SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29,2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 Commission File number 33-85044-d
NACO Industries, Inc.
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(Exact Name of small business issuer as specified in its charter)
Utah 48-0836971
(State of Incorporation) (IRS Employer Identification
395 West 1400 North, Logan, Utah 84341
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(Address of principal executive offices)(Zip Code)
Registrant's Telephone Number 435-753-8020
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
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As of February 29, 2000, the Registrant had 1,902,268 shares of Common Stock and
165,412 shares of Preferred Stock outstanding.
Transitional Small Business Disclosure Format Yes No X
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
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See attached Consolidated Financial Statements
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NACO Industries, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
February 29, 2000
3
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PART 1 - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NACO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
February 29 November 30
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ASSETS 2000 1999
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Current assets:
Cash $ 274,170 $ 58,073
Accounts receivable, net of allowances
Of $70,017 / $67,753 1,151,283 862,913
Related parties 28,931 38,385
Inventory 525,600 528,461
Other current assets 50,388 41,283
Deferred income taxes 133,900 153,900
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Total current assets 2,198,159 1,683,015
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Property and equipment:
Land 40,700 40,700
Buildings and improvements 610,038 610,038
Equipment and vehicles 2,805,455 2,805,455
Equipment construction in process 577
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Total property and equipment 3,456,770 3,456,193
Accumulated depreciation (2,152,538) (2,076,200)
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Net property and equipment 1,304,232 1,379,993
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Other assets:
Accounts receivable from related parties 325,119 311,231
Intangible and other assets 162,900 167,711
Deferred income taxes, net
of allowance of $80,000 198,600 255,800
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Total other assets 686,618 734,742
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Total assets $ 4,155,123 $ 3,797,750
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See Notes to Consolidated Financial Statements
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NACO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
February 29 November 30
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LIABILITIES: 2000 1999
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Current liabilities:
Accounts payable $ 659,109 $ 769,056
Accrued expenses 289,290 231,720
Income taxes payable 900
Due to related parties 15,311 15,311
Current portion of long-term obligations 81,688 81,700
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Total current liabilities 1,046,299 1,097,787
Long-term liabilities:
Accrued expenses 48,000 48,000
Long-term obligations, less current portion 2,183,918 1,928,763
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Total long-term liabilities 2,231,918 1,976,763
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Total liabilities 3,278,217 3,074,550
Stockholders' equity:
Common stock, $.01 par value,
10,000,000 shares authorized; 1,902,268 19,023 19,023
shares and 1,902,268
shares issued respectively
Preferred Stock, 7% Cumulative,
convertible $3.00 par value, 330,000 496,236 496,236
shares authorized, 165,412 and 165,412
shares issued respectively
(Aggregate liquidation preference
$1,165,869 and $1,131,418 respectively)
Additional paid-in capital 1,018,284 1,018,284
Retained earnings (deficit) (656,637) (810,343)
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Total stockholders' equity 876,906 723,200
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Total liabilities and
stockholders' equity $ 4,155,123 $ 3,797,750
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See Notes to Consolidated Financial Statements
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NACO INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three months ended
February 29 February 28
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2000 1999
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Sales, net $ 2,197,038 $ 1,629,027
Cost of goods sold 1,280,727 996,893
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Gross profit 916,311 632,134
Operating expenses:
Selling expenses 361,532 321,451
General and administrative expenses 257,066 256,708
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Total operating expenses 618,598 578,159
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Income (loss) from operations 297,713 53,975
Other income (expense):
Interest income 700 435
Other 13,888
Interest expense (80,593) (70,976)
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Total other income (expense) (66,005) (70,541)
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Income (loss) before income taxes $ 231,708 $ (16,566)
Income tax expense (benefit) 78,000 0
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Net income (loss) $ 153,708 $ (16,566)
Adjustment for preferred dividends in arrears (173,397) (103,723)
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Income (loss) from continuing
operations to Common Stockholders $ (19,689) $ (120,289)
Discontinued Operations:
Loss from operations of discontinued segment (265,243)
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Adjusted net income (loss) to common stockholders $ (19,689) (385,532)
=========== ===========
Earnings (loss) per common share:
Basic:
Earnings (loss) from net income $ 0.08 $ (0.01)
Dividends in arrears (0.09) (0.05)
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Net Earnings (loss) from continuing operations $ (0.01) $ (0.06)
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Net Earnings (loss) $ (0.01) (0.20)
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Diluted:
Earnings (loss) from net income
from continuing operations $ (0.01) $ (0.06)
=========== ===========
Earnings (loss) from net income $ (0.01) $ (0.20)
Weighted average number of common
Shares outstanding:
Basic 1,876,227 1,849,083
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Diluted 2,207,051 2,176,573
=========== ===========
See Notes to Consolidated Financial Statements
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NACO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
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February 29 February 28
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2000 1999
Cash flows from operating activities
Net income (loss) $ 153,708 $ (16,566)
Adjustments to reconcile
net income (loss) to
net cash provided by (used in)
operating activities:
Depreciation 76,337 82,928
Amortization 4,811 --
Deferred income taxes 77,200 --
(Increase) decrease in:
Accounts receivable, net (288,370) (564,503)
Receivable from related parties (4,433) (51,691)
Inventory 2,860 34,982)
Other (9,108) 14,090
Increase (decrease) in:
Accounts payable 711,374
(109,946)
Accrued expenses 57,571 30,298
Income taxes payable -- (100)
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Net cash provided by
(used in) continuing activities (38,469) 240,812
Net cash provided by (used in)
discontinued activities -- (265,243)
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Net cash provided by (used in)
operating activities (38,469) (24,431)
Cash flows from investing activities
Net change property and equipment (577) (18,618)
Loan to related parties -- (102,050)
Investment in intangible
and other assets -- 169,610
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Net cash provided by
(used in) investing activities (577) 48,942
Cash flows from financing activities
Net change in line of credit 303,768 0
Increase in related party loan 0 401
Payments on long-term debt (48,625) (68,852)
Payment of Preferred Stock Dividends 0 0
Net cash provided by
(used in) financing activities 255,143 (68,451)
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Increase (decrease) in cash 216,097 (43,940)
Cash, beginning of period 58,073 97,428
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Cash, end of period $ 274,170 $ 53,488
========= =========
See Notes to Consolidated
Financial Statements
Supplemental disclosures:
Income taxes paid $ 900 $ 0
Interest Paid $ 61,093 $ 44,939
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NACO INDUSTRIES, INC.
Notes to Consolidated Financial Statements (Unaudited)
February 29, 2000
NOTE A - BASIS OF PRESENTATION
Management has elected to omit substantially all footnotes to these unaudited
consolidated quarterly financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
three-month period ended February 29, 2000 are not necessarily indicative of the
results that may be expected for the fiscal year ending November 30, 2000. These
statements should be read in conjunction with the consolidated financial
statements and related notes in the Company's Annual Report on Form 10-KSB for
the year ended November 30, 1999.
NOTE B - INVENTORY
Inventory consists of the following:
February 29, November 30,
2000 1999
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Raw Materials $ 183,959 $ 168,389
Finished Goods 341,641 360,072
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Total $ 525,600 $ 528,461
NOTE C - DIVIDENDS
Dividends on the preferred stock are cumulative at 7%. At February 29,
2000, the cumulative amount of dividends accrued was $173,397. Of this amount,
$173,397 was in arrears.
NOTE D - EARNINGS PER SHARE
Effective February 28, 1998, the Company adopted SFAS No. 128,
"Earnings Per Share," which establishes new standards for computing and
presenting earnings per share. No restatement was required for prior year's
earnings per share figures to conform to the new standard. Basic earnings per
common share are calculated by dividing adjusted net income by the average
shares of common stock outstanding during the period. The calculation of diluted
earnings per share of common stock assumes the diluting effect of the Company's
cumulative preferred stock, options and warrants. During the period the market
price did not exceed the option price for the outstanding options and warrants
and therefore no dilution occurred. When conversion of potential common shares
has an anti-dilutive effect no conversion is assumed in the diluted earnings per
share calculation.
NOTE E - PREFERRED STOCK AND WARRANTS
There were no shares of capital stock sold or warrants exercised during
the first quarter of 2000.
NOTE F - DEBT AND LOAN AGREEMENTS
At February 29, 2000, the outstanding balance of the Company's
revolving line of credit was $1,091,566. This line of credit was entered into on
April 22, 1999 with Wells Fargo Business Credit. The amounts, available under
the facility, are based on a percentage of accounts receivable and inventories.
This line of credit matures April 30, 2002.
Also, on April 22, 1999, a second facility was closed with Webbank
Corporation. This facility was for $1,100,000. It is secured by current assets,
property and equipment, and life insurance. It is payable with interest at 1.5%
over prime and matures April 30, 2014.
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NOTE G - RELATED PARTY OPERATING LEASES
In December, 1999 the Company entered into two related-party lease
agreements with PVC, Inc., a company owned by Verne Bray, the President,
Chairman of the Board, and majority stockholder of the Company. The terms of the
leases are for a period of five years commencing December 1999. Rentals begin at
$13,500 per month for the land and building, and $9,500 per month for various
pieces of equipment. Upon each annual anniversary date, the monthly rentals for
each lease shall be adjusted by the amount of any increase in the Consumer Price
Index over the preceding year. The previous lease for land, building and
equipment, which was executed by the Company and Mr. Bray and expired December
31, 1999, required lease payments of $9,300 per month. The lease amounts were
negotiated at the fair-market rental value and approved by Company's Board of
Directors.
NOTE H - PROVISION FOR INCOME TAXES
The Company has loss carry-overs from previous fiscal years of
$489,700, which is stated on the balance sheet as an asset. Due to the loss
carry-overs it is anticipated that no income taxes will be owed at year-end.
However according to gap, when income is generated, the tax-deferred asset
should be reduced and a tax provision should be shown on the income statement.
To estimate the tax provision for the three months ended 2/29/2000, a marginal
tax rate of 34% was used. The tax provision was rounded to $78,000 for the
period.
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
NACO Industries, Inc. ("NACO" or the "Company") is a manufacturing company,
which produces and sells polyvinyl chloride "PVC" and composite products. The
Company's primary line of business consists of manufacturing PVC pipe fittings
and valves, which are sold throughout the United States through wholesale
distributors to irrigation, industrial, construction and utility industries. The
Company manufactures and sells fabricated fittings (4" through 30" in diameter),
as well as molded fittings (4" though 10" in diameter). Pipefittings produced by
the Company include tees, reducers, elbows, couplers, end caps, and bolted
repair couplers. NACO also manufacturers and sells PVC valves (4" through 12" in
diameter).
Results of Operations
The following discussion relates to the three months ended February 29,
2000 and February 28, 1999, respectively. For comparison purposes, percentages
of sales will be used rather than dollars. In the following discussion, the
three months ended February 29, 2000 and February 28, 1999 are referred to as
1Q00 and 1Q99, respectively. Readers are cautioned that results of operations
for the three months ended February 29, 2000 are not necessarily indicative of
the results that may be expected for the fiscal year ending November 30, 2000.
Overview. The Company sustained an operating profit before taxes of
$231,708 for 1Q00 compared to an operating loss of $(16,566) for 1Q99. Gross
margin as a percentage of sales for 1Q00 and 1Q99 was 41.7% and 38.8%,
respectively. The improvement in the Company's operating profit and gross
margins was mainly due to a 34.9% increase in net sales and to improvements in
manufacturing processes. (explained below).
Net Sales: Net sales for 1Q00 increased by 34.9% to $2,197,038, compared to
net sales of $1,629,027 for 1Q99. There are several factors that contributed to
increased sales. The agricultural market has been stronger during the past year
and this trend continued during the first quarter of fiscal year 2000. The
Company's increased manufacturing capacity and throughput has decreased the
average delivery times, resulting in a quicker turnaround to the Company's
distributors than many of the Company's competitors have been able to offer. The
Company increased prices on it's products by 5% in October 1999 and has
implemented another 5% price increase effective April 1, 2000 to offset the
continuing rise in raw material prices.
Gross Margin. Gross margin as a percentage of sales for 1Q00 and 1Q99 was
41.7% and 38.8%, respectively. The margin has increased mainly due to improved
manufacturing efficiencies and sales volume. Increases in raw material costs
during the past year have continued to put downward pressure on the Company's
gross margin. Raw material prices continued to rise during 1Q00. Raw materials
as a percentage of sales for 1Q00 and 1Q99 was 37.7% and 31.8% respectively. The
Company increased prices on it's products by 5% in October 1999 and has
implemented another 5% price increase effective April 1, 2000 to offset this
continuing rise in raw material prices. Labor and related expenses increased
20.8% or $65,005 from 1Q99 to 1Q00 mainly due to 34.9% increases in production
of product and to an average of 3.5% increase in wages, effective December 1,
1999. Rent expense increased 145.7% or $43,385 from 1Q99 1Q00 primarily due
lease payments associated with lease agreements with PVC, Inc. The terms of the
leases are for a period of five years commencing December 1999. Rentals begin at
$13,500 per month for the land and building, and $9,500 per month for various
pieces of equipment. Upon each annual anniversary date, the monthly rentals for
each lease shall be adjusted by the amount of any increase in the Consumer Price
Index over the preceding year. The previous lease for land, building and
equipment, which was executed by the Company and Mr. Bray and expired December
31, 1999, required lease payments of $9,300 per month. The lease amounts were
negotiated at the fair-market rental value and approved by Company's Board of
Directors. The Company takes a complete physical inventory once a year and a
physical inventory of the top 80% of the dollars in inventory every quarter.
