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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 25, 1999
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BARRINGER LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-8241 84-0951626
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(Commission File Number) (IRS Employer Identification No.)
15000 West 6th Avenue, Suite 300, Golden, CO 80401-5047
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 303/277-1687
Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On May 25, 1999, the registrant, Barringer Laboratories, Inc.
("Barringer") entered into a General Credit and Security Agreement (the
"Credit Agreement") with SPECTRUM Commercial Services ("SPECTRUM"), a
division of Lyon Financial Services, Inc. A copy of the Credit Agreement is
attached as Exhibit 10.1. A copy of the revolving promissory note (the
"Note") is attached as Exhibit 10.2. All discussion in this report of the
Credit Agreement and Note is qualified by reference to Exhibits 10.1 and 10.2.
Under the Credit Agreement, SPECTRUM agreed to provide a revolving line
of credit, secured by essentially all of Barringer's assets. Barringer
essentially assigned all collections on its domestic and some foreign
accounts receivable to SPECTRUM and entered into a lock box agreement with
SPECTRUM and Norwest Bank Minnesota, National Association, under which all
cash collected on such accounts receivable must be deposited into the lock
box and be used to pay down the line of credit. Since the receivables are
used to pay down the debt, Barringer, in turn, is relying on the line of
credit to meet its cash needs.
The Note is due on May 24, 2001 or earlier upon demand of SPECTRUM, and
SPECTRUM may demand payment of such amounts at any time for any reason or no
reason whatsoever. The maturity date of the line of credit may be extended
after May 24, 2001 by Barringer for successive twelve month periods.
SPECTRUM on certain specified conditions, including the demand feature, may
terminate the Credit Agreement before the maturity date. However, the Credit
Agreement provides that if Barringer terminates the Credit Agreement before
the maturity date, it will be liable for a prepayment charge equal to $3,800
times the number of months until the maturity date.
The maximum amount which SPECTRUM will advance at any given time is
equal to the lesser of
- a borrowing base equal to 80% of Barringer's eligible accounts
receivable, or
- a maximum principal amount of $750,000.
An eligible receivable basically is an account billed to a United States or
Canadian customer as to which not more than 10% of the account is more than
90 days past due. However, under the Credit Agreement, SPECTRUM, in its sole
discretion, may determine that a receivable is not an eligible receivable.
By way of example, the Credit Agreement sets forth some types of receivables
which SPECTRUM may determine not to be eligible, including receivables which
may have earlier been eligible receivables. Such examples include those as
to which the account debtor declares bankruptcy, the receivable is not paid
with 90 days of the date of the invoice, the account debtor disputes the
validity of the receivable, or SPECTRUM, in its reasonable discretion,
becomes dissatisfied with the creditworthiness of the account debtor. In
addition, SPECTRUM, in its sole discretion, may decrease or increase the
borrowing base percentage below or above the 80% described above.
The annual interest rate on the Note is equal to the prime rate charged
by Norwest Bank Minnesota, National Association, plus 5.35%, which is
adjusted as the prime rate increases or decreases. As of July 1, 1999,
Norwest's prime rate was 8%.
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If Barringer meets certain profit levels, as set forth in the Credit
Agreement, for the year 1999, the interest rate will be reduced to prime plus
4.85%, and if Barringer meets the required 1999 profit levels and certain
higher profit levels for the year 2000, the interest rate will be reduced to
prime plus 4.35%. However, in no event will the interest rate be less than
10% per year, and the interest payable for each calendar month will be a
minimum of $3,800, regardless of the amounts which have been advanced.
After an event of default, the interest rate would be 5% more than the
rate otherwise in effect, except that in any event, the interest rate would
not be less than 13% per annum, and at least $5,200 per month in interest
would be assessed each month regardless of the amount of advances
outstanding.
In the Credit Agreement, the minimum rates of interest are stated at 13%
and, after an event of default, 15% per year, as opposed to 10% and 13%,
respectively, as set forth in the Note. Barringer is uncertain as to which
rates (those in the Note or in the Credit Agreement) will apply.
Furthermore, there can be no assurance that Barringer will meet the profit
levels for 1999 and 2000 which would permit a reduction in the interest rates
as set forth above.
The Credit Agreement provides that all fees and expenses reimbursable or
payable to SPECTRUM in connection with the line of credit will be added to
the amount of advances outstanding and payable under the Note. In addition,
at SPECTRUM's option, interest which is not paid when due can be added to the
principal balance. In addition to other fees and expenses, Barringer is
obligated under the Credit Agreement for an administration fee of $2,000 per
calendar quarter and an annual line maintenance fee of $15,000.
The Credit Agreement also includes various affirmative and negative
covenants, at Paragraphs 17 and 18, respectively, which Barringer must meet.
The affirmative covenants include requirements that Barringer maintain
nominal profit levels before income taxes or that restrict the net losses
that Barringer may incur. The negative covenants prohibit, without SPECTRUM's
consent, or otherwise restrict such items as expenditures for fixed assets,
indebtedness, recapitalizations, mergers, entry into new lines of business,
employee compensation and substantial changes in the present ownership,
management or business of Barringer.
Following its execution of the Credit Agreement and Note on May 25,
1999, SPECTRUM charged approximately $10,000 in fees and expenses to
principal under the line of credit. On or about June 4, 1999, Barringer took
initial advances of approximately $46,000 under the line of credit to pay off
a factoring company to which accounts receivable had been sold. The
factoring company agreed that, after payment of the $46,000, any amounts
received on the related receivables would be turned over to SPECTRUM. As of
June 30, 1999, the principal balance outstanding was approximately $273,000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
NAME OF EXHIBIT EXHIBIT NO.
<S> <C>
General Credit and Security Agreement 10.1
Revolving Note 10.2
</TABLE>
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: July 23, 1999
BARRINGER LABORATORIES, INC.
By: /s/ J. Graham Russell
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J. Graham Russell, President
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GENERAL CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT, dated as of May 25, 1999, between SPECTRUM Commercial
Services, a division of Lyon Financial Services, Inc., a Minnesota
corporation, having its mailing address and principal place of business at
7900 International Drive, Suite 890, Bloomington, Minnesota 55425-1581
(herein called "Lender"), and Barringer Laboratories, Inc., a Delaware
corporation, having the mailing address and principal place of business at
15000 W. 6th Avenue, Golden, CO, 80401 (herein called "Borrower").
1. AGREEMENT. This Agreement states the terms and conditions under
which Borrower may obtain certain loans and/or other credit extensions from
Lender.
2. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:
"ACCEPTABLE DISTRIBUTIONS" shall mean, with respect to Borrower,
cash distributions made to Borrower's shareholders during any period in which
Borrower has made an effective S Corporation election, in an amount equal to
the combined federal and state income tax liability of such shareholders
arising from their respective allocable share of the earnings and profit of
Borrower, with each shareholder's federal and state income tax liability,
including any minimum tax liability, to be computed on the basis of the
applicable marginal tax rate for individuals under the Code and relevant
state law as such applicable marginal tax rates are reduced by deductions for
state income taxes with respect to the Code and for federal income taxes with
respect to the relevant state law; PROVIDED, HOWEVER, that no such
distribution(s) shall be made if and to the extent that, after giving effect
thereto, the aggregate amount distributed to all shareholders pursuant to
this provision in any given period exceeds an amount equal to the amount of
regular state and federal income tax that would be assessed against Borrower
for such period if Borrower were subject to the tax provisions applicable to
a C Corporation but not including any penalty tax provisions such as
provisions for accumulated earnings taxes or personal holding company taxes.
"ADVANCE(S)" shall have the meaning provided in Paragraph 4(a).
"AFFILIATE" shall include, with respect to any party, any Person
which directly or indirectly controls, is controlled by, or is under common
control with such party and, in addition, in the case of Borrower, each
officer, director or shareholder of Borrower, and each joint venturer and
partner of Borrower.
"BORROWER" shall have the meaning provided in the preamble hereto.
"BORROWING BASE" shall mean the sum of (i) Eighty percent (80%) of
the net amount of Eligible Receivables or such greater or lesser percentage
as Lender, in its sole discretion, shall deem appropriate.
"BUSINESS DAY" shall mean any day on which major commercial banks
in Minneapolis, Minnesota are open for the transaction of business of the
kind contemplated by this Agreement.
"CHATTEL PAPER" shall have the meaning ascribed to such term in
Article 9 of the Commercial Code.
"CLOSING DATE" shall mean the day specified by Borrower on which
all of the conditions precedent specified in Paragraph 21 shall have been
satisfied.
"CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"COMMERCIAL CODE" shall mean the Uniform Commercial Code as enacted
in the State of Minnesota, as amended from time to time.
"CONSOLIDATED" shall, when used with reference to any financial
information pertaining to (or when used as a part of any defined term or
statement pertaining to the financial condition of) any Person, mean the
accounts of such Person and its subsidiaries, determined on a consolidated
basis, all determined as to principles of consolidation and, except as
otherwise specifically required by the definition of such term or by such
statement as to such accounts, in accordance with GAAP.
"CONTINGENT OBLIGATIONS" shall mean, with respect to any Person,
all of such Person's liabilities and obligations which are contingent upon
and will not mature unless and until the occurrence of some event or
circumstance and which are not included within the definition of Liabilities
of such Person.
"CUSTOMER(S)" shall have the meaning provided in Paragraph 7(a).
"DEFAULT" shall mean any event which, with the giving of notice or
passage of time, or both, would constitute an Event of Default.
"ELIGIBLE RECEIVABLES" shall mean the dollar value of only such
Receivables of Borrower arising from the sale and actual shipment of
Inventory or the full and complete rendition of services in the ordinary
course of business which has been fully performed by Borrower and in which
only Lender holds a senior security interest and as to which Lender, in its
sole discretion, shall from time to time determine to be Eligible
Receivables. Without limiting the discretion of Lender to consider any
Receivable not to be an Eligible Receivable, and by way of example only of
types of Receivables that Lender will consider not to be Eligible
Receivables, Lender, notwithstanding
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any earlier classification of eligibility may consider any Receivable not to
be an Eligible Receivable if: (i) any warranty is breached as to the
Receivable; (ii) the Receivable is not paid by the account debtor within 90
days from the date of the invoice relating to such Receivable; (iii) the
account debtor disputes liability or makes any claim with respect to the
Receivable; (iv) a petition in bankruptcy or other application for relief
under any insolvency law is filed with respect to the account debtor owing
the Receivable; (v) the account debtor on the Receivable makes an assignment
for the benefit of creditors, becomes insolvent, fails, suspends, or goes out
of business; (vi) the Receivable arises from a sale to an account debtor
outside the United States, unless the sale is on terms acceptable to Lender
in its sole discretion; (vii) the Receivable is owed by an account debtor who
owes Receivables of which more than 10% are more than 90 days past the date
of the invoices relating to such Receivables; (viii) the account debtor is an
Affiliate or employee of Borrower; (ix) the account debtor is also a supplier
or creditor of Borrower; (x) the account debtor is the United States of
America, or any department or any agency of any thereof, unless Borrower has
complied with the Assignment of Claims Act to Lender's satisfaction; (xi) the
Receivable (or any portion of the Receivable) is either a consignment
Receivable or a bonded Receivable or a retainage; (xii) the total Receivables
owed by an account debtor exceeds 25% of the total Receivables outstanding,
but only that portion that exceeds that percentage would not be considered an
Eligible Receivable; or (xiii) In its reasonable discretion, Lender shall
become dissatisfied with the creditworthiness of an account debtor owing a
Receivable.
