ANY CLAIM MADE AGAINST YOU.
YOU MAY LATER CANCEL THIS COVERAGE BY PROVIDING EVIDENCE THAT YOU HAVE
OBTAINED PROPERTY COVERAGE ELSEWHERE.
YOU ARE RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY US. THE
COST OF THIS INSURANCE MAY BE ADDED TO YOUR CONTRACT OR LOAN BALANCE. IF
THE COST IS ADDED TO YOUR CONTRACT OR LOAN BALANCE, THE INTEREST RATE ON
THE UNDERLYING CONTRACT OR LOAN WILL APPLY TO THIS ADDED AMOUNT. THE
EFFECTIVE DATE OF COVERAGE MAY BE THE DATE YOUR PRIOR COVERAGE LAPSED OR
THE DATE YOU FAILED TO PROVIDE PROOF OF COVERAGE.
THE COVERAGE WE PURCHASE MAY BE CONSIDERABLY MORE EXPENSIVE THAN
INSURANCE YOU CAN OBTAIN ON YOUR OWN AND MAY NOT SATISFY ANY NEED FOR
PROPERTY DAMAGE COVERAGE OR ANY MANDATORY LIABILITY INSURANCE REQUIREMENTS
IMPOSED BY APPLICABLE LAW.
BORROWER'S NAME
SRC VISION, INC.,
an Oregon corporation
By: /s/ Alan R. Steel
- ---------------------------------------
ALAN R. STEEL, Chief Financial Officer
Address where notices to the Borrower are to be sent:
2067 Commerce Drive
Medford, Oregon 97504
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION
By: /s/ Ron Farmer
- ---------------------------------------
RON FARMER, Vice President
By:
- ---------------------------------------
SANDRA PIERCE, Vice President
Address where notices to the Bank are to be sent:
Bank of America National Trust & Savings Association
Eugene Commercial Banking, Unit 2091
201 East 11th Avenue, 2nd Floor
Eugene, Oregon 97401
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
March 31, 1998 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000795445
<NAME> ADVANCED MACHINE VISION CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,777
<SECURITIES> 0
<RECEIVABLES> 4,093
<ALLOWANCES> 0
<INVENTORY> 5,406
<CURRENT-ASSETS> 14,423
<PP&E> 6,929
<DEPRECIATION> 2,116
<TOTAL-ASSETS> 25,535
<CURRENT-LIABILITIES> 5,030
<BONDS> 8,334
0
0
<COMMON> 24,323
<OTHER-SE> (12,152)
<TOTAL-LIABILITY-AND-EQUITY> 25,535
<SALES> 7,103
<TOTAL-REVENUES> 7,103
<CGS> 3,770
<TOTAL-COSTS> 6,745
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 168
<INCOME-PRETAX> 190
<INCOME-TAX> 8
<INCOME-CONTINUING> 182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