This helps to offset any inventory adjustments at year-end. Any year-end
adjustments are reflected during the fourth quarter after the year-end physical
inventory is completed.
Selling: Selling expenses were 16.5% of net sales for 1Q00, compared to
19.7% for 1Q99. The decrease in selling expenses as a percentage of sales was
mainly due to increased sales volume. In actual dollars, selling expenses
increased $40,081, or 12.5%, from 1Q998 to 1Q00. Commission expense decreased
.1% on net sales, but increased $11,924 mainly due to increased commissions
attributable to increased sales. Shipping supplies increased as a percentage of
sales from 1.7% in 1Q99 to 1.8% in 1Q00 or $11,830 mainly due to higher shipping
volumes. Freight out decreased as a percentage of net sales from 6.8% in 1Q99 to
4.8% in 1Q00 mainly due to higher sales volume and partially due to receiving
quantity discounts on freight on larger shipments.
General and administrative: General and administrative expenses represented
11.7% of net sales for 1Q00, compared to 15.8% for 1Q99. The decrease was mainly
due to increased sales volume. Overall, general and administrative expenses
remained relatively even in dollars at $256,708 and $257,066 for 1Q99 and 1Q00,
respectively. R & D expenses decreased $13,814 mainly because of the departure
of the Company's engineer that was not replaced. Salaries, as a percentage of
net sales, decreased from 9.1% in 1Q99 to 5.9% in 1Q00 mainly due to three
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factors. 1) Increased sales. 2) The executive officers received no increase in
pay this past year and 3) a voluntary reduction in the salary of the CEO. Lease
expenses increased $3,159 due to new lease agreements between NACO Industries,
Inc. and PVC Inc.
Other: Other expenses/revenues were 3.1% for 1Q00, compared to 4.3% for
1Q99 mainly due to increased sales volume. Interest expense went from 4.4% in
1Q99 to 3.7% in 1Q00. Interest increased $9,617 from 1Q99 to 1Q00 mainly due to
increased borrowings. The effective interest rates (interest expense divided by
the average debt balance for the period) for 1Q00 and 1Q99 were 10.16% and
9.87%, respectively.
Liquidity and Capital Resources
The Company's principal sources of liquidity have been cash from
operations, credit facilities and equity financing. Cash used in operating
activities was $42,735 in 1Q00. Cash as of February 29, 2000 was $274,170, up
$220,682 from November 30, 1999.
With the loss incurred by the Company during the fiscal year ended
11/30/99 primarily as a result of the discontinued NACO Composites operation,
the Company's working capital position had been reduced significantly. The
Company's liquidity position has improved during 1Q00 due to strong sales and
profits for the quarter. The Company decreased trade payables by $158,928 from
November 30, 1999 to February 29, 2000. At November 30, 1999, the Company was
out over 90 days on trade payables, due principally to a lack of operating
funds. As of February 29, 2000, the Company's 90 days trade payables had been
reduced by $208,027 to $55,472. As of April 7, 2000, the Company had $40,086 in
past due payables.
At February 29, 2000, the outstanding balance of the Company's
revolving line of credit was $1,091,566. This line of credit was entered into on
April 22, 1999 with Wells Fargo Business Credit. The amounts available under the
facility are based on a percentage of accounts receivable and inventories. It
matures April 30, 2002.
Also, on April 22, 1999, a second facility was closed with WebBank
Corporation. This facility was for $1,100,000. It is secured by current assets,
property and equipment, and life insurance. It is payable with interest at 1.5%
over prime and matures April 30, 2014. On November 30, 1999, the Company was in
default of WebBank's loan covenants. In a letter dated February 18, 2000,
WebBank provided a waiver that extended a grace period to the Company with
respect to meeting certain ratio requirements and advances to affiliates until
August 31, 2000. The waiver also extended a grace period for the debt-worth
requirement until November 30, 2000. The Company received a waiver of the
default and has been given a twelve-month grace period.
The Company currently has plans to spend up to $150,000 in capital
expenditures to update and expand its operations on the condition of securing a
new line of credit and restructuring its term debt as described above.
Management believes that with its capital resources on hand at February
29, 2000, revenues from sales and bank resources will be sufficient to satisfy
its working capital requirements for the foreseeable future. There can be no
assurance, however, that additional debt or equity financing may not be required
or that, if such financing is required, it will be available on terms favorable
to the Company, if at all. The Company's inability to secure additional
financing or raise additional capital would likely have a material adverse
effect on the Company's operations, financial condition, and its ability to
continue to grow and expand its operations.
Factors Affecting Future Results
The Company's operating results are subject to certain risks that could
adversely affect the Company's operating results and its ability to operate
profitably. The Company's operating results could be adversely affected by
increased competition in the markets in which the Company's products compete,
manufacturing delays and inefficiencies associated with expanding the Company's
manufacturing capacity, adverse weather conditions, increases in labor or raw
materials, changes in economic conditions in its markets, unanticipated expenses
or events and other factors discussed in this report and the Company's other
filings with the Securities and Exchange Commission.
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PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds none
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following are filed as exhibits to this Report.
Regulation S-K
Exhibit
No. Description
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10.11 Indemnification Agreement
10.12 Commercial Property Lease Agreement
10.13 Equipment Lease Agreement
10.14 Loan Documents - WebBank
10.15 Loan Documents - Wells Fargo Business Credit
27 Financial Data Schedule
(b) Reports on Form 8-K. None
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SIGNATURES
In accordance with 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, thereunto duly authorized.
Naco Industries, Inc.
Registrant
By /s/VERNE E. BRAY April 13, 2000
----------------------------------------- ---------------
Verne E. Bray Date
President
By /s/ JEFFREY J. KIRBY April 13, 2000
----------------------------------------- ---------------
Jeffrey J. Kirby Date
xecutive Vice President/Treasurer
13
Indemnification Agreement
This Agreement is entered into effective the 13th day of March, 2000 by
and between VERNE E. BRAY, a resident of North Logan, Utah (hereinafter
"Shareholder"), and NACO INDUSTRIES INC., a Utah corporation with principal
offices in Logan, Utah (hereinafter "NACO").
WHEREAS, since the time of its formation years ago, Shareholder has
been a principal officer, director and shareholder of NACO, working successfully
toward its growth and expansion in the manufacture and national marketing of pvc
pipe fittings; and
WHEREAS, during the course of NACO's growth and expansion, the
corporation has employed many people at various levels of the organization,
including Shareholder's son Dan Bray; and
WHEREAS, during the summer and fall of 1998, Dan Bray desired to leave
the employment of NACO and begin his own business operations in the area of
manufacturing and marketing of plastic composites, while at the same time NACO
desired to expand its operations into the manufacture and/or marketing of
plastic composites, which NACO intended to do through a wholly owned subsidiary
known as NACO COPOSITES, INC., each party hoping to profit through business
transactions with each other, as well as with third parties; and
WHEREAS, in November of 1998 Dan Bray established a Utah limited
liability company known as RIMSHOT, L.C., in which he is believed to have been
the sole owner and member, for the purposes set forth above (hereinafter
"Rimshot"); and
WHEREAS, after having obtained some initial contract work and in
anticipation of substantial financing for which Dan Bray indicated that he had
applied and with respect to which he was optimistic about receiving, NACO
provided financial accommodations to Rimshot and Dan Bray by (1) entering into
two leases, one dated September 24, 1998 for a term of 60 Months, and the other
dated November 25, 1998, for a term of 36 Months, for certain equipment, which
equipment was to be used by Rimshot, in the approximate total principal amount
of $135,000.00 (hereinafter the "Rimshot Equipment Leases"), and (2) by issuing
NACO purchase orders and making payments to third party vendors or other
creditors of Rimshot, in the approximate amount of $311,231.02 (hereinafter the
"Rimshot Creditor Payments"), all with the hope and expectation that Dan Bray
and Rimshot would soon obtain sufficient financing to repay NACO and hold NACO
harmless from further expense or obligation regarding such accommodations; and,
WHEREAS, perhaps due to a misunderstanding but in any event apparently
without the knowledge of NACO, when Dan Bray entered into a written lease
agreement dated September 4, 1998, for a building located at 1055 West 2700
South, Ogden, Utah, with WADMAN INVESTMENTS, a Utah limited partnership, as
Lessor, for the business operations of Rimshot, Dan Bray executed such lease
agreement (hereinafter the "Rimshot Building Lease") in the name of NACO
COMPOSITES, INC., as Tenant; and
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WHEREAS, at the urging and insistence of NACO's lenders, NACO
COMPOSITES, INC. was merged up into NACO in 1999; and
WHEREAS, although Dan Bray is still manufacturing and doing business
through Rimshot, he has not yet been able to obtain the desired financing
necessary to repay NACO for the Rimshot Creditor Payments, or for rentals paid
by NACO under the Rimshot Equipment Leases; and
WHEREAS, although Dan Bray and Rimshot are making rental payments for
the Rimshot Building Lease, it is likely that Rimshot is in arrears in such
payments, and the lease is written to continue through September of this year,
at the rate of $2,000.00 rental per month, for which rents the landlord may seek
recourse against NACO in the event of Rimshot's default, inasmuch as NACO
COMPOSITES, INC. is shown under the lease as the tenant, and it has now been
merged into NACO, with NACO becoming responsible for whatever liabilities NACO
COMPOSITES, INC. had, as a result of such merger; and
WHEREAS, NACO is now a publicly held corporation, in which Shareholder
is the principal shareholder, and the independent auditors for NACO are
suggesting that on the basis of the foregoing facts, it may be necessary to
write down the NACO assets relating to Rimshot (such as the equipment leased by
NACO, and the receivable from Rimshot for the Rimshot Creditor Payments), with
the resulting charge against equity in the financial statements for NACO, unless
this matter can otherwise be resolved to protect the position of NACO; and
WHEREAS, Shareholder does not wish to see NACO shareholders adversely
affected by the Dan Bray and Rimshot transactions involving NACO, particularly
since these transactions involve Shareholder's son and Shareholder was serving
as an officer and director of NACO at the time when these transactions occurred,
and accordingly Shareholder has agreed to indemnify and hold NACO harmless from
liability, expense, and obligations pertaining to the Rimshot Equipment Leases,
the Rimshot Creditor Payments, and the Rimshot Building Lease, as set forth in
this agreement; and
WHEREAS, NACO desires to obtain such indemnity from Shareholder, and
hopes to avoid the charge against equity on its financial statements which it
might otherwise have to accept, but for such indemnity;
IT IS THEREFOR AGREED AS FOLLOWS:
1. Indemnification: In exchange for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Shareholder agrees,
pursuant to the terms set forth herein, to indemnify and hold NACO harmless from
any and all expense or obligation incurred as a result of the Rimshot Equipment
Leases and the Rimshot Building Lease, and by reimbursement to further indemnify
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and hold NACO harmless from all amounts paid by NACO as and for the Rimshot
Creditor Payments. A copy of the Rimshot Equipment Leases is attached hereto as
Exhibits "A" and "B", and a copy of the Rimshot Building Lease is attached
hereto as Exhibit "C", and a detail sheet reflecting the Rimshot Creditor
Payments is attached hereto as Exhibit "D", all of which Exhibits are
incorporated by this reference as though fully set forth herein.
2. Payments by Shareholder: Shareholder is presently the sole
shareholder of PVC, Inc., a Utah corporation with principal offices in Logan,
Utah (hereinafter "PVC"), which corporation is the owner of much of the land,
buildings and equipment leased by NACO for use in its business. Shareholder is
presently in the process of seeking to refinance the debt within PVC, Inc.,
based upon its asset values, in order to obtain funds which can be made
available to Shareholder and assist in repayments to NACO in fulfillment of
Shareholder's indemnity hereunder. Shareholder shall continue to diligently
pursue such financing through PVC, Inc., which funds may be used in part, at
least, to acquire additional needed equipment for lease to NACO, thereby
generating additional rentals which may be used to reimburse NACO under
Shareholder's indemnity. Accordingly, the parties hereto agree upon the
following payment schedule by Shareholder, in meeting his obligation of
indemnity hereunder:
a. Assumption of Prospective Leasehold Obligations: Beginning March 15,
2000, Shareholder shall assume and perform all obligations of the
Lessee under the Rimshot Equipment Leases and the Rimshot Building
Lease, making sure that NACO is not called upon to make any further
such payments. Shareholder shall attempt to obtain the Lessors'
approvals for his assumption and substitution as the Lessee under such
leases, but in any event, Shareholder shall see that such payments are
made, even if the rents must be paid by Shareholder as a Sublessee to
NACO, with NACO then making payment to the Lessor(s).
b. Rimshot Creditor Payments: Shareholder shall reimburse NACO for the
Rimshot Creditor Payments by making payments of TWO THOUSAND FIVE
HUNDRED DOLLARS ($2,500.00) per month, commencing on October 1, 2000,
and continuing on the same day of each month thereafter, without
interest, for a period of one (1) year, with additional such monthly
payments of principal, without interest, thereafter until paid;
provided, however, that:
1. Shareholder shall attempt to increase these monthly
payments upon obtaining the PVC financing to the sum of SIX
THOUSAND DOLLARS ($6,000.00) per month; however, if
Shareholder is unable to increase the monthly payments by the
end of the first year of such payments, to equal at least the
sum of FIVE THOUSAND DOLLARS ($5,000.00) per month, the then
remaining balance of the Rimshot Creditor Payments shall
thereafter bear interest at the Applicable Federal Rate
designated at such time for federal tax purposes; and
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2. Shareholder shall reimburse to NACO the entire balance of
the Rimshot Creditor Payments, with payments as set forth in
this Paragraph 2.b., subject to Shareholder's right to prepay
all or part at any time without penalty, and subject to the
addition of interest after the first year as set forth in
Paragraph 2.b.1. above.