"EQUIPMENT" shall have the meaning provided in Paragraph 3.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may from time to time be amended, and the rules and
regulations promulgated thereunder by any governmental agency or authority,
as from time to time in effect.
"ERISA AFFILIATE" shall mean, with respect to any Person, any trade
or business (whether or not incorporated) which is a member of a group of
which such Person is a member and which is under common control within the
meaning of Section 414 of the Code, as amended from time to time, and the
regulations promulgated and rulings issued thereunder.
"ERISA EVENT" shall mean: (a) a Reportable Event described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the PBGC
under such regulations); (b) the withdrawal of Borrower or any ERISA
Affiliate from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA; (c) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as
a termination under Section 4041 of ERISA; (d) the institution of proceedings
to terminate a Plan by the PBGC under Section 4042 of ERISA; or (e) any other
event or condition that might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan.
"EVENT OF DEFAULT" shall have the meaning provided in Paragraph 20.
"GAAP" shall mean generally accepted accounting principles
consistently applied and maintained throughout the period indicated and
consistent with the audited financial statements delivered to Lender pursuant
to Paragraph 16. Whenever any accounting term is used herein which is not
otherwise defined, it shall be interpreted in accordance with GAAP.
"GENERAL INTANGIBLES" shall have the meaning provided in Paragraph
3.
"GUARANTOR" NONE.
"INDEPENDENT PUBLIC ACCOUNTANTS" shall mean BDO Seidman, LLP. or
any other firm of independent public accountants which is acceptable to
Lender.
"INVENTORY" shall have the meaning provided in Paragraph 3.
"LIABILITIES" of any Person shall mean those items which, in
accordance with GAAP, appear as liabilities on a balance sheet.
"LINE MAINTENANCE FEE" shall have the meaning provided in Paragraph
17.
"LOAN ADMINISTRATION FEE" shall have the meaning provided in
Paragraph 17.
"LOAN DOCUMENT(S)" shall mean individually or collectively, as the
case may be, this Agreement, the Note, the support Agreement(s), and any and
all other documents executed, delivered or referred to herein or therein, as
originally executed and as amended, modified or supplemented from time to
time.
"MATERIAL ADVERSE OCCURRENCE" shall mean any occurrence of
whatsoever nature (including, without limitation, any adverse determination
in any litigation, arbitration or governmental investigation or proceeding)
which Lender shall determine, in its sole discretion, could materially
adversely affect the present or prospective financial condition or operations
of Borrower or a Guarantor or impair the ability of Borrower or a Guarantor
to perform its obligations under this Agreement or any other Loan Document.
"MATURITY DATE" shall mean May 24, 2001, provided, however, that
Borrower shall have the option to extend the Maturity Date for subsequent
twelve month periods, unless Lender (in its sole and absolute discretion)
notifies Borrower at least sixty days prior to the then current Maturity Date
that the extension shall not be available and in that event, no extension
shall occur. In any event, the extension option shall not be available if, as
of the then current Maturity Date (i) an Event of Default has occurred and is
continuing (whether or not Lender has notified Borrower of such default), or
(ii) this Agreement has previously terminated as provided in Paragraph
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23, or (iii) Lender has, in its sole and absolute discretion, demanded
payment of amounts owed hereunder. Should Borrower have the option to extend
the Maturity Date and choose to do so, than Borrower shall notify Lender of
its request for an extension at least 15 days before the then current
Maturity Date and, prior to the then current Maturity Date, shall have
executed a new or amended promissory note reflecting the extended Maturity
Date and which contains substantially the same terms as the Note then in
effect.
"MAXIMUM PRINCIPAL AMOUNT" shall mean, at any date, Seven Hundred
and Fifty Thousand Dollars ($750,000.00).
"MONTHLY PAYMENT DATE" shall mean the first day of each month.
"MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which Borrower is making or accruing an
obligation to make contributions, or has within any of the preceding three
plan years made or accrued an obligation to make contributions.
"NET PROFIT" or "NET LOSS" for any period shall mean net income or
loss from operations for such period, determined in accordance with GAAP
excluding, however, (i) extraordinary gains (including but not limited to the
conversion of debt to equity, the forgiveness of debt and the like), and (ii)
gains (whether or not extraordinary) from sales or other dispositions of
assets other than the sale of Inventory in the ordinary course of Borrower's
business.
"NOTE" shall mean Borrower's revolving or promissory note of even
date payable to the order of Lender to evidence the Advances, including any
replacements, substitutions or amendments thereof.
"OBLIGATIONS" shall have the meaning provided in Paragraph 3.
"ORIGINATION FEE" shall have the meaning provided in Paragraph 17.
"PARTICIPANT" shall mean each Person who purchases a participation
interest from Lender in the obligations.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor board, authority, agency, officer or official of the United States
administering the principal functions assigned on the date hereof to the
Pension Benefit Guaranty Corporation under ERISA.
"PERSON" shall mean any natural person, corporation, firm,
partnership, association, government, governmental agency or any other
entity, whether acting in an individual, fiduciary or other capacity.
"PLAN" shall mean each employee benefit plan or other class of
benefits covered by Title IV of ERISA, in either case whether now in
existence or hereafter instituted, of Borrower or any of its Subsidiaries.
"PRIME RATE" shall mean the publicly announced base rate (or other
publicly announced reference rate) charged by Norwest Bank Minnesota,
National Association; Borrower acknowledges that the Prime Rate may not be
the lowest rate made available by Lender to its customers and that Lender may
lend to its customers at rates that are at, above or below the Prime Rate.
"RECEIVABLES" shall have the meaning provided in Paragraph 3.
"REPORTABLE EVENT" shall have the meaning given to that term in
Title IV of ERISA.
"SECURITY INTEREST" shall mean any lien, pledge, mortgage,
encumbrance, charge or security interest of any kind whatsoever (including,
without limitation, the lien or retained security title of a conditional
vendor) whether arising under a security instrument or as a matter of law,
judicial process or otherwise or the agreement by Borrower to grant any lien,
security interest or pledge, mortgage or encumber any asset.
"SUBORDINATED DEBT" shall mean indebtedness of Borrower for
borrowed money which is subordinated to the Obligations on terms satisfactory
to Lender in its sole discretion.
"SUBSIDIARY" of any Person shall mean any other corporation of
which more than 50% of the outstanding shares of capital stock having
ordinary voting power for the election of directors is owned directly or
indirectly by such Person, by such Person and one or more Subsidiaries, or by
one or more other Subsidiaries.
"SURPLUS CASH FLOW" for any period shall mean Net Profit or Net
Loss for such period PLUS depreciation, amortization and other non-cash
expenses for such period MINUS scheduled principal payments of indebtedness
for borrowed money payable during such period (excluding principal payments
with respect to the Advances, but including any scheduled reductions in the
Borrowing Base or the Maximum Principal Amount) minus Acceptable
Distributions for such period.
"TANGIBLE NET WORTH" of Borrower shall mean the total of all assets
appearing on a balance sheet of Borrower, prepared in accordance with GAAP,
after deducting all proper reserves (including reserves for depreciation,
obsolescence and amortization) minus all Liabilities of Borrower; EXCLUDING,
HOWEVER, from the determination of total assets: (i) goodwill, memberships,
trademarks, trade names, service marks, copyrights, patents, licenses,
organization expenses, research and development expenses and other similar
intangibles; (ii) all deferred charges or unamortized debt discount; (iii)
treasury stock; (iv) securities that are not readily marketable; (v) any
write-up in the book value of any assets resulting from a revaluation thereof
subsequent to December 31, 1996; (vi) prepaid expenses; (vii) notes or
receivables due from employees, officers, directors or shareholders; (viii)
notes or receivables due from any Affiliate; (ix) all other intangible assets
in existence on the date of this Agreement and determined by Lender, in its
absolute discretion, to be intangible assets; and
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(x) any asset acquired subsequent to the date of this Agreement which Lender
determines, in its reasonable discretion, to be an intangible asset.
"TERMINATION DATE" shall mean the earliest of (i) the Maturity Date
or (ii) the date upon which Lender's obligation to make Advances is
terminated pursuant to Paragraph 20, or (iii) the date upon which the
obligations are declared to be due and payable (or automatically become due
and payable) upon the occurrence of an Event of Default as provided in
Paragraph 20 or otherwise, or (iv) the date upon which this Agreement
terminates as provided in Paragraph 23, or (v) upon demand by Lender in its
sole and absolute discretion.
"WITHDRAWAL LIABILITY" shall have the meaning given to that term in
Title IV of ERISA.
"WORKING CAPITAL" at any date shall mean Current Assets at such
date minus Current Liabilities at such date.
3. SECURITY. As security for all present and future sums loaned or
advanced by Lender to Borrower and for all other obligations now or hereafter
chargeable to Borrower's loan account hereunder, and all other obligations
and liabilities of any and every kind of Borrower to Lender, due or to become
due, direct or indirect, absolute or contingent, joint or several, howsoever
created, arising or evidenced, now existing or hereafter at any time created,
arising or incurred (herein called "Obligations'), Borrower hereby grants to
Lender a security interest in and to the following property:
(a) All Receivables of Borrower now owned or hereafter acquired
or arising, together with all customer lists, original books and
records, ledger and account cards, computer tapes, discs, printouts
and records, whether now in existence or hereafter created.
"Receivables" means all rights of Borrower to the payment of money,
whether or not earned and howsoever evidenced or arising, including
(without limitation) all present and future "Accounts", accounts
receivable, "Chattel Paper", "Instruments", and rights to payment
which are "General Intangibles" (as those terms are used in the
Commercial Code), all security therefor and all of Borrower's rights
as an unpaid seller of goods (including rescission, replevin,
reclamation and stopping in transit) and all of Borrower's rights to
any goods represented by any of the foregoing including returned or
repossessed goods;
(b) All Inventory of Borrower, whether now owned or hereafter
acquired and wherever located. "Inventory" includes all Goods (as
defined in Article 9 of the Commercial Code) intended for sale or
lease or to be furnished under contracts of service, all raw materials
and work in process therefor, all finished goods thereof, all
materials and supplies of every nature used or usable or consumed or
consumable in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of such Goods, and all
accessories thereto and all documents of title therefor evidencing the
same;
(c) All Equipment of Borrower, whether now owned or hereafter
acquired and wherever located. "Equipment" includes all of Borrower's
Goods other than Inventory, all replacements and substitutions
therefor and all accessions thereto, and specifically includes,
without limitation, all present and future machinery, equipment,
vehicles, manufacturing equipment, shop equipment, office and record
keeping equipment, furniture, fixtures, parts, tools and all other
Goods (except Inventory) used or acquired for use by Borrower for any
business or enterprise;
(d) All General Intangibles and Deposit Accounts (as defined in
Article 9 of the Commercial Code) of Borrower, whether now owned or
hereafter acquired, including (without limitation) all present and
future domestic and foreign patents, patent applications, trademarks,
trademark applications, copyrights, trade names, trade secrets, patent
and trademark licenses (whether Borrower is licensor or licensee),
shop drawings, engineering drawings, blueprints, specifications, parts
lists, manuals, operating instructions, customer and supplier lists,
licenses, permits, franchises, the right to use Borrower's corporate
name and the goodwill of Borrower's business; and
(e) All Investment Property (as defined in the Commercial Code)
including but not limited to stock and other securities evidencing
ownership of any other organization, company or entity as well as all
amendments, extensions, renewals and replacements of the above,
together with all certificates, other instruments, options, rights,
interest, and other distributions issued as an addition to, in
substitution or in exchange for, or on account of, the same, all
whether now existing or hereafter arising and whether now owned or
hereafter acquired; and
(f) All products and proceeds of any and all of the foregoing
and all products and proceeds of any other Collateral (as hereinafter
defined) including the proceeds of any insurance covering any of the
Collateral, as well as all Deposit Accounts (as defined in the
Commercial Code), money, cash, and the like.