3. Naco's Assignment of Interest to Shareholder: In exchange for
Shareholder's indemnity as set forth herein, NACO hereby assigns to Shareholder,
with recourse, its entire right, title and interest in and to the Rimshot
Equipment Leases, the Rimshot Building Lease, and the account or note receivable
from Rimshot for the Rimshot Creditor Payments.
4. Mutual Release: In consideration of the terms set forth herein, and
contingent upon the timely performance thereof, Shareholder expressly releases
NACO, and NACO expressly releases Shareholder and all other members of its Board
of Directors and Officers, from any further claim, obligation or liability of
any kind, known or unknown, arising from or in connection with the Rimshot
Equipment Leases, the Rimshot Creditor Payments and the Rimshot Building Lease.
5. Enforcement: If any legal action or any arbitration or other
proceeding is brought for the enforcement of this agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorney's fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
6. Corporate Authorization: The party executing this Agreement on
behalf of NACO represents and warrants that the Board of Directors of NACO has
duly authorized and approved the execution and delivery of this agreement and
all corporate action necessary or proper to fulfill the obligations of NACO to
be performed under this agreement.
7. Effect of Headings: The subject headings of the paragraphs of this
agreement are included for purposes of convenience only, and shall not affect
the construction or interpretation of any of its provisions.
8. Entire Agreement; Modification; Waiver: This agreement constitutes
the entire agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement, modification,
or amendment of this agreement shall be binding unless executed in writing by
all the parties. No waiver of any of the provisions of this agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
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9. Parties in Interest: Nothing in this agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
agreement, nor shall any provisions give any third persons any right of
subrogation or action over against any party to this agreement.
10.Assignment: This agreement shall be binding on, and shall inure to
the benefit of, the parties to it and their respective heirs, legal
representatives, successors, and assigns; provided, however, that neither party
hereunder may assign their rights or delegate their duties hereunder without the
express prior written consent of the other party.
11.Governing Law: This agreement shall be construed in accordance with,
and governed by, the laws of the State of Utah, and in the event of a dispute
hereunder, the parties hereto consent to jurisdiction and venue in Cache County,
State of Utah.
12.Further Assurances: The parties mutually acknowledge their intent to
accomplish the assumption of the various Rimshot liabilities by Shareholder and
reimbursement and indemnity of NACO pursuant to the terms set forth herein. Each
party agrees to take whatever steps or further assurances, including the
execution of documents, are reasonably necessary in order to accomplish this
objective.
13.Pledge of PVC Lease Receivables: In consideration of the terms of
this agreement, Shareholder shall, as the sole shareholder, officer and director
of PVC, cause PVC to convey to NACO a security interest in all of the PVC lease
receivables from NACO, whether from real or personal property leases, which
security interest shall remain effective during the period in which there remain
balances unpaid hereunder with respect to the Rimshot Equipment Leases, Rimshot
Building Lease, or the Rimshot Creditor Payments. Upon the expiration of the
initial term of the present lease of real property from PVC to NACO, if such
lease is not renewed by NACO pursuant to its option therein contained,
Shareholder shall at such time pledge additional collateral, which may include
Shareholder's stock in PVC and/or NACO, of sufficient value to at least equal
the remaining balance owed by Shareholder hereunder at such time.
IN WITNESS WHEREOF, the parties hereto have set their hands, effective
the date and year first set forth above.
NACO INDURSTRIES, INC.
By:/s/Verne E. Bray
- -------------------
Verne E. Bray
Title:
COMMERCIAL PROPERTY LEASE AGREEMENT
This Lease Agreement is made and entered into at Logan, Utah effective the 1st
day of December, 1999, by and between PVC, Incorporated, a Utah corporation with
principal offices in Logan, Utah (hereinafter "Lessor"), and NACO INDUSTRIES,
INC., a Utah corporation with principal offices in Logan, Utah (hereinafter
"Lessee").
1. PROPERTY LEASED. Lessor, in consideration of the rents and
agreements to be paid and performed by Lessee, does lease to Lessee those
premises situated at 395 West 1400 North, in Logan, Cache County, State of Utah,
and further described on Exhibit "A" attached hereto and by this reference
incorporated herein.
2. TERM. This lease shall continue for the term of ten (10) years,
commencing on December 1, 1999 and continuing thereafter through November 30,
2009, or until earlier terminated as set forth herein. However, in the event
that Lessee shall notify Lessor in writing of its intention to renew this lease,
which notice must be given not less than ninety (90) days prior to the
expiration of the initial term hereof, then this lease shall be renewed under
the same terms as set forth herein, including the annual adjustments of the
rentals hereunder, for an additional period of sixty (60) months.
3. RENTAL. Rental payments shall become due and payable hereunder on a
monthly basis, payable in advance, commencing on the first day of December, 1999
and continuing on the first day of each month thereafter until November 1, 2004,
when the last of such monthly rental payments shall be paid. Rental payments
shall initially commence at the rate of $13,500.00 per month; and, upon each
annual anniversary date of this lease agreement, the monthly rentals shall be
adjusted by the amount of any increase in the Consumer Price Index over the
immediately preceding year. Rentals shall be payable to the Lessor at its
office, or to such person or at such other place as the Lessor may from time to
time designate in writing.
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4. USE OF PREMISES. The premises shall be used for the purpose of
operating the Lessee's business of manufacturing and marketing pvc pipe fittings
and related products, and for no other purposes without the prior consent of
Lessor. Lessee shall not commit or permit to be committed any waste upon the
premises. Lessee shall not use the premises, or any part thereof, for any
purpose other than the purpose or purposes for which said premises are leased,
and no use in any event shall be made of the premises, nor acts done, which will
increase the hazard of damage to the premises, or injury to those in or about
the premises, or the existing rate of insurance upon the building, nor shall
Lessee sell, keep or use in or about said premises any article which may limit
the coverage afforded by the Utah Standard Form fire insurance policy, or the
sale, presence, or use of which is prohibited by law.
Lessee shall keep said premises open for business during usual business
hours and failure to do so for more than thirty (30) days, other than for repair
or remodeling, may be deemed a breach of lease by Lessee at Lessor's election.
Lessee shall, at Lessee's sole cost and expense, without obligation to Lessor,
observe in the use of the premises all municipal, county, state and federal
regulations, ordinances and statutes now in force, or which may hereafter be in
force, and failure to do so shall be a material breach of this agreement.
5. POSSESSION. The date of possession of said leased premises by Lessee
pursuant to this lease shall be the lst day of December, 1999.
6. INSURANCE. Lessee shall maintain fire and casualty insurance on the
real and personal property subject to this lease and shall hold Lessor harmless
from any loss in connection therewith. Lessee further agrees to take out and
keep in force during the life hereof, at Lessee's expense, public liability
insurance to protect against any liability to the public, incident to the use of
or resulting from any occurrence in or about said premises. The liability under
such insurance shall be not less than $500,000.00 combined single limit or the
equivalent on bodily injury and property damage.
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7. REPAIR AND MAINTENANCE. The repair, maintenance and upkeep of the
leased premises shall be as follows:
Lessor shall be responsible for: Structural components in the
buildings, except as may be required to maintain or repair the same as the
result of the use or damage thereof by Lessee or others in the conduct of
Lessee's business.
Lessee shall be responsible for: All other maintenance.
8. ALTERATIONS. Lessee shall not make or permit to be made any
additions or alterations of the premises or any part thereof without the written
consent of Lessor, and any additions to or alterations of said premises, when
permitted to be made, except movable furniture, trade fixtures, and drapery
installed by Lessee, shall become at once a part of the realty and belong to
Lessor and shall not be removed by Lessee at the end of his occupancy, or
otherwise, except upon written consent or order of Lessor. Any linoleum, rubber
tile or other floor covering affixed to the floors shall become at once a part
of the realty and belong to Lessor and shall not be removed by Lessee at the end
of his occupancy, or otherwise, except upon written consent or order of Lessor.
9. MECHANIC'S LIENS. It is expressly agreed that if any work that is
performed by Lessee or Lessee's agents, employees or representatives, either
prior to or subsequent to the possession by Lessee of the above-described
premises, shall give rise to any lien against the leased premises, Lessee shall
indemnify Lessor against and save Lessor harmless from any and all mechanic's
liens or claims of liens and all attorney fees, costs and expenses which may
accrue, grow out of, or be incurred by reason of said work performed by Lessee
or Lessee's agents, employees or representatives.
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10. UTILITIES. Lessee shall pay for all gas, heat, light, power, water,
rubbish removal, telephone service, and all other services supplied to said
premises.
11. INSPECTION AND ENTRY BY OWNER. Lessee shall permit Lessor and
Lessor's agents to enter into and upon the premises at all reasonable times for
the purpose of inspecting the same, or for the purpose of making reasonable
repairs, alterations or additions to any portion of said premises which Lessor
may see fit to make, including installation of pipes, conduits, etc. to service
adjacent property, without any reduction or rebate of rent to Lessee for loss of
occupancy or quiet enjoyment of the premises thereby occasioned, and Lessee
shall permit Lessor at any time after sixty (60) days prior to expiration of the
leasehold term to place upon the premises "for rent," "for lease," or other
signs.
12. BANKRUPTCY OR INSOLVENCY. Should the Lessee become bankrupt or
insolvent, either voluntarily or involuntarily, or a receiver be appointed to
take charge of Lessee's assets, or general assignment be made for the benefit of
creditors, the same shall constitute a breach of the terms of this lease and the
Lessor may declare the lease terminated, and the Lessee shall have no right,
title or interest in the property, and the Lessor may keep as damages any
advanced rental.
13. DEFAULT. Lessee shall pay rent to Lessor at such place as may be
assigned from time to time by Lessor, at the time provided as aforesaid, without
deduction or delay. In the event of failure of Lessee so to do, or in the event
of a breach of any other condition or agreement by Lessee, it shall be lawful
for Lessor, after giving to Lessee a fifteen (15) day written notice of default,
and after failure by Lessee within said fifteen (15) days to remedy or cure said
default, and after the lapse of said fifteen (15) days, to re-enter and take
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possession of the said premises and to remove all persons and property therefrom
and to repossess said premises. Any such re-entry or repossession or any notice
served in connection therewith shall not operate to release Lessee from any
obligations for rental or otherwise under this lease, and shall be in addition
to any available remedies and time set forth for notices given pursuant to the
Utah unlawful detainer statutes.
If Lessee shall be in default in performance of any condition or
agreement, or shall abandon or vacate the premises, Lessor shall have the right,
after giving the required written notice of default, and after failure by Lessee
to timely remedy or cure said default, to relet the said premises, or any
portion thereof, for such rent and upon such terms as Lessor may see fit. Lessee
shall pay the expenses of such reletting, including any and all real estate
broker's commissions.
All remedies herein given Lessor shall be cumulative and in addition to
other legal and equitable rights which Lessor may have, and if Lessor institutes
legal action to collect the total or balance of the rent hereby reserved, the
filing of such action prior to the expiration of the full leasehold term shall
not be deemed premature as a matter of law irrespective of whether Lessor has
retaken possession and relet the premises for his own account or for the account
of Lessee.
14. ATTORNEY FEES. Should either party employ an attorney in connection
with the violation of the terms of this lease, or for the preparation and
serving of notice or other matters, and whether suit is filed or not, the party
so employing an attorney and the prevailing party shall be entitled to
reasonable costs and attorney fees in addition to all other amounts as provided
for in this lease.
15. ASSIGNMENT AND SUBLEASE. Lessee shall not assign this lease, or any
interest therein, and shall not lease or sublet the premises, or any part
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thereof, or any right of privilege appurtenant thereof, or mortgage or
hypothecate the leasehold, without the prior written consent of Lessor, which
consent shall not be unreasonably withheld. A consent to one assignment,
subletting or hypothecation shall not be construed as a consent to any
subsequent assignment, subletting or hypothecation. Unless such written consent
has been had and obtained, any assignment or transfer of this lease, or of any
interest therein, or any subletting or hypothecation, either by voluntary or
involuntary act of Lessee or by operation of law, or otherwise, may be deemed a
breach of lease by Lessee at Lessor's election and any such purported
assignment, transfer, subletting or hypothecation without such consent may be
deemed by Lessor to be null and void. Lessor's consent to any such assignment,
transfer, subletting or hypothecation shall relieve Lessee from any obligation
under this lease.
16. DESTRUCTION OF PREMISES. In the event of a partial destruction of
the said premises during the said term, from any cause, Lessor shall forthwith
repair the same, provided such repair can be made within ninety (90) days under
the laws and regulations of state, federal, county or municipal authorities, but
such partial destruction shall in no way annul or void this lease, except that
Lessee shall be entitled to a proportionate deduction of rent while such repairs
are being made unless the Lessee was the cause of the destruction. Such
proportionate deduction of rent to be based upon the extent to which the making
of such repairs shall interfere with the business carried on by Lessee in the
said premises, but in no event shall it be more than the monthly rental. If such
repairs cannot be made in ninety (90) days, Lessor may, at his option, make same
within a reasonable time, this lease continuing in full force and effect and the
rent to be proportionately rebated as aforesaid in this paragraph. In the event
that Lessor does not so elect to make such repairs which cannot be made under
such laws and regulations, this lease may be terminated at the option of either
party. In the event that the building is destroyed in which the demised premises
may be situated to the extent of not less than 33 1/3 percent of the replacement
costs thereof, Lessor may elect to terminate this lease, whether the demised
premises be injured or not. A total destruction of the building in which the
said premises may be situated shall terminate this lease.
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17. CONDEMNATION. If the whole or any part of the premises shall be
taken by any public authority under the power of eminent domain, then the terms
of this lease shall cease as to the part so taken from the day possession of
that part shall be required for any public purpose, and rent shall be paid up to
that day, and on or before that day Lessee shall elect, in writing, either to
cancel this lease or to continue in possession of the remainder of the premises
under the terms herein provided, except that rent shall be reduced in proportion
to the amount of the premises taken. All damages awarded for such taking shall
belong to and be the property of Lessor, whether such damages be awarded as
compensation for diminution in value to the leasehold or to the fee of the
premises. Lessee hereby irrevocably assigns to Lessor any right to compensation
or damages to which Lessee may become entitled by reason of the condemnation of
all or a part of the demised premises.
18. DAMAGE LIABILITY. Lessee assumes all risks of injury or damage to
all persons and property, excluding injuries or damage caused by pre-existing
structural defects or Lessor's negligent conduct, including, but not limited to,
all property of Lessee and Lessor in or about the premises, and Lessee shall
hold Lessor harmless for any such damage or injury; except that Lessee shall not
be liable to Lessor for damage or injury to Lessor's property caused by
earthquakes, other acts of God, or Lessor's negligent conduct.
It is further understood and agreed that the provision herein in
connection with the Lessor being insured against liability shall in no way be
construed as creating liability upon its part or admission of liability upon its
part, but is merely for the protection of Lessor.
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19. OUTSIDE STORAGE. There shall be no storage of any kind of material
on the outside of the building herein described, except as incident to the
normal operation of Lessee's business, and except as may be expressly permitted
or allowed by permission of Lessor.
20. TERMINATION. On the last day of the term, or sooner termination,
the Lessee shall peaceably and quietly leave and yield the premises to Lessor,
with fixtures and appurtenances in good condition and repair, reasonable wear
and tear excepted. Lessee shall leave the premises and appurtenances free and
clear of rubbish and clean; and in the event Lessee fails to do so, Lessor may
charge Lessee for the reasonable cost incurred by Lessor in having the same
done.
21. WAIVER. Waiver by Lessor of any breach of any condition or
agreement of this lease by Lessee shall not be deemed to be a waiver of any
subsequent breach of the same or any other condition or agreement by Lessee.
22. SUCCESSOR. The condition and agreements herein contained shall
apply to and bind the heirs, personal representatives, and successors in
interest of the parties hereto.
23. TAXES.
(a) Payment of Taxes. Lessee shall pay all real property taxes
applicable to the premises during the term of this lease.
(b) Definition of Real Property Tax. As used herein, the term
"real property tax" shall include any form of assessment, levy, penalty, or tax
(other than inheritance or estate taxes) imposed by any authority having the
direct or indirect power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
premises or on the real property of which the premises are a part, or as against
Lessor's right to rent or other income.
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(c) Personal Property Taxes. Lessee shall pay prior to
delinquency all taxes assessed against and levied upon trade fixtures,
furnishings, equipment and all other personal property of Lessee, and all
personal property leased to Lessee hereunder, whether such property is contained
in the premises or elsewhere. When possible, Lessee shall cause said trade
fixtures, furnishings, equipment and all other personal property to be assessed
and billed separately from the real property of Lessor.
24. HOLDING OVER. Holding over after the expiration of the term or any
extension thereof with the consent of Lessor shall be a tenancy from month to
month at a minimum monthly rental of the then prevailing rent.
25. SERVING OF NOTICE. All notices as provided for in this lease or by
law shall be in writing and shall be served either personally or by mail, and
shall be made upon the parties at the following address unless a party serves
written notice upon the other party of a change of address:
Lessor: PVC, Inc.
395 West 1400 North
Logan, Utah 84341
Lessee: NACO INDUSTRIES, Inc.
395 West 1400 North
Logan, Utah 84341
26. TOTAL AGREEMENT. It is understood and agreed between Lessor and
Lessee that this written lease agreement is the total agreement between Lessor
and Lessee with respect to the lease of the property described herein, and that
there are no other agreements, oral or otherwise, between them affecting the
same.
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IN WITNESS WHEREOF, the parties hereto have executed this document by
officers duly authorized to do so, effective as of the date and year first set
forth above.
LESSOR: LESSEE:
PVC, Inc. NACO INDUSTRIES, Inc.
By By:
Title: Title:
<PAGE>
EXHIBIT "A"
Legal Description
LOT 10, Northwest Industrial Park, as shown by the official plat filed August
25, 1989, as Filing No. 525635, in the office of the Recorder of Cache County,
Utah, (07-194-0010)
LOT 11, Northwest Industrial Park, as shown by the official plat filed August
25, 1989, as Filing No. 525635, in the office of the Recorder of Cache County,
Utah, (07-194-0011)
LOT 16, Northwest Industrial Park, as shown by the official plat filed August
25, 1989, as Filing No. 525635, in the office of the Recorder of Cache County,
Utah, (07-194-0016)
EQUIPMENT LEASE AGREEMENT
This Lease Agreement is made and entered into at Logan, Utah effective
the 1st day of December, 1999, by and between PVC, Incorporated, a Utah
corporation with principal offices in Logan, Utah (hereinafter "Lessor"), and
NACO INDUSTRIES, INC., a Utah corporation with principal offices in Logan, Utah
(hereinafter "Lessee").
l. LEASE.Lessor hereby leases to Lessee, and the Lessee rents from the
Lessor, all of that certain personal property and equipment described in Exhibit
"A", which is attached hereto and incorporated by this reference as though fully
set forth herein (hereinafter the "Equipment").
2. TERM. This lease shall continue for the term of five (5) years,
commencing on December 1, 1999 and continuing thereafter through November 30,
2004, or until earlier terminated as set forth herein. However, in the event
that Lessee shall notify Lessor in writing of its intention to renew this lease,
which notice must be given not less than ninety (90) days prior to the
expiration of the initial term hereof, then this lease shall be renewed under
the same terms as set forth herein, including the annual adjustments of the
rentals hereunder, for an additional period of sixty (60) months.
3. RENTAL. Rental payments shall become due and payable hereunder on a
monthly basis, payable in advance, commencing on the first day of December, 1999
and continuing on the first day of each month thereafter until November 1, 2004,
when the last of such monthly rental payments shall be paid. Rental payments
shall initially commence at the rate of $9,500.00 per month; and, upon each
annual anniversary date of this lease agreement, the monthly rentals shall be
adjusted by the amount of any increase in the Consumer Price Index over the
immediately
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preceding year. Rentals shall be payable to the Lessor at its office, or to such
person or at such other place as the Lessor may from time to time designate in
writing.
4. SELECTION OF EQUIPMENT. The Lessee has selected and inspected the
Equipment and accepts the Equipment AS IS, in its present condition.
THE LESSOR MAKES NO WARRANTY, DIRECTLY OR INDIRECTLY, EXPRESS OR
IMPLIED, AS TO THE EQUIPMENT OR ANY PART THEREOF, AS TO ITS DURABILITY,
CONDITION, MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE
EXCEPT THAT THE LESSOR WARRANTS THAT IT HAS TITLE TO OR PROPER
AUTHORIZATION TO LEASE EACH ITEM OF EQUIPMENT AS OF THE DATE HEREOF.
The parties agree that the Lessee may from time to time wish to
replace, or add to, the Equipment leased hereunder. Any such replacement or
addition shall occur only upon the prior written agreement of the parties
hereto, and the amount of the monthly rental payments shall be increased
accordingly, pursuant to the mutual agreement of the parties hereto. Consent to
make such replacements or additions, however, shall not be unreasonably withheld
by Lessor.
5. CREDIT AND FINANCIAL INFORMATION. The Lessee warrants that all
credit and financial information submitted to the Lessor herewith or at any
other time during the term of this lease is true and correct in all details and
complete for the purpose of inducing the Lessor to enter into this lease, or
consent to the addition or replacement of Equipment.
6. LESSEE'S INSPECTION AND ACCEPTANCE. Lessee acknowledges receipt of
the Equipment in good condition and working order and as satisfactory in all
respects for the purpose of this lease.
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7. INSTALLMENT, MAINTENANCE AND REPAIR. Neither the Lessor nor its
assignee shall have any obligation to install, erect, test, adjust, or service
the equipment. The Lessee, at its own cost and expense shall:
(a) Pay all charges in connection with the maintenance and
operation of the equipment;
(b) Comply with all laws, ordinances, regulations,
requirements, and rules with respect to the use, maintenance, and operation of
the equipment;
(c) Take good and proper care of the equipment and make all
repairs and replacements necessary to maintain, preserve, and keep the equipment
in good condition and working order. The Lessee shall not make any alterations,
additions, or improvements to the equipment without the prior written consent of
the Lessor. All repairs, replacements, parts, devices, accessories, and
improvements of whatsoever kind or nature furnished or affixed to the equipment
shall belong to and become part of the property of the Lessor.
8. INSURANCE AND INDEMNITY.The Lessee assumes the entire risk of loss,
theft, or damage to the equipment, whether or not covered by insurance, and no
such loss, theft, or damage shall relieve the Lessee of its obligations
hereunder except as set forth in paragraph 12. The Lessee agrees to and does
hereby indemnify and hold the Lessor harmless of, from, and against all claims,
costs, expenses, damages, and liabilities, including reasonable attorney's fees
resulting from or incident to the use, operation, or storage of the equipment
during the term of this lease. While the equipment is in the possession or
control of the Lessee, the Lessee agrees, at its own cost and expense, to keep
the equipment insured to protect all interests of the lessor, against all risks
of loss, theft, or damage from every cause whatsoever for not less than the then
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current value of the equipment and in addition shall purchase insurance in an
amount reasonable under the circumstances to cover the liability of the Lessor
for public liability and property damage. The Lessor shall be named as an
insured in all such policies and as loss payee thereunder. Each insurer shall
agree by endorsement upon the policy or policies issued by it, that it will give
the Lessor 30 days prior written notice of the effective date of any alteration
or cancellation. The proceeds of such insurance, whether resulting from loss,
theft, or damage or return premium or otherwise, shall be applied toward the
replacement or repair of the equipment or the payment of the obligations of the
Lessee hereunder at the option of the Lessor. The Lessee hereby appoints the
Lessor as Lessee's attorney-in-fact to make claim for, receive payment of, and
execute or endorse all documents, checks, or drafts for loss or damage or return
premium under any insurance policy issued on the equipment.
9. LOSS, THEFT OR DAMAGE. In the event of loss, theft, or damage to the
equipment in whole or in part, the Lessee shall promptly so notify the Lessor
and, at the Lessor's option shall:
(a) Place such equipment in good condition and working order;
or
(b) Replace such equipment with like equipment in good
condition and working order and furnish the Lessor with necessary documents to
vest good and marketable title thereto in the Lessor; or
(c) If the Lessor determines that any item of equipment is
beyond repair, pay to the Lessor, within ten days of such notification, the loss
value thereof which shall be an amount equal to the sum of:
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(1) All rents and other amounts due and owing under
this lease thereon at the time of such payment; plus;
(2) The sum of the rents and other amounts to become
payable for same during the balance of the lease, plus;
(3) The reversionary value of such item of equipment
at the end of the lease had such loss not occurred. Upon such payment the lease
shall terminate with respect to the item of equipment so paid for and the Lessee
shall thereupon become the owner thereof.
10. OWNERSHIP. The equipment shall at all times remain the property of
the Lessor and the Lessee shall have no right or property interest therein but
only the right to use the same under this lease. The Lessor shall have the right
to display notice of its ownership by affixing to the equipment an identifying
plate, stencil, or other indicia of ownership. Nevertheless, in order to protect
the interest of the Lessor, Lessee agrees to execute UCC-1 Forms as a protective
measure, conferring a Security Interest in the Equipment to Lessor.
11. PERSONAL PROPERTY. The equipment shall at all times remain personal
property regardless of the manner affixed to the realty. The Lessee shall
maintain each item so that it may be removed from any building in which it is
placed without damaging such building.