All such Receivables, Inventory, Equipment, General Intangibles, Investment
Property, Deposit Accounts, products and proceeds, together with all other
assets and properties of Borrower in or on which Lender is now or hereafter
granted a security interest, mortgage, lien or encumbrance pursuant to this
Agreement or otherwise, are hereinafter sometimes referred to as "Collateral".
4. ADVANCES.
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(a) At the request of Borrower, Lender agrees, subject to the
terms and conditions hereinafter set forth, to make loans (each such
loan being herein sometimes called individually an "Advance" and
collectively the "Advances") to Borrower from time to time on any
Business Day during the period from the date hereof and ending on the
Termination Date; PROVIDED, HOWEVER, that Lender shall not be required
to make any Advance if, after giving effect to such Advance, the
aggregate unpaid principal amount of Advances outstanding would exceed
the lesser of the Borrowing Base or the Maximum Principal Amount. The
amount of each such Advance shall be charged to Borrower's loan
account. Borrower acknowledges that Lender may, but shall not be
obligated to, make an Advance at any time in an amount equal to any
overdraft in any account of Borrower maintained with Lender or any
Participant even if the aggregate unpaid principal amount of Advances
exceeds or would exceed the Borrowing Base or the Maximum Principal
Amount.
(b) In order to obtain an Advance, Borrower shall give written
or telephonic notice to Lender, by not later than 11:00 a.m.
(Minneapolis time) on the day before the requested Advance is to be
made. Lender, shall make such Advance by transferring the amount
thereof in immediately available funds for credit to Borrower's
account (other than a payroll account), as specified in such notice.
At the request of Lender, Borrower shall confirm in writing any
telephonic notice.
(c) The obligation of Lender to make Advances shall terminate on
the Termination Date.
(d) If at any time the sum of the aggregate outstanding
principal balance of the Advances exceeds the lesser of (i) the
Maximum Principal Amount or (ii) the Borrowing Base, then Borrower
agrees to make, on demand, a principal repayment on the Advances in an
amount equal to such excess together with accrued interest on the
amount repaid to the date of repayment. Borrower agrees that, on the
Termination Date (or earlier upon demand), it will repay the entire
outstanding principal balance of the Advances together with accrued
interest thereon and all accrued fees without presentment or demand
for payment, notice of dishonor, protest or notice of protest, all of
which are hereby waived.
(e) The Advances shall be evidenced by the Note made by Borrower
payable to the order of Lender in a principal amount equal to the
Maximum Principal Amount; SUBJECT, HOWEVER, to the provisions of the
Note to the effect that the principal amount payable thereunder at any
time shall not exceed the then unpaid principal amount of all Advances
made by Lender. Borrower hereby irrevocably authorizes Lender to make
or cause to be made, at or about the time of each Advance made by
Lender, an appropriate notation on the records of Lender, reflecting
the principal amount of such Advance, and Lender shall make or cause
to be made, on or about the time of receipt of payment of any
principal of the Note, an appropriate notation on its records
reflecting such payment. The aggregate amount of all Advances set
forth on the records of Lender shall be rebuttable presumptive
evidence of the principal amount owing and unpaid on the Note.
4A. DEMAND FACILITY. All interest, principal, Advances, and any other
amounts owing hereunder are due ON DEMAND and Lender specifically reserves
the absolute right to demand payment of all such amounts at any time, with or
without advance notice, for any reason or no reason whatsoever. Lender's
right to make such demand is not exclusive and Lender may coincidentally or
separately from such demand make further demand for payment pursuant to
Paragraph 20 or otherwise hereunder and, further, amounts may become due
hereunder (pursuant to Paragraph 20 or otherwise) without a demand by Lender,
as provided in this agreement.
5. INTEREST. Borrower agrees to pay interest on the outstanding
principal amount of the Note, at the close of each day at a fluctuating rate
per annum (computed on the basis of actual number of days elapsed and a year
of 360 days) which is at all times equal to Five and Thirty Five One
Hundredths Percent (5.35%) in excess of the Prime Rate; each change in such
fluctuating rate caused by a change in the Prime Rate to occur simultaneously
with the change in the Prime Rate (the "Initial Rate"); provided, however,
that (i) in no event shall the Initial Rate, the Adjusted Rate or the
Re-adjusted rate in effect hereunder at any time be less than 13% per annum;
and (ii) interest payable hereunder with respect to each calendar month shall
not be less than $3,800.00 regardless of the amount of loans, Advances or
other credit extensions that actually may have been outstanding during the
month. Interest accrued through the last day of each month will be due and
payable to Lender on the next Monthly Payment Date, commencing _____.
Interest shall also be payable on the Maturity Date or on any earlier
Termination Date. Interest accrued after the Maturity Date or earlier
Termination Date shall be payable on Demand. Interest may be charged to
Borrower's loan account as an Advance at Lender's option, whether or not
Borrower then has the right to obtain an Advance pursuant to the terms of
this Agreement.
In the event Borrower earns Net Profit for the 12 months ending December 31,
1999 of at least One Hundred Fifty thousand Dollars ($150,000) and evidences
such profit by delivering to Lender a financial statement prepared according
to GAAP that reflects the required Net Profit, and provided no Event of
Default exists or has occurred, then upon Borrower's written request, the
Initial Rate shall be reduced to Four and Eighty Five One Hundredths (4.85%)
in excess of the Prime Rate (the "Adjusted Rate") commencing with the next
scheduled Monthly Payment Date following Lender's receipt of Borrower's
written request.
In the event that Borrower obtains the Adjusted Rate reduction described
above, then in the further event that Borrower earns "Net Profit" for the 12
months ending December 31, 2000 of at least Two Hundred Fifty thousand
Dollars ($250,000) and
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evidences such profit by delivering to Lender a financial statement prepared
according to GAAP that reflects the required Net Profit, and provided no
Event of Default exists or has occurred, then upon Borrower's written
request, the Adjusted Rate shall be reduced to Four and Thirty Five One
Hundredths (4.35%) in excess of the Prime Rate (the "Re-adjusted Rate")
commencing with the next scheduled Monthly Payment Date following Lender's
receipt of Borrower's written request. (The Initial Rate, the Adjusted Rate
and the Re-adjusted Rate are sometimes hereinafter collectively referred to
as the "Interest Rate").
Notwithstanding the foregoing, after an Event of Default, the Note shall bear
interest until paid at 5% per annum in excess of the rate otherwise then in
effect, which rate shall continue to vary based on further changes in the
Prime Rate; provided, however, that after an Event of Default, (i) in no
event shall the interest rate in effect under the Note at any time be less
than 15% per annum; and (ii) interest payable under the Note with respect to
each calendar month shall not be less than $5,200 regardless of the amount of
loans, Advances or other credit extensions that actually may have been
outstanding during the month.. The undersigned shall also pay a late fee
equal to 10% of any payment under the Note that is more than 10 days past due.
6. SET-OFF; ETC. Upon the occurrence of a Default or an Event of
Default, Lender is hereby authorized at any time and from time to time,
without notice to Borrower (any such notice being expressly waived by
Borrower), to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness
at any time owing by Lender or any Participant to or for the credit or the
account of Borrower, including specifically any amounts held in any account
maintained at Lender or any Participant, against any and all amounts which
may be owed to Lender or any Participant by Borrower whether in connection
with this Agreement or otherwise and irrespective of whether Borrower shall
have made any requests under this Agreement. Lender may also withdraw or
obtain funds in any account at any financial institution, company or
otherwise without prior notice to Borrower. Lender is expressly authorized to
do so by a withdrawal under the Automated Clearing House or ACH process.
7. REPORTS AND COLLECTIONS.
(a) Borrower agrees to furnish to Lender, at least weekly,
schedules describing Receivables created or acquired by Borrower
(including confirmatory written assignments thereof), including
copies of all invoices to account debtors and other obligors (all
herein referred to as "Customers") and original shipping or delivery
receipts for all goods sold, but if Borrower fails to do so the rights
of Lender as a secured party will not be impaired. At any time after
the occurrence of an Event of Default, Lender may notify Customers at
any time that Receivables have been assigned to Lender and collect
them directly in Lender's own name but unless and until Lender does so
or gives Borrower other instructions, Borrower shall make collection
for Lender at Borrower's sole cost and expense. Borrower shall advise
Lender promptly of any goods which are returned by Customers or
otherwise recovered involving an amount in excess of $5,000.00 and,
unless instructed to deliver such goods to Lender, Borrower shall
resell them for Lender and assign or deliver to Lender the resulting
Receivables or other proceeds. Borrower shall also advise Lender
promptly of all disputes and claims by Customers involving an amount
in excess of $5,000.00 and settle or adjust them at no expense to
Lender. At any time after the occurrence and during the continuance
of an Event of Default, Lender may at all times settle or adjust such
disputes and claims directly with the Customers for amounts and upon
terms which Lender considers advisable. If Lender so directs at any
time after an Event of Default, no discount, credit or allowance shall
be granted by Borrower to any Customer and no return of goods shall be
accepted by Borrower without Lender's written consent.
(b) Borrower agrees to furnish to Lender Inventory
certifications in accordance with Paragraph 17 and a physical listing
of all Inventory, wherever located, at least once every twelve months
or, in either case, as more frequently requested by Lender.
(c) All full and partial payments and any other cash collections
from whatever source whatsoever, whether or not arising from the sale,
collection or other disposition of Collateral (whether or not in the
ordinary course of business), including but not limited to the
collection of accounts receivable in the ordinary course of business
and the ordinary sales of inventory or services for cash, shall
immediately be delivered by Borrower to Lender IN THEIR ORIGINAL FORM
(except for endorsement where necessary) and UNCASHED (in the case of
checks or other documents). Upon Lender's request, Borrower shall
direct all customers and other remitters of payments to mail payments
to Lender's post office box or other lockbox. Until such payments are
so delivered to Lender (or Lender's lockbox), such payments shall be
held in trust by Borrower for and as Lender's property and shall not
be commingled with any funds of Borrower. The net amount received by
Lender as proceeds arising from the sale or other disposition of
Collateral will be credited by Lender to Borrower's loan account
(subject to final collection thereof) promptly upon receipt.
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8. WARRANTY AS TO COLLATERAL. Borrower warrants that:
(a) all Receivables listed in or reported on Borrower's
schedules will, when Borrower delivers the schedules to Lender, be
bona fide existing obligations created by the sale and actual delivery
of goods or the rendition of services to Customers in the ordinary
course of business, not subject to return, evaluation or other
condition, and which Borrower then owns free of any Security Interest
except for the Security Interest in favor of Lender created by this
Agreement or Security Interests permitted under Paragraph 18, and
which are then unconditionally owing to Borrower without defense,
offset or counterclaim; and that all shipping or delivery receipts,
invoice copies and other documents furnished to Lender in connection
therewith will be genuine; and
(b) all Inventory and Equipment is and shall be owned by
Borrower, free of any Security Interest except for the Security
Interest of Lender created by this Agreement or Security Interests
permitted by Paragraph 18.
Lender's rights to and security interest in the Collateral will not be
impaired by the ineligibility of any such Collateral for Advances and will
continue to be effective until all obligations chargeable to Borrower's loan
account have been fully satisfied.