12. USE, LOCATION, REMOVAL AND INSPECTION. The equipment shall be used
only in the lawful business of the Lessee and located at Lessee's place of
business as approved by Lessor. The Lessee, without the written consent of the
Lessor, shall not remove the equipment from such location nor part with
possession or control thereof. The Lessor, upon prior reasonable notice to the
Lessee, shall have the right to inspect the equipment during the Lessee's normal
business hours.
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13. TAXES AND LICENSES. The Lessee shall pay all taxes, license fees,
and assessments, levied on the equipment, or relating to this lease, exclusive
of franchise taxes and taxes measured by the income of the Lessor. The Lessee
shall file all returns required therefor and furnish copies thereof to the
Lessor. The Lessor will cooperate with the Lessee and furnish the Lessee with
any information available to the Lessor in connection with the Lessee's
obligations under this paragraph.
14. LESSOR'S PAYMENT. In the case of the failure of the Lessee to
procure or maintain the required insurance, pay taxes, license fees, or
assessments as required or to keep the equipment in good condition and working
order as hereinbefore specified, the Lessor shall have the right, but not the
obligation to effect such insurance, pay such taxes, license fees, and
assessments and keep the equipment in good condition and working order, as the
case may be. In such event, the costs thereof shall be repayable by the Lessee
to the Lessor with the next installment of rent, and failure to do so shall
carry the same consequence as failure to pay any installment of rent when due
hereunder.
15. LATE CHARGES. Should the Lessee fail to pay any rental or other
charges provided for in this lease when due, there shall be imposed a late fee
of 5% of such late payment, and such payment and late fee shall thereafter bear
interest at 1 1/2% per month (18 month per annum).
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16. ENCUMBRANCES. Lessee shall keep the equipment free and clear of all
levies, liens and encumbrances.
17. RETURN OF EQUIPMENT, REPOSSESSION. Upon termination of this lease
for any reason, the Lessee, at its own expense, will forthwith return the
equipment to the Lessor at Lessor's property in Logan, Utah. Should the Lessee
fail or refuse to so return and deliver the equipment, the Lessor shall have the
right without notice or demand, to enter the premises where the equipment may be
found and take possession of and remove any equipment without legal process. The
Lessee hereby releases any claim or right of action for trespass arising from
such entry or removal. The equipment, upon its return, will be in good condition
and working order.
18. ASSIGNMENT. Without the Lessor's prior written consent, the Lessee
shall not assign, transfer, pledge, hypothecate, or otherwise dispose of this
lease or any interest therein or sublet or lend the equipment or permit it to be
used by anyone other than the Lessee and Lessee's employees.
19. DEFAULT. Any of the following events or conditions shall constitute
a default of the Lessee under this lease:
(a) Default in the payment of rent or any other sums due
hereunder for a period of ten days after the same becomes due;
(b) Any other breach of the terms and conditions of this
lease;
(c) If any writ or order of attachment, execution, or other
legal action against the Lessee is levied on any or all equipment and not
released or satisfied within ten days;
(d) Death or judicial incompetency of the Lessee if an
individual;
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(e) The institution of a proceeding in bankruptcy,
receivership, or insolvency against the Lessee or its property or if the Lessee
shall enter into an agreement or composition with its creditors;
(f) The occurrence of any event described in subdivisions (d)
or (e) of this paragraph with respect to any guarantor of the Lessee;
(g) If any certificate, statement, representation, or warranty
furnished by the Lessee or any of the Lessee's guarantors proves to be false in
any material respect; or
(h) If the condition of the affairs of the Lessee or any of
the Lessee's guarantors shall so change as to, in the sole opinion of the
Lessor, impair the Lessor's security or increase the credit risk involved.
20. REMEDIES. Upon the happening of any event of default as set forth
in paragraph 19, the Lessor shall have the right to do the following without
demand or notice of any kind: (a) Declare due, sue for, and receive from the
Lessee the sum of all rents and other amounts due and owing under this lease
plus the sum of the rents and other amounts to become payable during the balance
of the term of this lease;
(b) Retake possession of any and all equipment without any
court order or other process of law. For such purpose, the Lessor may enter upon
any premises where such equipment is located and remove the same therefrom
without being liable to any suit, action, or other proceedings by the Lessee.
The Lessor may, at its option, sell the equipment at public or private sale for
cash or on credit and by itself become the purchaser at such sale. The Lessee
shall be liable for arrears of rent, if any, the expense of retaking possession,
and the removal of the equipment, court costs, in addition to the balance of the
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rentals provided for herein, or in any renewal hereof, less the net proceeds of
the sale of the equipment, if any, after deducting all costs of taking, storage,
repair and sale and reasonable attorney's fees.
THE LESSEE WAIVES ANY AND ALL RIGHTS TO NOTICE AND TO A JUDICIAL
HEARING WITH RESPECT TO THE REPOSSESSION OF THE EQUIPMENT BY THE
LESSOR.
(c) Terminate this lease as to any or all equipment.
(d) Terminate any other lease between the Lessor and Lessee;
or
(e) Pursue any other remedy at law or in equity.
21. CONCURRENT REMEDIES. The rights granted to the Lessor under
paragraph 20 shall be cumulative and action on one shall not be deemed to
constitute an election or waiver of any other right to which the Lessor may be
entitled. The Lessee waives trial by jury in any action or proceeding arising
hereunder.
22. NOTICE AND WAIVERS. All notices relating hereto shall be delivered
in person to an officer of the Lessor or Lessee or shall be mailed certified or
registered to the Lessor or Lessee at their respective addresses or at any other
address hereinafter furnished by notice given in like manner. A waiver of a
specific default shall not be a waiver of any other or subsequent default. No
waiver by the Lessor or any provisions hereof shall constitute a waiver of any
other matter and all waivers shall be in writing and executed by an officer of
the Lessor. No failure on the part of the Lessor to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof.
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<PAGE>
23. ENTIRE AGREEMENT. This instrument constitutes the entire agreement
between the parties and may not be modified except by a written instrument
signed by the parties. Any representation or statement made by the Lessor or
Lessee not stated herein shall not be binding.
24. ADDITIONAL DOCUMENTS. At the request of the Lessor, the Lessee
shall execute and deliver to the Lessor such documents as the Lessor shall deem
necessary or desirable for the purpose of recording or filing.
25. MISCELLANEOUS. Any provision of this instrument prohibited by law
in any state shall, as to such state, be ineffective to the extent of such
prohibition without invalidating the remaining provisions of this instrument.
This instrument shall be governed and construed in accordance with the laws of
the State of Utah.
IN WITNESS WEHREOF, the parties hereto have set their hands as of the
date and year first set forth above.
LESSOR:
PVC, Inc.
By
Title:
LESSEE:
NACO INDUSTRIES, Inc.
By
Title:
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<PAGE>
EXHIBIT "A"
List of Personal property and Equipment Subject to Lease
Quantity Description
1 Steel Racks
1 Spark Resistant Fan
1 Hydraulic Unit 7.5 HP
1 Horizontal Beller
1 Valve Threader - Hydraulic
1 Power Transmission Promission Products 45" Elbow Machine Model 1878
1 24" Press and Beller Model 24, Ser. #88-27
2 Puller and Beller Machines
1 Mandrell Rack
1 12" Disc Sander
1 Ring Saw and Rack Model P, Ser. #6192-04
1 Drill Press
1 Grazino Engine Lathe 24" x 80" Model SAG508 Ser. #7896
1 Gorton Mill 3HP Model 1-22, Ser. #39277
1 Storage Cabinet
1 Ace Welding Torch
1 Automatic Gasket Cavity Machine and Assoc.Tooling Model 387, Ser # 4
1 Automatic Glycerine Tank
1 Pressure Test Tank and Associated Tooling
1 Marvel Series B Band Saw, Ser. #89056
1 Abrasine Saw and Table
12 End Cap Ring
1 Auto Router Table and Plates
1 Automatic Electric Glycerine Tank
6 PIP Belling Mandrells Solvent Weld
6 IPS Belling Mandrells Solvent Weld
4 Sewer Belling Mandrells Solvent Weld
6 PIP Reducing Flanges
5 IPS Reducing Flanges
6 Sewer Reducing Flanges
6 PIP Pulling Mandrells
6 IPS Pulling Mandrells
6 PIP Stripper Plates Solvent Weld
6 IPS Stripper Plates Solvent Weld
4 Sewer Stripper Plates Solvent Weld
1 Automatic (Air) Riser Machine
1 Valve Top Starter and Table
1 Belt Sander 18"
1 2 Wheel Trailer
5 Gasket Belling Mandrells PIP
5 PIP Gasket Forming Rings
5 Gasket Belling Mandrells IPS
5 IPS Forming Rings
5 Gasket Belling Mandrells Sewer
5 Sewer Gasket Forming Rings
1 Electric Welder and Equipment
1 Bolted Coupling Flange Molds 6 - 15 Perm
1 Mill Knodra Trpe FU-300 X-955
1 Whacheon Lathe Model HL-A60 Ser. #222143
1 Bullard 42" Boring Machine Ser. #16822
1 Ellis Mitre Saw Ser. #16936579
1 Hydralic Tracer Model TR100 Ser. #2383-DE
1 Air Compressor 5 Horse
1 Glue Clamp Tee - Double Bay
1 Glycerin Tank - Manual 15" Capacity
1 Welder - Lincoln Arc Mig
1 Welding Lincoln Stick
1 Glycerin Tank
1 Elbow Machine
1 Clausing / Kondia Milling Machine
1 Cincinnati Milacron Sabre 1250
1 Kent KGS-510AHD Precision Grinding Machine
1 Kent KGS-616M Precision Grinding Machine
1 DeVlieg Jig Mill Model 4B-60
1 Charmiles
1 Cincinnati Bichford Radial Arm Drill
1 Delectrode Drill
1 PCB IF1 Actuator w/depth stop 1-80
1 Power Shape Software
1 Computers
1 CadKey with fast Solid-Eckman Technologies
1 Mastercom 7.0 - Mill Level 3
PREPARED BY AND WHEN
- --------------------
RECORDED RETURN TO:
- ------------------
Douglas C. Waddoups, Esq.
Parr, Waddoups, Brown, Gee & Loveless
185 South State Street, Suite 1300
Salt Lake City, Utah 84111-1536
telephone: (801) 532-7840
telecopier: (801) 532-7750
KANSAS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FINANCING STATEMENT
THIS MORTGAGE (this "Mortgage") is executed as of the day of April,
1999, by NACO INDUSTRIES, INC., a Utah corporation ("Mortgagor"), whose address
is 395 West 1400 North, Logan, Utah 84321, in favor of WEBBANK CORPORATION, a
Utah corporation ("Mortgagee"), whose address is P.O. Box 1831, 136 Heber
Avenue, Suite 209, Park City, Utah 84060-1831.
FOR THE SUM OF TEN DOLLARS ($10.00) and other good and valuable
consideration, and in order to secure for the benefit of Mortgagee the following
obligations (collectively, the "Obligations"): (i) the timely payment and
performance of the obligations of Mortgagor under this Mortgage, under that
certain Adjustable Rate Promissory Note (the "Note") of even date with this
Mortgage, executed by Mortgagor, as maker, in favor of Mortgagee, as payee, in
the principal amount of ONE MILLION ONE HUNDRED THOUSAND DOLLARS ($1,100,000),
payable with interest as set forth in the Note, and under any other instruments
given to further evidence or secure such obligations, as this Mortgage, the Note
or such other instruments may be extended, renewed, modified, amended or
replaced from time to time; (ii) the repayment of principal and any applicable
interest on any advances made by Mortgagee at the request of Mortgagor prior to
the release and recordation of this Mortgage; and (iii) the payment of any loans
or advances made after the date of this Mortgage for any purpose by Mortgagee to
Mortgagor, provided that the principal amount of debt secured by this Mortgage
(not including sums advanced to protect the Security of this Mortgage) shall not
exceed, at any one time, the amount of $1,100,000.
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Mortgagor CONVEYS, WARRANTS AND TRANSFERS TO MORTGAGEE, WITH POWER OF
SALE, the following (for reference purposes only, the "Real Property"):
(A) The land (the "Land") located in Finney County, Kansas, more
particularly described as follows:
Beginning at a point 60 feet North and 1,080 feet West of the Southeast
corner of Section Three (3), Township Twenty-four (24) South, Range Thirty-three
(33) West of the 6th P.M., in Finney County, Kansas, for the point of beginning;
thence West on a line parallel to and 60 feet North of the South line of said
Section 3 a distance of 420 feet; thence North at an interior angle of 89o07' a
distance of 360 feet; thence East at an interior angle of 90o53' a distance of
420 feet; and thence South at an interior angle of 89o07' a distance of 360 feet
to the point of beginning; also described as Tracts 8, 9 and 10 in the Larson
Survey of such real estate dated February 23, 1966, prepared by Robert H. Jones;
P.E., and filed for record in the County Engineer's Office of Finney County,
Kansas, in Survey Book 3.
TOGETHER WITH all minerals, oil, gas and other hydrocarbon substances
located in, on or under the Land, and all air and water rights, rights-of-way,
easements, tenements, hereditaments, possessory rights, claims (including mining
claims), privileges and appurtenances belonging to, or used or enjoyed with, all
or any part of the Land, including, without limitation, all right, title and
interest of Mortgagor, now owned or acquired after the date of this Mortgage, in
and to any land lying in the bed of any street, road or avenue, open or
proposed, in front of or adjoining the Land, and in and to all sidewalks and
alleys and all strips and gores of land adjacent to or used in connection with
the Land; and
(B) All buildings, structures and other improvements on or after the
date of this Mortgage located on the Land (collectively, the "Improvements");
and
Mortgagor GRANTS TO MORTGAGEE A SECURITY INTEREST in the following (for
reference purposes only, the "Personal Property") (the terms set forth below
that are defined in the Utah Uniform Commercial Code (the "UCC") shall have the
respective meanings set forth in the UCC):
(A) All compensation granted and awards made for the taking by eminent
domain or by any proceeding or purchase in lieu of eminent domain of the whole
or any part of the Real Property, all proceeds of insurance paid as a result of
the partial or total destruction of the Improvements, and all unearned premiums
under all insurance policies now held or obtained after the date of this
Mortgage by Mortgagor relating to the Improvements;
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<PAGE>
(B) All goods, equipment, farm products, inventory, machinery,
supplies, fixtures, furniture, furnishings, tools, appliances and other tangible
personal property now owned or acquired by Mortgagor after the date of this
Mortgage and located on or necessary for construction on or operation of the
Real Property, and any substitutions and replacements of, any attachments,
accessions and additions to, and any proceeds or products from, such property;
(C) All businesses located on the Real Property and good will
associated with such businesses, trademarks, trade names, logos and designs for
the operations located on the Real Property, contract rights, deposit, escrow
and other accounts, accounts receivable, chattel paper, instruments, documents,
general intangibles, certificates, agreements, insurance policies, business
records, plans and specifications, drawings, maps, surveys, studies, permits,
licenses, zoning, subdivision development and other applications, filings and
approvals and other intangible personal property now owned or acquired after the
date of this Mortgage by Mortgagor and used in connection with the ownership or
operation of the Real Property, and any substitutions and replacements of, and
any proceeds or products from, such property; and
(D) All water stock relating to the Land, and deposits and other
security given to utility companies or governmental or quasi-governmental
agencies in connection with the Real Property.
(The Real Property and the Personal Property are referred to in this Mortgage
collectively as the "Property," which shall mean, as applicable, all or any
portion of, and interest in, the Property.)
MORTGAGOR AGREES WITH MORTGAGEE AS FOLLOWS:
1. Obligations; Certain Proceedings. Mortgagor shall timely pay and
perform the Obligations and all obligations under any other encumbrance or lien
on the Property. No such other encumbrance or lien shall be modified, increased
or refinanced without the prior written consent of Mortgagee. Mortgagor shall
maintain this Mortgage as a valid lien on, and security interest in, the
Property of equal priority to that created by this Mortgage, shall preserve and
protect Mortgagor's interests in the Property and the interests of Mortgagee
under this Mortgage, and shall appear in and defend any action or proceeding
which may affect the Property or the obligations of Mortgagor or the interests
of Mortgagee under this Mortgage.
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<PAGE>
2. Maintenance and Use. Mortgagor shall (a) maintain the Property in
good condition and repair, (b) comply with all laws, ordinances, rules,
regulations, covenants, conditions and restrictions relating to the Property,
(c) not permit nuisances to exist or commit or permit waste in or on the Real
Property, (d) promptly complete in a good and workmanlike manner any
Improvements which may be constructed, and promptly restore and repair in like
manner any Improvements which may be damaged or destroyed, (e) permit Mortgagee
and its representatives to inspect the Property at any time and conduct soil and
other tests on the Property, (f) not remove any personal property or fixtures
from the Real Property unless replaced immediately with similar property of at
least equivalent value, (g) preserve and extend all rights, licenses, permits
(including, without limitation, zoning variances, special exceptions, special
permits and non-conforming uses), privileges, franchises and concessions which
are applicable to the Real Property, and (h) immediately on discovery, clean up
all hazardous substances, hazardous wastes, pollutants and contaminants located
on the Property. Mortgagor shall do or refrain from doing any act which, from
the character or use of the Property, is reasonably necessary to protect and
preserve the fair market value of the Property, any specific enumerations in
this Mortgage not limiting such general obligation. Mortgagor shall indemnify,
defend and hold harmless Mortgagee from and against all liabilities, claims,
losses, damages, costs and expenses (including, without limitation, cleanup
costs and attorneys' fees) directly or indirectly arising out of, related to or
connected with any hazardous substances, hazardous wastes, pollutants or
contaminants located on the Real Property. The liability of Mortgagor under the
indemnity set forth in the immediately preceding sentence shall arise on the
discovery of an unacceptable environmental condition and shall survive the
exercise of the power of sale, foreclosure of this Mortgage as a mortgage or any
other event. (As used in this Mortgage, the terms "hazardous substances,"
"hazardous wastes," "pollutants" and "contaminants" mean any substances, wastes,
pollutants or contaminants included within those respective terms under any law,
ordinance, rule or regulation, whether now existing or enacted or amended after
the date of this Mortgage.)
3. Development. Without Mortgagee's prior written consent, Mortgagor
shall not do any of the following: (a) make any material change to the Real
Property or to the use of the Real Property; (b) drill for on or extract from
the Land any minerals, oil, gas or other hydrocarbon substances, or permit the
same to occur; (c) initiate or support any zoning reclassification of the Real
Property, seek any variance under existing zoning ordinances applicable to the
Real Property or use or permit the use of the Real Property in a manner which
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would be a nonconforming use under applicable zoning ordinances; (d) impose any
covenants, conditions, restrictions, easements or rights-of-way on the Real
Property, execute or file any subdivision plat affecting the Real Property or
consent to the annexation of the Real Property to any municipality; or (e)
permit the Real Property to be used by any person in such manner as might make
possible a claim of adverse usage or possession or of implied dedication or
easement.
4. Payment of Certain Impositions. Mortgagor shall pay when due all
taxes, assessments and charges relating to or levied against the Property,
including, without limitation, real and personal property taxes, general and
special assessments, utility charges, mechanics' and materialmen's charges, and
charges arising from any covenants, conditions or restrictions relating to the
Real Property. Mortgagor shall also pay to Mortgagee the amount of all taxes,
assessments and charges which may be levied by any governmental authority on
this Mortgage, the Obligations or Mortgagee by reason of the interest of
Mortgagee under this Mortgage; provided, that if the same cannot legally be paid
by Mortgagor, Mortgagee may declare a default under this Mortgage. Mortgagor
shall deliver to Mortgagee official receipts of the appropriate taxing or other
authority or other proof satisfactory to Mortgagee within ten (10) days after
the date any such taxes, assessments or charges are due and payable, evidencing
the payment of such taxes, assessments or charges (excluding payment of routine
utility charges, unless directed to do so by Mortgagee). Mortgagor may contest
in good faith the validity of any mechanic's or materialman's lien, provided
that Mortgagor first deposits with Mortgagee security for such lien in form and
amount acceptable to Mortgagee, and then causes such lien to be removed.
5. Insurance. Mortgagor shall maintain insurance policies
(collectively, the "Policies") with respect to the Property, in amounts and
forms and with deductibles acceptable to Mortgagee, providing: (a) hazard
insurance with special causes of loss including theft coverage, insuring against
fire, extended coverage risks, vandalism, malicious mischief and such other
risks as Mortgagee may require, including, without limitation, the risk of
damage caused by earthquake and flooding, with replacement cost coverage and
agreed value endorsement; (b) insurance against business interruption and loss
of rental income, including full loss of rents coverage (including any
percentage rents); (c) comprehensive boiler and machinery coverage; (d)
commercial general liability insurance; (e) during any construction, restoration
or repair of the Improvements, (i) workers' compensation insurance (including
employer's liability insurance, if requested by Mortgagee), and (ii) builder's
completed value risk insurance against "all risks of physical loss," including
collapse and transit coverage; and (f) such other insurance as may from time to
time be required by Mortgagee against the same or other hazards. The hazard
insurance policy shall contain a standard lender's loss payable endorsement
(such as Form 438 BFU), in favor of and in a form acceptable to Mortgagee.
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Mortgagee shall be named as an additional insured under the liability insurance
policy, and such insurance shall be primary and non-contributing in the event of
loss with any other insurance Mortgagee may carry. The insurers concerned shall
agree that the coverage under the Policies will not be modified or canceled
unless at least thirty (30) days' advance written notice of the proposed
modification or cancellation has been given to Mortgagee. Mortgagee may review
the Policies from time to time and require that the Policies be modified so as
to protect Mortgagee's interests. Such insurance shall be carried with companies
approved by Mortgagee that are authorized to transact business in Utah and rated
Class A:XI or better in the most recent publication of Best's Key Rating Guide,
Property-Casualty, or rated similarly in another similar publication selected by
Mortgagee. Mortgagor shall deliver to Mortgagee (at the option of Mortgagee)
either the originals of the Policies or certificates duly executed by the
insurers evidencing such insurance coverage. All renewal and replacement
policies must be delivered to Mortgagee at least fifteen (15) days before the
expiration of the old policies.
6. Reserve. On written notice by Mortgagee to Mortgagor, Mortgagor
shall pay to Mortgagee on the first day of each month an amount equal to
one-twelfth (1/12) of all taxes, assessments and insurance premiums required to
be paid under this Mortgage by Mortgagor, in such manner as to provide Mortgagee
with sufficient funds to pay such taxes, assessments and premiums at least
thirty (30) days prior to their respective due dates. Such funds may be
commingled with other funds of Mortgagee, shall not bear interest and shall
periodically be used by Mortgagee for the payment of such taxes, assessments and
premiums. Nothing contained in this Mortgage shall cause Mortgagee to be deemed
a trustee of such funds or to be obligated to pay any amounts in excess of such
funds. If such funds are insufficient to pay all of such taxes, assessments and
premiums, Mortgagor shall immediately pay the deficiency to Mortgagee.
7. Condemnation or Damage. Mortgagor shall immediately give written
notice to Mortgagee of the institution of any proceedings for the taking of the
Property or of the occurrence of any damage to the Property, and Mortgagee shall
receive all compensation, awards and insurance and other proceeds (collectively,
the "Proceeds") distributed in connection with such taking or damage. Each
person concerned is authorized and directed to make payments for such taking or
damage directly to Mortgagee, instead of to Mortgagee and Mortgagor jointly.
Mortgagee may, but shall not be obligated to, commence, appear in and prosecute
in its own name any action or proceeding and make any compromise or settlement
in connection with such taking or damage. After deducting from the Proceeds all
costs and expenses (including attorneys' fees) incurred by Mortgagee in
connection with such action, proceeding, compromise or settlement, Mortgagee may
use the Proceeds to reduce the Obligations (whether or not then due) or to
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<PAGE>
restore or repair the Property damaged. If Mortgagee determines to use the
Proceeds for restoration and repair of the Property, the Proceeds shall be made
available to Mortgagor for use in restoring or repairing the Property in
accordance with plans and specifications and construction arrangements approved
by Mortgagee. Mortgagee or its nominee shall hold the Proceeds and from time to
time shall, on compliance with such conditions or requirements as may be imposed
by Mortgagee, disburse portions of the Proceeds to Mortgagor or to those
entitled to the Proceeds as progress is made on such restoration and repair. If
any of the Proceeds remain after the entire costs of such restoration and repair
have been paid, Mortgagee may use such remaining Proceeds to reduce the
Obligations (whether or not then due) or may remit the same to Mortgagor.
8. Assignment of Rents and Possession. Mortgagor assigns to Mortgagee
all rents, deposits, and income arising at any time from the Property
(collectively referred to as "Rents"), together with all leases and other
similar documents (collectively, the "Leases") pertaining to the Property.
Mortgagor also authorizes Mortgagee or its agents at their option, upon default,
and without appointment of a receiver or other judicial intervention, to take
possession of the Property and to collect all Rents and apply them to payment of
the interest, principal, insurance premiums, taxes, assessments, repairs or
improvements necessary to keep the Property in such condition as Mortgagee deems
appropriate, or to apply them to other charges or payments provided for in this
Mortgage. All Rents received by Mortgagor after notice of default shall be held
by Mortgagor as trustee for the benefit of Mortgagee only, to be applied to the
sums secured by this Mortgage. All lessees under any such leases are hereby
authorized to make all lease payments to Mortgagee upon demand by the Mortgagee.
This right to possession and Rents assignment shall continue in force until the
Note is fully paid. The taking of possession by Mortgagee shall not prevent or
retard Mortgagee in the collection of said sums by foreclosure or otherwise.
Nothing contained in this paragraph shall be construed to bind Mortgagee to the
performance of any obligations under said leases, except for giving lessees'
proper credit for rent payments received by Mortgagee. Mortgagor represents and
warrants that Mortgagor has not executed any prior assignment of the Rents and
has not ans will not perform any act that would prevent Mortgagee from
exercising its rights under this Mortgage. Mortgagee, or Mortgagee's agent or a
judicially appointed receiver, shall not be required to enter upon, and take
control of or maintain the Property before or after giving notice of default to
Mortgagor. However, Mortgagee, or Mortgagee's agents or a judicially appointed
receiver, may do so at any time when a default occurs. Any application of Rents
shall not cure or waive any default or invalidate any other right or remedy of
Mortgagee.