9. POWER OF ATTORNEY. Borrower authorizes and appoints Lender, or any
of Lender's officers, employees or agents whom Lender may from time to time
designate, as Borrower's attorney with power to: (a) to endorse Borrower's
name on any checks, notes, acceptances, drafts or other forms of payment or
security that may come into Lender's possession; (b) to sign Borrower's name
on any invoice or bill of lading relating to any Receivables, on drafts
against Customers, on schedules and confirmatory assignments of Receivables,
on notices of assignment, financing statements and amendments under the
Commercial Code and other public records, on verifications of accounts and on
notices to Customers; (c) to notify the post office authorities to change the
address for delivery of Borrower's mail to an address designated by Lender;
(d) to receive, open and dispose of all mail addressed to Borrower; (e) to
send requests for verification of accounts to Customers; (f) to obtain
information from any bank, creditor, customer or other Person regarding
Borrower's relationship, account, history etc.; (g) to sign lien waivers and
other releases or satisfactions of claims or rights by Borrower in exchange
for payment or other consideration which Lender in its sole discretion
believes is appropriate under the circumstances; (h) to directly verify
and/or confirm the existence, authenticity, accuracy or terms of any
Receivable (both in Lender's own name or in Borrower's name) without
previously notifying Borrower of its intention to do so and Borrower grants
its consent to Lender for Lender's employees and agents to represent
themselves as employees or agents of Borrower for these purposes; and (i) to
do all things necessary to carry out this Agreement; provided however, that
the powers specified in clauses (c) and (d) above may be exercised only after
the occurrence of an Event of Default. Borrower ratifies and approves all
acts of the attorney. Neither Lender nor the attorney will be liable for any
acts of commission or omission nor for any error in judgment or mistake of
fact or law. This power, being coupled with an interest, is irrevocable so
long as any Receivable in which Lender has a security interest or any
Obligation remains unpaid. Borrower waives presentment and protest of all
instruments and notice thereof, notice of default and dishonor and all other
notices to which Borrower may otherwise be entitled.
10. LOCATION OF COLLATERAL. Borrower warrants that its chief executive
office is at the address stated in the opening paragraph of this Agreement
and that its books and records concerning Receivables are located there.
Borrower's Inventory, Equipment and other goods are at the location or
locations as designated on SCHEDULE A annexed hereto. Borrower shall
immediately notify Lender if any additional locations for Collateral are
subsequently established. Borrower shall not change the location of its chief
executive office, the place where it keeps its books and records, or the
location of any Collateral (except for sales of Inventory in the ordinary
course of business) until Borrower has obtained the written consent of Lender
and all necessary filings have been made and other actions taken to continue
the perfection of Lender's Security Interest in such new location. Lender's
Security Interest attaches to all the Collateral wherever located, and the
failure of Borrower to inform Lender of the location of any item or items of
Collateral shall not impair Lender's Security Interest therein.
11. OWNERSHIP AND PROTECTION OF COLLATERAL. Borrower warrants,
represents and covenants to Lender that the Collateral is now and, so long as
Borrower is obligated to Lender, will be owned by Borrower free and clear of
all Security Interests except for the Security Interest in favor of Lender
created by this Agreement and except the Security Interests, if any,
permitted by Paragraph 18, and that said Collateral, including the
Receivables and proceeds resulting from the collection, sale or other
disposition thereof, will remain free and clear of any and all Security
Interests except for the Security Interest in favor of Lender created by this
Agreement and except the Security Interests, if any, permitted under
Paragraph 18. Borrower will not sell, lease or otherwise dispose of the
Collateral, or attempt to do so (except for sales of Inventory in the
ordinary course of business and sales of obsolete and worn equipment not in
excess of $25,000 in the aggregate in any calendar year) without the prior
written consent of Lender and unless the proceeds of any such sale are paid
to Lender for application on Borrower's Obligations. After the occurrence of
a Default or an Event of Default, Lender will at all times have the right to
take physical possession of any Inventory and Equipment constituting
Collateral and to maintain such possession on Borrower's premises or to
remove the same or any part thereof to such other places as Lender may wish.
If Lender exercises Lender's right to take possession of such Collateral,
Borrower shall on Lender's demand, assemble the same and make it available to
Lender at a place reasonably convenient to Lender. Borrower shall at all
times keep the Equipment constituting Collateral in good condition and
repair. All expenses of protecting, storing, warehousing, insuring, handling
and shipping of the Collateral, all costs of keeping the Collateral free of
any Security Interests prohibited by this Agreement and of removing the same
if they should arise, and any and all excise, property, sales and use taxes
imposed by any state,
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federal or local authority on any of the Collateral or in respect of the sale
thereof, shall be borne and paid by Borrower and if Borrower fails to
promptly pay any thereof when due, Lender may, at its option, but shall not
be required to, pay the same and charge Borrower's loan account therefor.
Borrower agrees to renew all insurance required by this Paragraph 11 or
Paragraph 13 at least 30 days prior to its expiration. Borrower agrees that,
with respect to any Inventory maintained in a public warehouse, (i) Borrower
will ensure that any warehouse receipts issued are not in a negotiable form,
(ii) Borrower will, upon request from Lender, deliver all warehouse receipts
to Lender, and (iii) Borrower will cause the public warehouseman to execute
an agreement similar to those delivered pursuant to Paragraph 21 and in form
and substance satisfactory to Lender.
12. PERFECTION OF SECURITY INTEREST. Borrower agrees to execute such
financing statements together with any and all other instruments or documents
and take such other action, including delivery, as may be required to create,
evidence, perfect and maintain Lender's Security Interest in the Collateral
and Borrower shall not in any manner do any act or omit to do any act which
would in any manner impair or invalidate Lender's Security Interest in the
Collateral or the perfection thereof.
13. INSURANCE. Borrower shall maintain insurance coverage on any
Collateral other than Receivables with such companies, against such hazards,
and in such amounts as may from time to time be acceptable to Lender and
shall deliver such policies or copies thereof to Lender with satisfactory
lender's loss payable endorsements naming Lender. Each policy of insurance
shall contain a clause requiring the insurer to give not less than 30 days
prior written notice to Lender in the event of any anticipated cancellation
of the policy for any reason and a clause that the interest of Lender shall
not be impaired or invalidated by any act or neglect of Borrower nor by the
occupation of the premises wherein such Collateral is located for purposes
more hazardous than are permitted by said policy. Borrower will maintain,
with financially sound and reputable insurers, insurance with respect to its
properties and business against such casualties and contingencies of such
types (which may include, without limitation, public and product liability,
larceny, embezzlement, or other criminal misappropriation insurance) and in
such amounts as may from time to time be required by Lender.
14. BORROWER'S ACCOUNT. Lender may charge to Borrower's loan account
at any time the amounts of all Obligations (and interest, if any, thereon)
owing by Borrower to Lender, including (without limitation) loans, Advances,
debts, liabilities, obligations acquired by purchase, assignment or
participation and all other obligations, whenever arising, whether absolute
or contingent and whether due or to become due; also the amount of all costs
and expenses and all attorneys' fees and legal expenses incurred in
connection with efforts made to enforce payment of such obligations, or to
obtain payment of any Receivables, or the foreclosure of any Collateral or in
the prosecution or defense of any actions or proceedings relating in any way
to this Agreement (including but not limited to bankruptcy or insolvency
proceedings) whether or not suit is commenced, including reasonable
attorneys' fees and legal expenses incurred in connection with any appeal of
a lower court's order or judgment; and also the amounts of all unpaid taxes
and the like, owing by Borrower to any governmental authority or required to
be deposited by Borrower, which Lender pays or deposits for Borrower's
account. All of Borrower's borrowings hereunder and (unless otherwise
specified) all other obligations which are chargeable to Borrower's loan
account shall be payable ON DEMAND; recourse to security will not be required
at any time. All sums at any time standing to Borrower's credit on Lender's
books and all of Borrower's property at any time in Lender's possession or
upon or in which Lender has a Security Interest, may be held by Lender as
security for all obligations which are chargeable to Borrower's loan account.
Subject to the foregoing, Lender, at Borrower's request, will remit to
Borrower any net balance standing to Borrower's credit on Lender's books.
Lender will account to Borrower monthly and each monthly accounting will be
fully binding on Borrower, unless, within thirty days thereafter, Borrower
gives Lender specific written notice of exceptions. All debit baances in
Borrower's loan account will bear interest as provided in Paragraph 5 of this
Agreement. If Lender so requests at any time, Borrower will immediately
execute and deliver to Lender a promissory note in negotiable form payable on
demand to Lender's order in a principal amount equal to the amount of the
debit balance in Borrower's loan account, with interest as provided in
Paragraph 5 of this Agreement. In any event, Borrower covenants to pay all
Advances, debts, accounts and interest when due.
15. PARTICIPATIONS. If any Person shall acquire a participation in
Advances made to Borrower hereunder, Borrower hereby grants to Lender as well
as any such Person holding a participation, and Lender and such Person shall
have and are hereby given a continuing Security Interest in any money,
securities and other property of Borrower in the custody or possession of
such Participant, including the right of set-off as fully as if such
Participant had lent directly to Borrower the amount of such participation.
Borrower hereby grants to Lender its continuing authority and consent to
release any and all financial and other information related to Borrower's
financial condition, performance, its business, operations or any other
matter whatsoever to any of Borrower's creditors (both secured and
unsecured), to any Participant, or to any other Person for their
consideration of a possible participation in Advances by that Person.
16. GENERAL REPRESENTATIONS AND WARRANTIES. To induce Lender to make
Advances hereunder, Borrower makes the following representations and
warranties, all of which shall survive the initial Advance:
(a) Borrower is a Delaware corporation duly organized,
existing, and in good standing under the laws of the State of
Colorado, has corporate power to own its property and to carry on its
business as now conducted, and is duly qualified to do business in all
states in which the nature of its business requires such
qualification. During the past five years, Borrower has done business
solely under the names listed on SCHEDULE B attached hereto. Borrower
does not own any capital stock of any corporation, except as set forth
on SCHEDULE C attached hereto.
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(b) The execution and delivery of this Agreement and the other
Loan Documents and the performance by Borrower of its obligations
hereunder and thereunder do not and will not conflict with any
provision of law, or of the charter or bylaws of Borrower, or of any
agreement binding upon Borrower.
(c) The execution and delivery of this Agreement and the other
Loan Documents have been duly authorized by all necessary corporate
action by directors and shareholders of Borrower; and this Agreement
and the other Loan Documents have in fact been duly executed and
delivered by Borrower and constitute its lawful and binding
obligations, legally enforceable against it in accordance with their
respective terms.
(d) Except as disclosed to Lender on SCHEDULE D attached hereto,
there is no action, suit or proceeding at law or equity, or before or
by any federal, state, local or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, pending or, to the knowledge of Borrower, threatened against
Borrower or any Guarantor or the property of Borrower or any Guarantor
which, if determined adversely, would be a Material Adverse
Occurrence, and neither Borrower nor any Guarantor is in default with
respect to any final judgment, writ, injunction, decree, rule or
regulation of any court or federal, state, local or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, where the effect of such default would be a
Material Adverse Occurrence.
(e) The authorization, execution and delivery of this Agreement,
and the payment of the loans and interest hereon, is not, and will not
be, subject to the jurisdiction, approval or consent of any federal,
state or local regulatory body or administrative agency.
(f) All of the assets of Borrower are free and clear of Security
Interests except those listed on SCHEDULE E attached hereto.
(g) Borrower has filed all federal, state and local tax returns
which, to the knowledge of Borrower, are required to be filed, and
Borrower has paid all taxes shown on such returns and all assessments
which are due. Borrower has made all required withholding deposits.
Borrower does not have knowledge of any objections to or claims for
additional taxes by federal, state or local taxing authorities for
subsequent years which would be a Material Adverse Occurrence.
(h) Borrower has furnished to Lender the financial statements
listed on SCHEDULE G attached hereto. These statements were prepared
in accordance with GAAP and present fairly the financial condition of
Borrower and its Consolidated Subsidiaries. There has been no
material adverse change in the condition of Borrower and its
Consolidated Subsidiaries, financial or otherwise, since the date of
the most recent of such financial statements.
(i) The value of the assets and properties of Borrower at a fair
valuation and at their then present fair salable value is and, after
giving effect to any pending Advance and the application of the amount
advanced, will be materially greater than its total liabilities,
including Contingent Obligations, and Borrower has (and has no reason
to believe that it will not have) capital sufficient to pay its
liabilities, including Contingent Obligations, as they become due.
(j) Borrower is in compliance with all requirements of law
relating to pollution control and environmental regulations in the
respective jurisdictions where Borrower is presently doing business or
conducting operations.
(k) All amounts obtained pursuant to Advances will be used for
Borrower's working capital purposes.
(l) Except for the trademarks, patents, copyrights and franchise
rights listed on SCHEDULE F attached hereto, Borrower is not the owner
of any patent, trademark, copyright or franchise rights.
(m) (i) Each Plan is in compliance in all material respects with
all applicable provisions of ERISA and the Code; (ii) the aggregate
present value of all accrued vested benefits under all Plans
(calculated on the basis of the actuarial assumptions specified in the
most recent actuarial valuation for such Plans) did not exceed as of
the date of the most recent actuarial valuation for such Plans the
fair market value of the assets of such Plans allocable to such
benefits; (iii) Borrower is not aware of any information since the
date of such valuations which would materially affect the information
contained therein; (iv) no Plan which is subject to Part 3 of Subtitle
B of Title I of ERISA or Section 412 of the Code has incurred an
accumulated funding deficiency, as that term is defined in Section 302
of ERISA or Section 412 of the Code (whether or not waived); (v) no
liability to the PBGC (other than required premiums which have become
due and payable, all of which have been paid) has been incurred with
respect to any Plan, and there has not been any Reportable Event which
presents a material risk of termination of any Plan by the PBGC; and
(vi) Borrower has not engaged in a transaction which would subject it
to tax, penalty or liability for prohibited transactions imposed by
ERISA or the Code. Borrower does not contribute to any Multiemployer
Plan.
(n) No part of any Advance shall be used at any time by Borrower
to purchase or carry margin stock (within the meaning of Regulation U
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promulgated by the Board of Governors of the Federal Reserve System)
or to extend credit to others for the purpose of purchasing or
carrying any margin stock. Borrower is not engaged principally, or as
one of its important activities, in the business of extending credit
for the purposes of purchasing or carrying any such margin stock. No
part of the proceeds of any Advance will be used by Borrower for any
purpose which violates, or which is inconsistent with, any regulations
promulgated by the Board of Governors of the Federal Reserve System.
(o) Borrower is not an "investment company", or an "affiliated
person" of, or a "promoter" or "principal underwriter" for, an
"investment company", as such terms are defined in the Investment
Company Act of 1940, as amended. The making of the Advances, the
application of the proceeds and repayment thereof by Borrower and the
performance of the transactions contemplated by this Agreement will
not violate any provision of said Act, or any rule, regulation or
order issued by the Securities and Exchange Commission thereunder.
(p) The number of shares and classes of the capital stock of
Borrower and the ownership thereof are accurately set forth on
SCHEDULE H attached hereto. Borrower has not: (i) issued any
unregistered securities in violation of the registration requirements
of Section 5 of the Securities Act of 1933, as amended, or any other
law; or (ii) violated any rule, regulation or requirement under the
Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, in either case where the effect of such violation
would be a Material Adverse Occurrence. No proceeds of the Advances
will be used to acquire any security in any transaction which is
subject to Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended.
(q) Except for Contingent Obligations shown on SCHEDULE I
attached hereto, Borrower does not have any Contingent Obligations.
(r) All factual information heretofore or herewith furnished by
or on behalf of Borrower to Lender for purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
other such factual information hereafter furnished by or on behalf of
Borrower to Lender will be, true and accurate in every material
respect on the date as of which such information is dated or certified
and no such information contains any material misstatement of fact or
omits to state a material fact or any fact necessary to make the
statements contained therein not misleading.
(s) Each representation and warranty shall be deemed to be
restated and reaffirmed to Lender on and as of the date of each
Advance under this Agreement except that any reference to the
financial statements referred to in Paragraph 16 shall be deemed to
refer to the financial statements then most recently delivered to
Lender pursuant to Paragraph 17.
17. AFFIRMATIVE COVENANTS. Borrower agrees that it will:
(a) Furnish to Lender in form satisfactory to Lender the
following, all of which will conform to GAAP:
(i) Within 90 days after the end of each fiscal year of
Borrower, a complete audited financial report prepared and
certified without qualification or explanatory language by
Independent Public Accountants on a Consolidated and
consolidating basis for Borrower and any Consolidated
Subsidiaries of Borrower; together with a copy of the management
letter or memorandum, if any, delivered by such independent
certified public accountant to Borrower and Borrower's response
thereto. If Borrower shall fail to supply the report within such
time limit, Lender shall have the right (but not the duty) to
employ certified public accountants acceptable to Lender to
prepare such report at Borrower's expense;
(ii) Within 30 days after the end of each month, a balance
sheet with operating figures as to that month, certified as
correct by the chief financial officer or treasurer of Borrower
but subject to adjustments as to inventories or other items to
which an officer of Borrower directs attention in writing,
together with a reconciliation of any variances between the
information provided on such balance sheet and the information
for that day previously delivered to Lender pursuant to Paragraph
17;
(iii) With the financial statements described in Paragraph
17 and (ii), a compliance certificate in the form attached as
EXHIBIT A certified as true and accurate by the chief financial
officer or treasurer of Borrower;
(iv) Within 10 days after the end of each month, an aging
of accounts receivable together with a reconciliation in a form
satisfactory to Lender and an aging of accounts payable in form
acceptable to Lender, both certified as true and accurate by an
officer of Borrower;
(v) From time to time, at Lender's request, an inventory
certification report for all Inventory at all locations and in
form
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acceptable to Lender and certified as true and accurate by an
officer of Borrower; and
(vi) From time to time, at Lender's request, any and all
other material, reports, information, tax returns and/or figures
reasonably required by Lender.
(b) Permit Lender and its representatives access to, and the
right to make copies of, the books, records, and properties of
Borrower at all reasonable times; and permit Lender and its
representatives to discuss Borrower's financial matters with officers
of Borrower and with its Independent Public Accountant (and, by this
provision, Borrower authorizes its Independent Public Accountant to
participate in such discussions).
(c) Pay when due all taxes, assessments, and other liabilities
against it or its properties except those which are being contested in
good faith and for which an adequate reserve has been established;
Borrower shall make all withholding payments when due; during any
period for which Borrower has made an effective S Corporation
election, Borrower shall promptly provide Lender with evidence of
payment by Borrower's shareholders of estimated income taxes.
(d) Promptly notify Lender in writing of any substantial change
in present management or present business, of its intention to enter
into a new business or industry, or of its intention to wind down,
liquidate or close substantially all of its business;
(e) Pay when due all amounts necessary to fund in accordance
with its terms any Plan;
(f) Comply in all material respects with all laws, acts, rules,
regulations and orders of any legislative, administrative or judicial
body or official applicable to Borrower's business operation or
Collateral or any part thereof; PROVIDED, HOWEVER, that Borrower may
contest any such law, act, rule, regulation or order in good faith by
appropriate proceedings so long as (i) Borrower first notifies Lender
of such contest, and (ii) such contest does not, in Lender's sole
discretion, adversely affect Lender's right or priority in the
Collateral or impair Borrower's ability to pay the Obligations when
due;
(g) Permit Lender and its representatives, at any time, to
examine and inspect any Collateral, and to examine, inspect and copy
the Borrower's records pertaining to the Collateral and the Borrower's
financial condition, business and property.
(h) LOAN ADMINISTRATION FEE. Pay Lender for the period
commencing on the date of this Agreement and continuing through the
date of full payment of all Obligations, a reasonable administration
fee (herein called the "Loan Administration Fee"), which shall be
equal to the sum of $2,000 per calendar quarter (or any partial
quarter), commencing as of the date hereof and pro-rated for the
balance of the current calendar quarter, PLUS all out-of-pocket
expenses incurred by Lender in conducting examinations. The Loan
Administration Fee shall be non-refundable, shall be deemed earned
when paid, and shall be payable to Lender as of the date hereof (for
the balance of the current calendar quarter), and thereafter on _ and
on the first day of each subsequent 3 month period/quarter. The
existence or payment of the Loan Administration Fee, Line Maintenance
Fee or any other fee or charge, shall in no way alter or diminish the
obligation to pay interest, Lender's costs of collection and
attorneys' fees, or any other fees or charges imposed under this
agreement or any other agreement between Lender and Borrower or any
Guarantor;
(i) LINE MAINTENANCE FEE. Pay Lender, for the period commencing
on the date of this Agreement and continuing through the Termination
Date, a non-refundable line maintenance fee (the "Line Maintenance
Fee") at the rate of 2.0% per annum of the Maximum Principal Amount
(less the $5,000 survey fee which has already been paid and which is
credited against the first year's Line Maintenance Fee). Such Line
Maintenance Fee shall be payable to Lender in advance on the Closing
Date and on the first day of each subsequent anniversary of this
agreement until all amounts owing hereunder are repaid in full. The
Line Maintenance Fee shall be non-refundable and shall be deemed
earned when paid.
(j) Promptly notify Lender in writing of (x) any litigation
which (i) involves an amount in dispute in excess of $25,000.00
(ii) relates to the matters which are the subject of this Agreement,
or (iii) if determined adversely to Borrower would be a Material
Adverse Occurrence; and (y) any adverse development in any litigation
described in clause (x).
(k) Promptly notify Lender of any Default or Event of Default.
(l) As of June 30, 1999, and at the end of each subsequent
calendar quarter until the quarter ending June 30, 2000, Borrower
shall achieve either a Net Profit before income tax or a Net Loss no
worse than $100,000 for that quarter;
(m) As of the quarter ending September 30, 2000, and at the end
of each subsequent calendar quarter, Borrower shall achieve Net Profit
before income tax of at least $1.00 on a calendar year-to-date basis.
With the exception of quarters ending March 31;
18. NEGATIVE COVENANTS. Borrower agrees that, without Lender's written
consent, it will not:
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(a) Expend or contract to expend an aggregate in excess of
$100,000 for fixed assets in any fiscal year, whether by way of
purchase, lease or otherwise, and whether payable currently or in the
future.
(b) Purchase or redeem any shares of Borrower's capital stock;
or declare or pay any dividends (other than dividends payable in
capital stock); or make any distribution to stockholders of any assets
of Borrower; (provided, however, that so long as no Default or Event
of Default exists or would result from such distributions, Borrower
may make Acceptable Distributions to be used by Borrower's
shareholders solely to make required income tax payments.
(c) Incur or permit to exist any indebtedness, secured or
unsecured, for money borrowed, except: (i) borrowings under this
Agreement; (ii) borrowings, if any, which are existing on the date of
this Agreement and which are disclosed on SCHEDULE J attached hereto;
or (iii) indebtedness, not exceeding $50,000.00 at any one time in the
aggregate outstanding, which was incurred to acquire fixed assets, but
only to the extent that such fixed asset acquisition is permitted by
Paragraph 18.