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9. Leasing Requirements;Termination of Leases On Foreclosure. Without
the prior written consent of Mortgagee, Mortgagor shall not enter into, modify,
terminate or accept a surrender of any Leases, permit the assignment of any
Leases or accept payment of more than one (1) installment of rent due under any
Leases prior to its due date. Mortgagor shall timely comply with all of the
terms, covenants and conditions as landlord under the Leases. Mortgagor shall
promptly notify Mortgagee in writing of (a) the default by a lessee under any of
the Leases, (b) the commencement of any action by any lessee against Mortgagor,
or by Mortgagor against any lessee, or (c) the receipt of a written notice by
Mortgagor from any lessee claiming that Mortgagor is in default under a Lease.
Mortgagor shall promptly deliver to Mortgagee a copy of any process, pleading or
notice given or received by Mortgagor in reference to any such action or claim.
Prior to entering into any Lease, Mortgagor shall furnish a copy of the proposed
Lease to Mortgagee for its approval. If Mortgagee conditions its approval of a
Lease on certain changes being made to such Lease, Mortgagor shall make all of
such changes prior to the execution of such Lease. Immediately on the execution
of any Lease, an executed copy of such Lease shall be furnished to Mortgagee. On
foreclosure of this Mortgage (whether pursuant to the power of sale which is
available under this Mortgage or pursuant to foreclosure of this Mortgage as a
mortgage), none of the Leases shall be terminated by application of the doctrine
of merger, as a matter of law or as a result of such foreclosure, unless
Mortgagee or the purchaser at the foreclosure sale shall so elect in writing. No
act by or on behalf of Mortgagee or any such purchaser shall constitute or
result in termination of any Lease unless Mortgagee or such purchaser shall give
written notice of such termination to the lessee under such Lease.
10. Transfers and Encumbrances. Without the prior written consent of
Mortgagee, which may be withheld by Mortgagee in its sole discretion, Mortgagor
shall not, directly or indirectly, do any of the following: (a) sell, convey,
assign or transfer the Property, the Leases or the Rents, or contract to do so,
voluntarily, involuntarily or by operation of law; or (b) subject the Property,
the Leases or the Rents to any mortgage, deed of trust or other security device
(whether senior or junior to this Mortgage). Mortgagee's consent to one or more
of such transactions shall not be a waiver of the right to require such consent
with respect to any subsequent or successive transactions. Such consent of
Mortgagee may be conditioned on satisfaction of such requirements as Mortgagee
may impose.
11. Mortgagee Title Insurance. Mortgagor shall provide to Mortgagee a
policy of title insurance insuring the lien of this Mortgage, in form and
amount, and issued by a company, acceptable to Mortgagee.
12. Financial and Rental Statements; Records and Books. Within twenty
(20) days after request by Mortgagee, which request may be made from time to
time, Mortgagor shall deliver to Mortgagee an accurate and complete list of the
8
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Leases, setting forth, for each Lease, the names of each lessee, the space
covered, the term, the amount of any security deposit, the amount of rental
payable and such other information as Mortgagee may request. Said statements and
other information shall be prepared in a form and certified by a person
acceptable to Mortgagee. Mortgagor shall maintain adequate records and books of
account relating to the Property and its own financial affairs sufficient to
permit the preparation of such statements. Mortgagee may examine, copy and audit
such records and books of accounts from time to time on request.
13. Representations and Warranties. Mortgagor covenants with, and
represents and warrants to, Mortgagee that all of the following statements are
true as of the date of this Mortgage and will remain true: (a) NACO Industries,
Inc. is lawfully seized of indefeasible fee simple marketable title to the Real
Property; (b) this Mortgage has been duly executed by Mortgagor, and the
Property has been duly conveyed to Mortgagee under this Mortgage; (c) the
Property is free and clear of all liens, encumbrances and interests of third
parties not approved in writing by Mortgagee; (d) Mortgagor will defend title to
the Property against all claims and demands; (e) all of the Personal Property
has been paid for in full, is owned solely by Mortgagor and is not used and was
not bought for personal, family or household purposes; and (f) all obligations
incurred by Mortgagor in connection with or which relate to the Property are
current and without default.
14. Default. Mortgagor shall be in default under this Mortgage on the
occurrence of any of the following: (a) Mortgagor fails to timely pay or perform
any of the Obligations; (b) an event of default occurs under any lien or
encumbrance affecting the Property; (c) Mortgagor or any guarantor of the
Obligations (i) files a voluntary petition in bankruptcy or files a petition or
answer seeking or acquiescing in a reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future law or regulation relating to bankruptcy, insolvency or other relief for
debtors, (ii) consents to or acquiesces in the appointment of a trustee,
receiver or liquidator of Mortgagor or such guarantor, the Property or the
Rents, (iii) makes a general assignment for the benefit of creditors, or (iv)
admits in writing its inability to pay its debts generally as they become due;
(d) a court of competent jurisdiction enters an order, judgment or decree
approving a petition filed against Mortgagor or such guarantor seeking a
reorganization, arrangement, composi tion, readjustment, liquidation,
dissolution or similar relief under any present or future law or regulation
relating to bankruptcy, insolvency or other relief for debtors; (e) a trustee,
receiver or liquidator of Mortgagor, such guarantor, the Property or the Rents
is appointed without the consent or acquiescence of Mortgagor or such guarantor;
(f) a writ of execution, attachment or similar process is issued or levied
against the Property or the Rents or a judgment involving monetary damages is
9
<PAGE>
entered against Mortgagor which becomes a lien on the Property or the Rents; (g)
any representation or warranty contained in this Mortgage or in any other
instrument executed by Mortgagor is or becomes untrue; or (h) a change occurs in
the condition or affairs (financial or otherwise) of Mortgagor or such guarantor
which materially impairs Mortgagee's security or increases its risks.
15. Remedies. On a default under this Mortgage, Mortgagee may (but is
not obligated to) do any one or more of the following: (a) without notice or
demand on Mortgagor and without releasing Mortgagor from any of the Obligations,
pay or perform a portion or all of the Obligations that Mortgagor has failed to
pay or perform, and Mortgagor shall immediately reimburse Mortgagee for all
costs and expenses (including attorneys' fees) incurred in connection with such
payment or performance, with interest on such costs and expenses at the Default
Rate (as defined in the Note), both before and after judgment; (b) declare all
of the Obligations immediately due and payable and charge interest on the
Obligations then outstanding at the Default Rate, both before and after
judgment; (c) exercise the power of sale under applicable law; (d) foreclose
this Mortgage in the manner provided by law for the foreclosure of mortgages on
real property; (e) exercise all of the rights and remedies of a secured party
under the UCC (whether now existing or created after the date of this Mortgage),
including, without limitation, the right to require Mortgagor to assemble and
make available to Mortgagee the Personal Property at a place designated by
Mortgagee; (f) take possession or appoint a receiver to take possession of and
(without liability or obligation) as a matter of right under this Mortgage and
without the necessity of any showing as to the inadequacy of the Property as
security (i) hold, occupy, operate, use, maintain, repair and conserve the value
of the Property, (ii) make, modify, enforce and terminate the Leases, (iii)
collect the Rents and (after deducting from the Rents maintenance and operating
expenses, including reasonable management fees) apply the same to the
Obligations, and (iv) exercise such other powers as may be fixed by the court;
(g) offset the Obligations against any amounts owed by Mortgagee to Mortgagor
and apply toward the Obligations all funds of Mortgagor which Mortgagee may have
in its possession or under its control; (h) if permitted by applicable law, sue
on the Obligations; or (i) exercise any other rights and remedies available at
law or in equity. A receiver appointed pursuant to this Paragraph may be
appointed without notice to Mortgagor, and without regard to whether the
Property is in danger of being lost, removed or materially injured, whether the
Property or any other security is sufficient to discharge the Obligations or
whether Mortgagee forecloses this Mortgage judicially or nonjudicially, it being
the intention of Mortgagor to authorize the appointment of a receiver when
Mortgagor is in default under this Mortgage and Mortgagee has requested the
appointment of a receiver. Mortgagor consents to the appointment of the
particular person (including an officer, director, partner or employee, as the
10
<PAGE>
case may be, of Mortgagee) designated by Mortgagee as "receiver" and waives any
right to suggest or nominate any person as receiver in opposition to the person
designated by Mortgagee. Neither the entering on and taking possession of the
Property nor the collection and application of the Rents as aforesaid shall cure
or waive any default or notice of default under this Mortgage, invalidate any
act done pursuant to such notice of default or operate to postpone or suspend
any of the Obligations. No remedy provided in this Mortgage shall be exclusive
of any other remedy at law or in equity (whether now existing or created after
the date of this Mortgage), and all remedies under this Mortgage may be
exercised concurrently, independently or successively from time to time. The
failure on the part of Mortgagee to promptly enforce any right under this
Mortgage shall not operate as a waiver of such right, and the waiver of any
default shall not constitute a waiver of any subsequent or other default.
16. Exhaustion of Security. If the sums secured by this Mortgage are
now or hereafter further secured by the liens of other mortgages, deeds of
trust, security agreements, pledges, contracts of guaranty, assignments of
leases, assignments of certificates of deposit, letters of credit, or other
security, Mortgagee may, at its option, exhaust any one or more of those
securities and the security under this Mortgage, either concurrently or
independently, and in such order as Mortgagee shall determine. In doing so,
Mortgagee will not be deemed to have made an election of remedies or waiver that
would prevent it from later exercising its remedies as to any remaining
security, nor will any such action by Mortgagee be deemed as bringing a
multiplicity of suits or splitting causes of action.
17. Security Agreement; Fixture Filing. This Mortgage constitutes a
security agreement with respect to all personal property and fixtures in which
Mortgagee is granted a security interest under this Mortgage, and Mortgagee
shall have all of the rights and remedies of a secured party under the UCC
(whether now existing or created after the date of this Mortgage), as well as
any other rights and remedies available at law or in equity. This Mortgage, with
Mortgagor, as debtor, and Mortgagee, as secured party, also constitutes a
fixture filing with respect to any part of the Property which is or may become a
fixture. The record owner of the Real Property is NACO Industries, Inc.
Mortgagee is not a seller or purchase money lender of the Personal Property.
Mortgagor shall immediately notify Mortgagee if the name or identity of
Mortgagor is changed, or if the place of business of Mortgagor is changed to an
address different from the address for Mortgagor set forth in the first
paragraph of this Mortgage. With respect to any instrument or chattel paper
covered by this Mortgage, Mortgagee need not take any steps to preserve rights
against prior parties. A carbon, photographic or other reproduction of a
financing statement is sufficient as a financing statement.
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<PAGE>
18. Waiver. Mortgagor waives, to the fullest extent permitted by law,
any right (a) to obtain a partial release of the Property from the lien of this
Mortgage by paying less than all of the Obligations, (b) to redeem the Property
by paying less than the amount necessary to effect redemption in full, (c) to
have the Property or any other property securing the Obligations marshaled on
the foreclosure of the lien of this Mortgage, and agrees that any court having
jurisdiction to foreclose such lien may order the Property and such other
property sold as an entirety, (d) to direct the order of the sale of the
Property or any other property securing the Obligations, and agrees that
Mortgagee may exhaust the security given for the Obligations in any order, and
(e) relating to procedural or substantive limitations on the recovery of any
deficiency, including, without limitation, any requirement that Mortgagee
establish a deficiency in connection with the indebtedness secured by this
Mortgage prior to the time that all of the security given for payment of the
Obligations has been exhausted. Mortgagor further waives and relinquishes all
exemptions and homestead rights which may exist with respect to the Real
Property, and agrees not to file a declaration of homestead with respect to the
Real Property.
19. Expenses and Fees.Mortgagor shall pay all costs, expenses and fees
(including, without limitation, trustee's and attorneys' fees) which are
incurred by Mortgagee in connection with the Obligations, this Mortgage, the
servicing of the indebtedness secured by this Mortgage and the enforcement or
protection of the rights and interests of Mortgagee under this Mortgage,
including, without limitation, premiums on receiver's bonds and the monitoring
of any insolvency or bankruptcy proceedings, with interest on such costs,
expenses and fees at the Default Rate, both before and after judgment.
20. Further Assurances. Mortgagor shall at any time and from time to
time, on request of Mortgagee, take or cause to be taken any action, and
execute, acknowl edge, deliver or record any further instruments, which
Mortgagee deems necessary or appropriate to carry out the purposes of this
Mortgage and to perfect and preserve the lien and security interest intended to
be created and preserved in the Property.
21. Request for Notices. Mortgagor requests that a copy of any notice
of default and a copy of any notice of sale under this Mortgage be mailed to
Mortgagor at the address of Mortgagor set forth in the first paragraph of this
Mortgage.
22. WAIVER OF JURY TRIAL. MORTGAGOR AND MORTGAGEE WAIVE TRIAL BY JURY
IN ANY ACTION, PROCEEDING, COUNTERCLAIM, OR CROSS-CLAIM BROUGHT BY ANY PARTY
AGAINST THE OTHER IN ANY MATTER ARISING OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSAC TION INVOLVED IN THIS MORTGAGE.