(d) Create or permit to exist any Security Interest on any
assets now owned or hereafter acquired except: (i) those created in
Lender's favor and held by Lender; (ii) liens of current taxes not
delinquent or taxes which are being contested in good faith for which
an adequate reserve has been established; (iii) purchase money
security interests securing indebtedness permitted by Paragraph 18;
provided, however, that such Security Interest extends only to the
fixed assets acquired with the proceeds of such indebtedness; and (iv)
Security Interests disclosed on SCHEDULE E attached hereto, securing
only debt outstanding on the date of this Agreement and disclosed on
SCHEDULE J.
(e) Effect any recapitalization; or be a party to any merger or
consolidation; or, except in the normal course of business, sell,
transfer, convey or lease all or any substantial part of its property;
or sell or assign (except to Lender), with or without recourse, any
Receivables or General Intangibles.
(f) Enter into a new business or purchase or otherwise acquire
any business enterprise or any substantial assets of any person or
entity; or make any loans to any person or entity; or purchase any
shares of stock of, or similar interest in, or make any capital
contribution to or investment in, any entity.
(g) Permit more than $150,000.00 to be owing at any one time to
Borrower by all of Borrower's employees, officers, directors, or
shareholders, or members of their families, as a result of any
borrowings, purchases, travel advances or other transactions or
events;
(h) Become a guarantor or surety or pledge its credit or its
assets on any undertaking of another, except for the Contingent
Obligations shown on SCHEDULE I attached hereto;
(i) In any fiscal year pay excessive or unreasonable salaries,
bonuses, fees, commissions, fringe benefits or other forms of
compensation (such salaries, bonuses, fees, commissions, fringe
benefits or other forms of compensation being "Compensation") to any
of its officers or directors or any Guarantor; or increase the
Compensation of any officers or Guarantor by more than ten percent
(10%) or pay any such increases in Compensation of officers or
Guarantors other than from profits earned in the year of such payment;
(j) Permit any default to occur under the terms of any Loan
Document, note, loan agreement, lease, mortgage, contract for deed,
security agreement, or other contractual obligation binding upon
Borrower;
(k) Make any substantial change in present ownership, management
or present business, enter into a new business or industry, or take
actions to wind down, liquidate or close substantially all of its
business;
(l) Enter into any agreement providing for the leasing by
Borrower of property which has been or is to be sold or transferred by
Borrower to the lessor thereof, or which is substantially similar in
purpose to the property so sold or transferred;
(m) Change its terms of trade with respect to the due date of
any Receivable;
(n) Change its fiscal year;
(o) (i) Permit or suffer any Plan maintained for employees of
Borrower or any commonly controlled entity to engage in any
transaction which results in a liability of Borrower under Section 409
or 502(i) of ERISA or Section 4975 of the Code; (ii) permit or suffer
any such Plan to incur any "accumulated funding deficiency" (within
the meaning of Section 302 of ERISA and Section 412 of the Code),
whether or not waived; (iii) terminate, or suffer to be terminated,
any Plan covered by Title IV of ERISA maintained by Borrower or any
commonly controlled entity or permit or suffer to exist a condition
under which PBGC may terminate any such Plan; or (iv) permit to exist
the occurrence of any Reportable Event (as defined in Title IV of
ERISA) which represents termination by the PBGC of any Plan;
(p) Enter into any transaction with any Affiliate of Borrower
upon terms and conditions less
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<PAGE>
favorable to Borrower than the terms and conditions which would
apply in a similar transaction with an unrelated third party;
(q) Enter into any agreement containing any provision which
would be violated or breached by Borrower under any Loan Document or
by the performance by Borrower of its obligations under any Loan
Document;
(r) Amend or modify the provisions of any Subordinated Debt; or
(s) Maintain any Inventory at a warehouse which issues
negotiable warehouse receipts with respect to such inventory.
19. AVAILABILITY OF COLLATERAL. Lender may from time to time, for its
convenience, segregate or apportion the Collateral for purposes of
determining the amounts and maximum amounts of Advances which may be made
hereunder. Nevertheless, Lender's security interest in all such Collateral,
and any other collateral rights, interests and properties which may now or
hereafter be available to Lender, shall secure and may be applied to the
payment of any and all loans, Advances and other Obligations secured by
Lender's security interest, in any order or manner of application and without
regard to the method by which Lender determines to make Advances hereunder.
20. DEFAULT AND REMEDIES. It shall be an Event of Default under this
Agreement if:
(a) Borrower fails to make any payment required under this
Agreement or any present or future supplements hereto or under any
other agreement between Borrower and Lender when due, or if payable
upon demand, upon demand; or
(b) Borrower fails to perform or observe any covenant, condition
or agreement contained in this Agreement or in any other Loan
Document; or
(c) Any warranty, representation or statement made or furnished
to Lender by or on behalf of Borrower or any Guarantor proves to have
been false, incorrect or misleading in a material respect when made;
or
(d) A proceeding seeking an order for relief under the
Bankruptcy Code is commenced by or against Borrower or any Guarantor,
provided however, that if such a proceeding is commenced against
Borrower or any Guarantor on an involuntary basis, then only if such
action is not dismissed within 60 days of first being filed; or
(e) Borrower or any Guarantor becomes insolvent or generally
fails to pay, or admit in writing its or his inability to pay, its or
his debts as they become due; or
(f) Borrower or any Guarantor applies for, consents to, or
acquiesces in, the appointment of a trustee, receiver or other
custodian for it or him or for any of its or his property, or makes a
general assignment for the benefit of creditors; or, in the absence of
such application, consent or acquiescence, a trustee, receiver or
other custodian is appointed for Borrower or for Guarantor or for a
substantial part of Borrower's or any Guarantor's property; or
(g) Any other reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution
or liquidation proceeding is commenced in respect of Borrower or any
Guarantor, provided however, that if such a proceeding is commenced
against any Guarantor on an involuntary basis, then only if such
action is not dismissed within 60 days of first being filed; or
(h) Borrower or any Guarantor takes any action to authorize, or
in furtherance of, any of the events described in the foregoing
clauses (d) through (g); or
(i) All or a substantial part of the assets of Borrower or any
Guarantor are sold, leased, or otherwise disposed of (whether in one
transaction or in a series of transactions) to one or more Persons;
(j) Any judgments, writs or warrants of attachment, executions
or similar process (not covered by insurance) in the aggregate amount
that exceeds $25,000.00 is issued or levied against Borrower, any
Guarantor or any of its or his assets and is not released, vacated or
fully bonded prior to any sale and in any event within five days after
its issue or levy; or
(k) The issuance or levy of any garnishment, summons, writ of
attachment, writ, warrant, attachment, tax lien or tax levy, execution
or other process against any property of Borrower or any Guarantor; or
(l) The attachment of any tax lien to any property of Borrower
or any Guarantor which is other than for taxes or assessments not yet
due and payable; or
(m) Any Guarantor dies or attempts to revoke his or its
guaranty; or
(n) A Material Adverse Occurrence takes place.
Upon the occurrence of any Event of Default described in Paragraphs 20(d), (e),
(f), (g) or (h), all Obligations shall be and become immediately due and payable
without any declaration, notice, presentment, protest, demand or dishonor of any
kind (all of which are hereby waived by Borrower) and Borrower's ability to
obtain any additional credit extensions or Advances under this Agreement shall
be immediately and automatically
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<PAGE>
terminated. Upon the occurrence of any other Event of Default, Lender,
without notice to Borrower, may terminate Borrower's ability to obtain any
additional credit extensions or Advances under this Agreement and may declare
all or any portion of the Obligations to be due and payable, without notice,
presentment, protest or demand or dishonor of any kind (all of which are
hereby waived), whereupon the full unpaid amount of the obligations which
shall be so declared due and payable shall be and become immediately due and
payable. Upon the occurrence of an Event of Default, Lender shall have all
the rights and remedies of a secured party under the Commercial Code and may
require Borrower to assemble the Collateral and make it available to Lender
at a place designated by Lender, and Lender shall have the right to take
immediate possession of the Collateral and may enter any of the premises of
Borrower or wherever the Collateral is located with or without process of law
and to keep and store the same on said premises until sold (and if said
premises be the property of Borrower, Borrower agrees not to charge Lender or
a purchaser from Lender for storage thereof for a period of at least 90
days). Upon the occurrence of an Event of Default, Lender, without further
demand, at any time or times, may sell and deliver any or all of the
Collateral at public or private sale, for cash, upon credit or otherwise, at
such prices and upon such terms as Lender deems advisable, at its sole
discretion. Any requirement under the Commercial Code or other applicable
law of reasonable notice will be met if such ntice is mailed to Borrower at
its address set forth in the opening paragraph of this Agreement at least ten
days before the date of sale. Lender may be the purchaser at any such sale,
if it is public. The proceeds of sale will be applied first to all expenses
of retaking, holding, preparing for sale, selling and the like, including
attorneys' fees and legal expenses (whether or not suit is commenced)
including, without limitation, reasonable attorneys' fees and legal expenses
incurred in connection with any appeal of a lower court's order or judgment,
and second to the payment (in whatever order Lender elects) of all other
obligations chargeable to Borrower's loan account hereunder. Subject to the
provisions of the Commercial Code, Lender will return any excess to Borrower
and Borrower shall remain liable to Lender for any deficiency. Borrower
agrees to give Lender immediate notice of the existence of any Default or
Event of Default.
21. CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of Lender
to make the initial Advance is subject to the condition precedent that Lender
shall have received on or before the date of the initial Advance copies of
all of the following, unless waived by Lender:
(a) A favorable opinion of counsel to Borrower and the
Guarantors in form and substance satisfactory to Lender;
(b) UCC-1 Financing Statements in a form acceptable to Lender
appropriately completed and duly executed by Borrower;
(c) Acceptable recent UCC, tax lien, judgment, and bankruptcy
searches from the filing offices in all states required by Lender;
(d) The Guaranties, in form and substance satisfactory to Lender
in its sole and absolute discretion, appropriately completed and duly
executed by each Guarantor;
(e) Subordination Agreements relating to all notes payable under
which Borrower is obligated;
(f) A certified copy of all documents evidencing any necessary
consent or governmental approvals (if any) with respect to the Loan
Documents or any other documents provided for in this Agreement;
(g) A certificate by the Secretary or any Assistant Secretary of
Borrower certifying as to: (i) attached resolutions of Borrower's
Board of Directors authorizing or ratifying the execution, delivery
and performance of the Loan Documents to which Borrower is a party and
any other documents provided for by this Agreement, (ii) the names of
the officers of Borrower authorized to sign the Loan Documents
together with a sample of the true signature of such officers, and
(iii) attached bylaws of Borrower;
(h) Certificates of Good Standing for Borrower issued by its
state of incorporation and by those states requested by Lender;
(i) A copy of the articles of incorporation of each Guarantor
that is a corporation certified by the Secretary of State;
(j) Evidence of insurance for all insurance required by the Loan
Documents;
(k) An officer certificate, in form and substance satisfactory
to Lender, executed by the President of Borrower;
(l) The Note, in form and substance satisfactory to Lender in
its sole and absolute discretion, appropriately completed and duly
executed by the Borrower;
(m) Appropriate collateral account agreements executed by
Borrower and the other parties thereto;
(n) Such landlord lien waivers and mortgagee consents as Lender,
in its sole discretion, may require, in form and substance
satisfactory to Lender in its sole discretion, appropriately completed
and duly executed;
(o) Such other approvals, opinions or documents as Lender may
require.
22. CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Lender to
make any
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<PAGE>
Advance (including the initial Advance) shall be subject to the
satisfaction of each of the following conditions, unless waived in writing by
Lender:
(a) The representations and warranties of Borrower set forth in
this Agreement are true and correct on the date of the Advance (and
after giving effect to the Advance then being made);
(b) No Default, no Event of Default and no Material Adverse
Occurrence shall then have occurred and be continuing on the date of
the Advance or result from the making of the Advance; and
(c) No litigation, arbitration or governmental investigation or
proceeding shall be pending or, to the knowledge of Borrower or any
Guarantor, threatened against Borrower or any Guarantor or affecting
its business or operations or its ability to perform its obligations
hereunder which, if adversely determined to Borrower or any Guarantor,
would constitute a Material Adverse Occurrence.
23. TERMINATION. Subject to automatic termination of Borrower's
ability to obtain additional Advances or credit extensions under this
Agreement upon the occurrence of any Event of Default specified in Paragraph
20 above and to Lender's right to terminate Borrower's ability to obtain
additional credit extensions and Advances under this Agreement upon the
occurrence of any other Event of Default or upon demand, this Agreement shall
have a term ending on the Termination Date PROVIDED, however, that Borrower
may terminate this Agreement at any earlier time upon sixty days prior
written notice; provided FURTHER, however, that if Borrower terminates this
Agreement at any time prior to the then current Maturity Date, then Borrower
shall pay to Lender a prepayment charge equal to the product arrived at by
multiplying $3,800.00 times the number of calendar months (whole and
fractional) from the Termination Date to and including the then current
Maturity Date; provided. On the Termination Date, all obligations arising
under this Agreement shall become immediately due and payable without further
notice or demand. Lender's rights with respect to outstanding Obligations
owing on or prior to the Termination Date will not be affected by termination
and all of said rights including (without limitation) Lender's Security
Interest in the Collateral existing on such Termination Date or acquired by
Borrower thereafter, and the requirements of this Agreement that Borrower
furnish schedules and confirmatory assignments of Receivables and Inventory
and turn over to Lender all full and partial payments thereof shall continue
to be operative until all such Obligations have been duly satisfied.
24. GRANT OF LICENSE TO USE PATENTS AND TRADEMARKS COLLATERAL. For the
purpose of enabling Lender to exercise rights and remedies under this
Agreement, Borrower hereby grants to Lender an irrevocable, non-exclusive
license (exercisable without payment of royalty or other compensation to
Borrower) to use, license or sublicense any patent or trademark now owned or
hereafter acquired by Borrower and wherever the same may be located, and
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer and automatic
machinery software and programs used for the compilation or printout thereof.
25. MISCELLANEOUS.
(a) The performance or observance of any affirmative or negative
covenant or other provision of this Agreement and any supplement
hereto may be waived by Lender in a writing signed by Lender but not
otherwise. No delay on the part of Lender in the exercise of any
remedy, power or right shall operate as a waiver thereof, nor shall
any single or partial exercise of any remedy, power or right preclude
other or further exercise thereof or the exercise of any other remedy,
power or right. Each of the rights and remedies of Lender under this
Agreement will be cumulative and not exclusive of any other right or
remedy which Lender may have hereunder or as allowed by law.
(b) Any notice, demand or consent authorized by this Agreement
to be given to Borrower shall be deemed to be given when transmitted
by telex or telecopier (provided a confirmation copy thereof is sent
by U.S. mail, first class, within 24 hours of transmission) or
personally delivered, or three days after being deposited in the U.S.
mail, postage prepaid, or one day after delivery to Federal Express or
other overnight courier service, in each case addressed to Borrower at
its address shown in the opening paragraph of this Agreement, or at
such other address as Borrower may, by written notice received by
Lender, designate as Borrower's address for purposes of notice
hereunder. Any notice or request authorized by this Agreement to be
given to Lender shall be deemed to be given when personally delivered,
or three business days after being deposited in the U.S. mail,
certified, return receipt requested, postage prepaid, or one business
day after delivery to and receipt by Federal Express or other
overnight courier, in each case addressed to Lender at its address
shown in the opening paragraph of this Agreement, or at such other
address as Lender may, by written notice received by Borrower,
designate as Lender's address for purposes of notice hereunder;
PROVIDED, HOWEVER, that any notice to Lender which contains a request
for an Advance as discussed above shall not be deemed given until
actually received.
(c) This Agreement, including exhibits and schedules and other
agreements referred to herein, is the entire agreement between the
parties, supersedes and rescinds all prior agreements relating to the
subject matter herein, cannot be changed, terminated or amended
orally, and shall be deemed effective as of the date it is accepted by
Lender.
(d) Borrower agrees to pay and will reimburse Lender on demand
for all expenses incurred by Lender arising out of the origination of,
or during the duration of, this transaction including without
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<PAGE>
limitation filing and recording fees and attorneys' fees and legal
expenses, including costs of in-house counsel (whether or not suit is
commenced), whether incurred in the negotiation and preparation of
this Agreement, in the operation of cash management, delivery/courier
or other services including Lender's then current charges for the
operation of a lockbox and wire transfer or advance fees, in the
protection and perfection of Lender's security interest in the
Collateral, in the enforcement of any of the provisions of this
Agreement or of Lender's rights and remedies hereunder and against the
Collateral, in the defense of any claim or claims made or threatened
against Lender arising out of this transaction, or otherwise
including, without limitation, in each instance, all reasonable
attorneys' fees and legal expenses incurred in connection with any
appeal of a lower court's order or judgment. Borrower acknowledges
that, at Lender's discretion, certain expenses may be charged to
Borrower at Lender's then current rate for such services to its
customers generally or alternatively, at its actual cost including
overhead charges. Lender may also impose other miscellaneous charges
for additional products or services provided to Borrower based on the
cost agreed to by Borrower from time to time. Lender is authorized to
deduct any such expenses from any amount due Borrower and/or to add
such expenses to Borrower's loan account hereunder.
Borrower acknowledges that Lender has certain responsibilities in
connection with the making of Advances and the administration of this
Agreement. Consequently, Borrower hereby indemnifies, exonerates and
holds Lender, and its officers, directors, employees and agents (the
"Indemnified Parties") free and harmless from and against any and all
actions, causes of action, suits, losses, liabilities and damages, and
expenses in connection therewith including, without limitation,
reasonable attorneys' fees and disbursements (the 'Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them as a
result of, or arising out of, or relating to:
(i) any transaction financed or to be financed in whole
or in part directly or indirectly with proceeds of any Advance,
or
(ii) the execution, delivery, performance or enforcement
of this Agreement or any document executed pursuant hereto by any
of the Indemnified Parties, except for any such Indemnified
Liabilities arising on account of any Indemnified Party's gross
negligence or willful misconduct.
If and to the extent that the foregoing undertaking may be
unenforceable for any reason, Borrower hereby agrees to make the
maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
The provisions of this Paragraph shall survive termination of this
Agreement.
(e) This Agreement is made under and shall be governed by and
interpreted in accordance with the internal laws of the state of
Minnesota, except to the extent that the perfection of the Security
Interest hereunder, or the enforcement of any remedies hereunder with
respect to any particular Collateral, shall be governed by the laws of
a jurisdiction other than the State of Minnesota. Captions herein are
for convenience only and shall not be deemed part of this Agreement.
(f) This Agreement shall be binding upon Borrower and Lender and
their respective successors, assigns, heirs, and personal
representatives and shall inure to the benefit of Borrower, Lender and
the successors and assigns of Lender, except that Borrower may not
assign or transfer its rights hereunder without the prior written
consent of Lender, and any assignment or transfer in violation of this
provision shall be null and void. In connection with the actual or
prospective sale by Lender of any interest or participation in the
obligations, Borrower authorizes Lender to furnish any information in
its possession, however acquired, concerning Borrower or any of its
Affiliates to any person or entity.
(g) Borrower hereby irrevocably consents and submits to the
personal jurisdiction of any Minnesota state court or federal court
over any action or proceeding arising out of or relating to the
Agreement, and Borrower hereby irrevocably agrees that all claims in
respect of such action or proceeding shall be venued (at the sole
option of Lender) in either the District Court of Dakota or Hennepin
County, Minnesota, or the United States District Court, District of
Minnesota. Borrower hereby irrevocably waives, to the fullest extent
it may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding. Borrower irrevocably
consents to the service of copies of the summons and complaint and any
other process which may be served in any such action or proceeding by
the mailing by United States certified mail, return receipt requested,
of copies of such process to Borrower's address stated in the preamble
hereto. Borrower agrees that judgment final by appeal, or expiration
of time to appeal without an appeal being taken, in any such action or
proceeding shall be conclusive and may be enforced in any other
jurisdictions by suit on the judgment or in any other manner provided
by law. Nothing in this Paragraph shall affect the right of Lender to
serve legal process in any other manner permitted by law or affect the
right of Lender to bring any action or proceeding against Borrower or
its property in the courts of any other jurisdiction. Borrower agrees
that, if it brings any action or proceeding arising out of or relating
to this Agreement, it shall bring such action or proceeding in the
District Court of Hennepin County, Minnesota.
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(h) The provisions of this Agreement are severable, and in any
action or proceeding involving any State corporate law, or any State
or Federal bankruptcy, insolvency, reorganization or other law
affecting the rights of creditors generally, if the obligations of the
Borrower hereunder would otherwise be held or determined to be void,
invalid, or unenforceable on account of the grant of a security
interest hereunder to secure Borrower's contingent obligations, then,
notwithstanding any other provision of this Agreement to the contrary,
the amount of such liability shall, without any further action by
Borrower, Lender or any other person, be automatically limited and
reduced to the highest amount which is valid and enforceable as
determined in such action or proceeding.
(i) A photocopy or other reproduction hereof may be filed as a
financing statement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
LENDER: SPECTRUM COMMERCIAL SERVICES
By /s/ Steven Lowenthal
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Its SVP
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BORROWER: BARRINGER LABORATORIES, INC..
By /s/ J. Graham Russell
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Its President and CEO
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Fed. Tax ID #: 84-0951626
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LIST OF EXHIBITS
Exhibit A Compliance Certificate
Exhibit B Borrower's Financial Projections
LIST OF SCHEDULES
Schedule A Locations of Inventory and Equipment
(Paragraph 10)
Schedule B Names Under Which Borrower Has Done Business (Paragraph 16(a))
Schedule C Capital Stock of Corporations Owned by Borrower (Paragraph 16(a))
Schedule D Litigation (Paragraph 16(d))
Schedule E Security Interests (Paragraphs 16(f) and 18(d))
Schedule F Patents, Trademarks, Copyrights and Franchise Rights (Paragraph
16(l))
Schedule G Financial Statements (Paragraph 16(h))
Schedule H Stock and Stock Ownership of Borrower (Paragraph 16(p))
Schedule I Contingent Obligations (Paragraph 16(q))
Schedule J Permitted Existing Indebtedness (Paragraphs 18(c) and (d))
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REVOLVING NOTE
$750,000.00 May 25, 1999
Bloomington, Minnesota
FOR VALUE RECEIVED, the undersigned, Barringer Laboratories, Inc. promises to
pay to the order of SPECTRUM COMMERCIAL SERVICES, a division of Lyon
Financial Services, Inc., (the "Lender") at its office in Bloomington,
Minnesota, or at such other place as any present or future holder of this
Note may designate from time to time, the principal sum of (i) Seven Hundred
Hundred Fifty Thousand and 00/100 Dollars ($750,000.00), or (ii) the
aggregate unpaid principal amount of all advances and/or extensions of credit
made by the Lender to the undersigned pursuant to this Note as shown in the
records of any present or future holder of this Note, whichever is less, plus
interest thereon from the date of each advance in whole or in part included
in such amount until this Note is fully paid. Interest shall be computed on
the basis of the actual number of days elapsed and a 360-day year, at an
annual rate equal to 5.35% per annum in excess of the Prime Rate of Norwest
Bank Minnesota, NA, and that shall change when and as said Prime Rate shall
change (the "Initial Rate"); provided, however, that (i) in no event shall
the interest rate in effect hereunder at any time be less than 10% per annum;
and (ii) interest payable hereunder with respect to each calendar month shall
not be less than $3,800.00 regardless of the amount of loans, advances or
other credit extensions that actually may have been outstanding during the
month. Interest is due and payable on the first day of each calendar month
and at maturity. The term "Prime Rate" means the rate established by Norwest
Bank in its sole discretion from time to time as its Prime or Base Rate, and
the undersigned acknowledges that Norwest Bank and/or Lender may lend to its
customers at rates that are at, above or below the Prime Rate.
Notwithstanding the foregoing, after an Event of Default, this Note shall
bear interest until fully paid at five percent (5%) per annum in excess of
the rate otherwise then in effect, which rate shall continue to vary based on
further changes in the Prime Rate; provided, however, that after an Event of
Default, (i) in no event shall the interest rate in effect hereunder at any
time be less than 13% per annum; and (ii) interest payable hereunder with
respect to each calendar month shall not be less than $5,200 regardless of
the amount of loans, advances or other credit extensions that actually may
have been outstanding during the month. The undersigned also shall pay the
holder of this Note a late fee equal to 10% of any payment under this Note
that is more than 10 calendar days past due.
In the event the undersigned earns "Net Profit" (as defined in the General
Credit and Security Agreement dated May 25, 1999 ("Agreement") for the fiscal
year ending December 31, 1999 of at least One Hundred Fifty Thousand Dollars
($150,000.00), and evidences such profit by delivering to Lender a financial
statement prepared according to GAAP that reflects this Net Profit, and
provided no Event of Default exists or has occurred, then upon Borrower's
written request, the Initial Rate shall be reduced to Four and Eighty Five
One Hundredths percent (4.85%) in excess of the Prime Rate (the "Adjusted
Rate") commencing with the next scheduled Monthly Payment Date (as defined in
the Agreement) following Lender's receipt of Borrower's written request.
Provided that Borrower obtains the Adjusted Rate reduction described above,
then in the further event Borrower earns Net Income for the fiscal year
ending December 31, 2000 of at least Two Hundred Fifty Thousand Dollars
($250,000.00), and evidences such profit by delivering to Lender a financial
statement prepared according to GAAP that reflects this Net Profit, and
provided no Event of Default exists or has occurred, then upon and after
Borrower's written request, the Adjusted Rate shall be reduced to Four and
Thirty Five One Hundredths percent (4.35%) in excess of the Prime Rate (the
"Re-adjusted Rate") commencing with the next scheduled Monthly Payment Date
following Lender's receipt of Borrower's written request. (the Initial Rate,
the Adjusted Rate and the Re-adjusted Rate are sometimes collectively
referred to as the "Interest Rate").
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All interest, principal, and any other amounts owing hereunder are due on May
24, 2001 or earlier UPON DEMAND by Lender or any holder hereof, and Lender
specifically reserves the absolute right to demand payment of all such
amounts at any time, with or without advance notice, for any reason or no
reason whatsoever.
All or any part of the unpaid balance of this Note may be prepaid upon sixty
days prior written notice, PROVIDED, however, that if this Note is fully
pre-paid prior to May 24, 2001, then there shall be a prepayment charge equal
to the product arrived at by multiplying $3,800.00 times the number of
calendar months (whole and fractional) from the date of complete prepayment
to and including May 24, 2001. At the option of the then holder of this
Note, any payment under this Note may be applied first to the payment of
other charges, fees and expenses under this Note and any other agreement or
writing in connection with this Note, second to the payment of interest
accrued through the date of payment, and third to the payment of principal.
Amounts may be advanced and readvanced under this Note at the Lender's sole
and absolute discretion, provided the principal balance outstanding shall not
exceed the amount first above written. Neither the Lender nor any other
person has any obligation to make any advance or readvance under this Note.
The occurrence of any of the following events shall constitute an Event of
Default under this Note: (i) any default in the payment of this Note; or
(ii) any other default under the terms of any now existing or hereafter
arising debt, obligation or liability of any maker, endorser, guarantor or
surety of this Note or any other person providing security for this Note or
for any guaranty of this Note, including, but not limited to, that certain
General Credit and Security Agreement dated May 25, 1999, (iii) the
insolvency (other than the insolvency of the undersigned), death dissolution,
liquidation, merger or consolidation of any such maker, endorser, guarantor,
surety or other person; or (iv) any appointment of a receiver, trustee or
similar officer of any property of any such maker, endorser, guarantor,
surety or other person; or (v) any assignment for the benefit of creditors of
any such maker, endorser, guarantor, surety or other person; or (vi) any
commencement of any proceeding under any bankruptcy, insolvency, dissolution,
liquidation or similar law by or against any such maker, endorser, guarantor,
surety or other person, provided however, that if such a proceeding is
commenced against the maker hereof or any Guarantor on an involuntary basis,
then only if such action is not dismissed within 60 days of first being
filed; or (vii) the sale, lease or other disposition (whether in one
transaction or in a series of transactions) to one or more persons of all or
a substantial part of the assets of any such maker, endorser, guarantor,
surety or other person; or (viii) any such maker, endorser, guarantor, surety
or other person dies or takes any action to revoke or terminate any
agreement, liability or security in favor of the Lender; or (ix) the entry of
any judgment or other order for the payment of money in the amount of
$25,000.00 or more against any such maker, endorser, guarantor, surety or
other person which judgment or order is not discharged or stayed in a manner
acceptable to the then holder of this Noe within 10 days after such entry; or
(x) the issuance or levy of any writ, warrant, attachment, garnishment,
execution or other process against any property of any such maker, endorser,
guarantor, surety or other person; or (xi) the issuance or attachment of any
tax lien or tax levy against any property of any such maker, endorser,
guarantor, surety or other person which is other than for taxes or
assessments not yet due and payable; or (xii) in the event any statement,
representation or warranty made by any maker, endorser, guarantor, surety or
other person (or any representative of any such maker, endorser, guarantor,
surety or other person) to any present or future holder of this Note at any
time shall be false, incorrect or misleading in any material respect when
made or effective; or (xiii) there is a material adverse change in the
condition (financial or otherwise), business or property of any such maker,
endorser, guarantor, surety or other person. Upon the occurrence of any
Event of Default described in subparagraphs (iii), (iv), (v) or (vi) above or
earlier upon demand, all amounts outstanding under this Note (including
unpaid principal, interest and other charges due or accruing hereunder) shall
be and
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become immediately due and payable without any declaration, notice,
presentment, protest, demand or dishonor of any kind (all of which are hereby
waived by Borrower) and Borrower's ability to obtain any additional credit
extensions or advances under this Note shall be immediately and automatically
terminated. Upon the occurrence of an Event of Default and at any time
thereafter while an Event of Default is continuing or earlier upon demand,
the then holder of this Note may, at its option, declare this Note to be
immediately due and payable and thereupon this Note shall become due and
payable for the entire unpaid principal balance of this Note plus accrued
interest and other charges on this Note without any presentment, demand,
protest or other notice of any kind.
The undersigned: (i) waives demand, presentment, protest, notice of
protest, notice of dishonor and notice of nonpayment of this Note; (ii)
agrees to promptly provide all present and future holders of this Note from
time to time with financial statements of the undersigned and such other
information respecting the financial condition, business and property of the
undersigned as any such holder of this Note may reasonably request, in form
and substance acceptable to such holder of this Note; (iii) agrees that when
or at any time after this Note becomes due the then holder of this note may
offset or charge the full amount owing on this note against any account then
maintained by the undersigned with such holder of this Note without notice;
(iv) agrees to pay on demand all fees, costs and expenses of all present and
future holders of this Note in connection with this Note and any security and
guaranties for this Note, including but not limited to audit fees and
expenses and reasonable attorneys' fees and legal expenses, plus interest on
such amounts at the rate set forth in this Note; and (v) consents to the
personal jurisdiction of the state and federal courts located in the State of
Minnesota in connection with any controversy related in any way to this Note
or any security of guaranty for this Note, waives any argument that venue in
such forums is not convenient, and agrees that any litigation initiated by
the undersigned against the Lender or any other present or future holder of
this Note relating in any way to this Note or any security or guaranty for
this Note shall be venued (at the sole option of Lender or the holder hereof)
in either the District Court of Dakota or Hennepin County, Minnesota, or the
United States District Court, District of Minnesota. Interest on any amount
under this Note shall continue to accrue, at the option of any present or
future holder of this Note, until such holder receives final payment of such
amount in collected funds in form and substance acceptable to such holder.
The maker agrees that, if it brings any action or proceeding arising out of
or relating to this Agreement, it shall bring such action or proceeding in
the District Court of Hennepin County, Minnesota.
In the event a court of competent jurisdiction determines that any of the
figures called the Rate of Interest violates any usury laws or any other law,
then, such Rate of Interest or other provision shall be accordingly and
retroactively adjusted or modified to comply with the highest rate allowed
under applicable law. Further, if any provision or application of any
provision of this Note other than the Rate of Interest (including but not
limited to any provision relating to the calculation of interest) is held
unlawful or unenforceable in any respect (including but not limited to any
usury or similar law), such illegality or unenforceability shall not affect
other provisions or applications which can be given effect, and this Note
shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. The
undersigned waives notice of acceptance hereof.
No waiver of any right or remedy under this Note shall be valid unless in
writing executed by the holder of this Note, and any such waiver shall be
effective only in the specific instance and for the specific purpose given.
All rights and remedies of all present and future holders of this Note shall
be cumulative and may be exercised singly, concurrently or successively. The
undersigned, if more than one, shall be jointly and severally liable under
this Note, and the term "undersigned," wherever used in this Note, shall mean
the undersigned or any one or more of them. This Note shall bind the
undersigned and the successors and assigns of the undersigned. This Note
shall be governed by and construed in accordance with the laws of the State
of Minnesota.
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THE UNDERSIGNED REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE
UNDERSIGNED HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS
OF THIS NOTE. THE UNDERSIGNED ALSO AGREES THAT COMPLIANCE BY ANY PRESENT OR
FUTURE HOLDER OF THIS NOTE WITH THE EXPRESS PROVISIONS OF THIS NOTE SHALL
CONSTITUTE GOOD FAITH AND SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.
THE UNDERSIGNED WAIVES ITS RIGHT TO TRIAL BY JURY.
BARRINGER LABORATORIES, INC.
By /s/ J. Graham Russell
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J. Graham Russell
President
STATE OF COLORADO )
) ss.
COUNTY OF JEFFERSON )
On this 25th day of May, 1999, before me, a Notary Public within and for
said county, personally appeared J. Graham Russell who being by me duly sworn
did say that he is the President of Barringer Laboratories, Inc. and that the
foregoing instrument was signed on behalf of the corporation by authority of
its Board of Directors and that he acknowledged said instrument to be the
free act and deed of said corporation.
Notary Seal: /s/ Vera M. Crabb
My Commission Expires ------------------------------
March 18, 2001 Notary Signature
7425 West Utah Avenue
Lakewood, CO 80232
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