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<PAGE>
23. Miscellaneous. Time is of the essence of this Mortgage. This
Mortgage shall be binding on Mortgagor and shall inure to the benefit of
Mortgagee and its successors and assigns. The liability of each person executing
this Mortgage as Mortgagor shall be joint and several. The invalidity or
unenforceability of any provision of this Mortgage shall in no way affect the
validity or enforceability of any other provision. This Mortgage shall be
governed by and construed in accordance with the laws of the State of Utah
except where the laws of the State of Kansas require that the laws of the State
of Kansas apply to any matters addressed herein. Paragraph captions and defined
terms in this Mortgage are for convenience of reference only and shall not
affect the construction of any provision of this Mortgage. All pronouns shall be
deemed to refer to the masculine, feminine or neuter or singular or plural, as
the identity of the parties may require.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
MORTGAGOR has executed this Mortgage on the date set forth below, to be
effective as of the date first set forth above.
MORTGAGOR:
---------
NACO INDUSTRIES, INC.
a Utah corporation
By:
Its:
State of )
--------------------------
) ss.
County of )
------------------------
The foregoing instrument was acknowledged before me this day of
----------
, 1999, by , the
- ---------- ------------------------------------------------------
of NACO Industries, Inc..
- -----------
(Seal)
----------------------
Notary Public
My Commission Expires: Residing at:
- --------------------- ----------------------
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<PAGE>
DEPOSIT AND ESCROW AGREEMENT
----------------------------
THIS DEPOSIT AND ESCROW AGREEMENT (this "Agreement") is made as of
April ___, 1999, by and among NACO Industries, Inc., a Utah corporation (the
"Company"), WebBank Corporation (the "Lender") and WebBank Corporation, acting
solely in its capacity as escrow agent under this Agreement (the "Escrow
Agent"). The Company and the Lender are sometimes collectively referred to
herein as the "Parties" and individually as a "Party."
WHEREAS, the Parties have entered into that certain Loan Agreement
dated as of the date hereof (the "Loan Agreement") pursuant to which the Lender
has agreed to loan the Company $1,100,000 (the "Loan");
WHEREAS, the Parties have entered into that certain Security Agreement
dated as of the date hereof (the "Security Agreement") pursuant to which the
Company has granted the Lender a security interest in certain assets of the
Company including any money placed in the Escrow Account (as defined below) as
collateral for the Loan;
WHEREAS, the Company owes approximately $157,000.00 to M. Coen
("Coen"), and the Lender desires that such debt be discharged within 30 days of
the date of this Agreement; and
WHEREAS, it is a condition precedent to the Loan Agreement and the
making of the Loan that the Company enters into this Agreement and places the
Escrow Funds (as defined below) in the Escrow Account.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Escrow Deposit. Simultaneously with the execution of this Agreement,
the Company has deposited with the Escrow Agent $157,000.00 (the "Escrow
Amount") in accordance with the Loan Agreement. The Escrow Agent hereby
acknowledges receipt of $157,000.00 and agrees to hold the Escrow Amount,
together with all products and proceeds thereof (collectively, the "Escrow
Funds"), in a separate and distinct account in the name of the Lender (the
"Escrow Account"), subject to the terms and conditions of this Agreement. The
Escrow Agent shall not distribute or release the Escrow Funds except in
accordance with the express terms and conditions of this Agreement.
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<PAGE>
2. Release of Escrow Funds. The Company hereby consents to and
instructs the Escrow Agent that the Escrow Funds shall be distributed and
released as follows:
(a) Event of Default. The Company agrees that in the event of
an Event of Default under the Note, the Lender may instruct the Escrow Agent to
release to the Lender all of the Escrow Funds, which Escrow Funds are pledged to
the Lender as collateral for the Note pursuant to the Security Agreement.
(b) Release to Coen. Within 30 days from the date of this
Agreement, the Company shall instruct the Escrow Agent in writing, in a form
satisfactory to the Lender, to release to Coen from the Escrow Account an amount
necessary to satisfy the Company's outstanding debt owed to Coen (the
"Request"). Such Request shall (i) include the account number and other
identifying information of Coen's account to which the funds are to be paid, and
(ii) be accompanied by a written certification to the Lender from an officer of
the Company that no Event of Default under the Loan Agreement has occurred and
that no event has occurred that but for the passage of time would constitute an
Event of Default under the Loan Agreement. The Lender shall have the right in
its sole discretion to deny any Request. In the event the Company has not made
the Request within 30 days of this Agreement, the Lender shall have the right in
its sole discretion to instruct the Escrow Agent to release to Coen the amount
necessary to satisfy Coen's outstanding debt owed by the Company. Any amount
remaining in the Escrow Account on the 45th day following the date of this
Agreement shall be released by the Escrow Agent to the Company.
(c) No Limitation of Remedies.The Company hereby acknowledges
and agrees that the payment of Escrow Funds to the Lender pursuant to this
Agreement shall not limit or otherwise affect any right of payment or of
indemnification which the Lender may have pursuant to the Loan Agreement, Note,
Security Agreement, Mortgage or Guaranty and that the Escrow Funds do not
constitute an exclusive remedy for Lender.
3. Termination. This Agreement shall terminate when (i) all of the
Escrow Funds in the Escrow Account have been released and distributed in
accordance with Section 2, or (ii) the Note has been paid in full including any
expenses or late fees due under the Note and Loan Agreement. Upon such
termination this Agreement shall have no further force and effect, except that
the provisions of this Section 3 and Sections 4, 5 and 6 and Sections 8 through
19 below all survive such termination.
4. Conditions to Escrow. The Escrow Agent agrees to hold the Escrow
Funds and to perform in accordance with the terms and provisions of this
2
<PAGE>
Material Contracts The Parties agree that the Escrow Agent shall not assume any
responsibility for the failure of the Parties to perform in accordance with the
Loan Agreement or this Agreement. The acceptance by the Escrow Agent of its
responsibilities hereunder is subject to the following terms and conditions
which the parties hereto agree shall govern and control with respect to the
Escrow Agent's rights, duties and liabilities hereunder:
(a) Documents. The Escrow Agent shall be protected in acting
upon any written notice, request, waiver, consent, receipt or other paper or
document furnished to it, not only as to its due execution and validity and the
effectiveness of its provisions, but also as to the truth and accuracy of any
information therein contained, which the Escrow Agent in good faith believes to
be genuine and what it purports to be. Should it be necessary for the Escrow
Agent to act upon any instructions, directions, documents or instruments issued
or signed by or on behalf of any corporation, partnership, fiduciary or
individual acting on behalf of another party hereto, it shall not be necessary
for the Escrow Agent to inquire into such corporation's, partnership's,
fiduciary's or individual's authority. The Escrow Agent is also relieved from
the necessity of satisfying itself as to the authority of the persons executing
this Agreement in a representative capacity on behalf of any of the Parties.
(b) Liability. The Escrow Agent shall not be liable for
anything which it may do or refrain from doing in connection herewith, except
for its own gross negligence, bad faith or willful misconduct.
(c) Legal Counsel. The Escrow Agent may consult with, and
obtain advice from, legal counsel in the event of any question as to any of the
provisions hereof or its duties hereunder, and it shall incur no liability and
shall be fully protected in acting in good faith in accordance with the opinion
and instructions of such counsel.
(d) Limitation of Duties. The Escrow Agent shall have no
duties except those which are expressly set forth herein and it shall not be
bound by any agreement of the other parties hereto (whether or not it has any
knowledge thereof).
(e) Resignation or Termination of Escrow Agent. The Escrow
Agent shall have the right to resign at any time by giving written notice of
such resignation to the Parties specifying the effective date of such
resignation or termination. After receiving or delivering the aforesaid notice,
as the case may be, the Lender shall have the exclusive right in its sole
discretion to appoint a successor Escrow Agent to which the Escrow Agent may
distribute the property then held hereunder, less the amount of any costs owing
to the Escrow Agent hereunder as of such date. If a successor Escrow Agent has
not been appointed and has not accepted such appointment by the end of such
3
<PAGE>
30-day period, the Escrow Agent may apply to a court of competent jurisdiction
for the appointment of a successor Escrow Agent, and the costs, expenses and
reasonable attorneys' fees which are incurred in connection with any such
proceeding shall be paid by the Lender. Except as otherwise agreed to in writing
by the Parties, no Escrow Funds shall be released from the Escrow Account unless
and until a successor Escrow Agent has been appointed in accordance with this
Section 4(e).
(f) Discharge of Escrow Agent. Upon delivery of all of the
Escrow Funds pursuant to the terms of Section 3 above or to a successor Escrow
Agent, the Escrow Agent shall thereafter be discharged from any further
obligations hereunder. The Escrow Agent is hereby authorized, in any and all
events, to comply with and obey any and all final judgments, orders and decrees
of any court of competent jurisdiction which may be filed, entered or issued,
and all final arbitration awards and, if it shall so comply or obey, it shall
not be liable to any other person by reason of such compliance or obedience.
5. Indemnification. The Company hereby agrees to indemnify the Escrow
Agent for and to hold it harmless against any loss, liability or reasonable
expense (including reasonable attorneys' fees and expenses) incurred without
gross negligence, willful misconduct or bad faith on the part of the Escrow
Agent arising out of or in connection with its performance under this Agreement.
6. Escrow Costs. The Escrow Agent shall be entitled to be reimbursed
for its reasonable costs and expenses incurred in connection with maintaining
the Escrow Account hereunder, which costs and expenses shall be paid by the
Company.
7. Lender's Rights to Escrow Funds. Except for the first priority
security interest of the Lender to the funds in the Escrow Account created
pursuant to the Security Agreement, none of the Parties shall have any right,
title or interest in or to, or possession of, the Escrow Account and therefore
shall not have the ability to pledge, convey, hypothecate or grant as security
all or any portion of the Escrow Funds unless and until such Escrow Funds have
been released pursuant to Section 2 above. Accordingly, the Escrow Agent shall
be in possession of the Escrow Funds and shall act as custodian of the Lender
under this Agreement for the purposes of perfecting a security interest therein,
and no other creditor of the Company shall have any right to have or to hold or
otherwise attach or seize all or any portion of the Escrow Funds as collateral
for any obligation and shall not be able to obtain a security interest in any of
the Escrow Funds unless and until such Escrow Funds have been released pursuant
to Section 2 above. Notwithstanding the foregoing, however, nothing herein shall
restrict or otherwise limit the ability of any creditor of the Company to attach
or obtain a security interest in the right of the Company to receive payments
from the Escrow Account in accordance with the terms hereof and the Loan
Agreement.
4
<PAGE>
8. Notices.All notices,demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, one day after being sent to the recipient by reputable overnight
courier service (charges prepaid) or five days after being mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications shall be sent to the
Escrow Agent, the Lender and the Company at the addresses indicated below or to
such other address or to the attention of such other person as the recipient
party has specified by prior written notice to the sending party.
The Company:
-----------
NACO Industries, Inc.
395 West 1400 North
Logan, UT 84321
Attention: Verne E. Bray
The Lender:
-----------
WebBank Corporation
P.O. Box 1831
136 Heber Avenue, Ste. 209
Park City, UT 84060-1831
Attention: Douglas L. Hesse
with a copy to:
Parr Waddoups Brown Gee & Loveless
185 South State Street, Suite 1300
Salt Lake City, Utah 84111
Attention: Douglas C. Waddoups
The Escrow Agent:
----------------
WebBank Corporation
P.O. Box 1831
136 Heber Avenue, Ste. 209
Park City, UT 84060-1831
Attention: Douglas L. Hesse
5
<PAGE>
9. Entire Agreement;Amendments.This Agreement, together with the Loan
Agreement and the Security Agreement, contains the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes any
prior understandings or agreements by or among the parties hereto, whether
written or oral, which may have related to the subject matter hereof in any way.
This Agreement may be amended, or any provision of this Agreement may be waived,
so long as such amendment or waiver is set forth in a writing executed by each
of the Parties (a copy of which shall be promptly provided by the Company to the
Escrow Agent); provided that if any such amendment or waiver would have the
effect of increasing or expanding the Escrow Agent's obligations or duties under
this Agreement, the written consent of the Escrow Agent shall be required in
addition to the written consent of the Parties. No course of dealing between or
among the parties hereto shall be deemed effective to modify, amend or discharge
any part of this Agreement of any rights or obligations of any party hereto
under or by reason of this Agreement.
10. Assigns and Assignment. This Agreement shall inure to the benefit
of and shall be binding upon Lender and Lender's successors and assigns. Escrow
Agent shall not be permitted to assign or delegate its obligations hereunder
except as provided in Section 4(e) above. The Company shall not have the right
to assign or otherwise transfer its rights hereunder (including, without
limitation, its rights to the funds in the Escrow Account), and any such attempt
to assign or transfer shall be void.
11. No Third-Party Beneficiaries. Nothing herein expressed or implied
is intended or shall be construed to confer upon or to give any person other
than the Escrow Agent, the Parties and their permitted assigns any rights or
remedies under or by reason of this Agreement.
12. Interpretation. The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or control or affect
the meaning hereof.
13. No Waiver. No failure or delay by a party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, and no
single or partial exercise thereof shall preclude any right of further exercise
or the exercise of any other right, power or privilege. The right of the Parties
to receive all or a portion of the Escrow Funds under the circumstances
described in Section 2 above is in addition to, and not in lieu of, any other
remedies that any such party may have against another pursuant to the Loan
Agreement in the event of a breach of the Loan Agreement.
6
<PAGE>
14. Severability. The parties hereto agree that (a) the provisions of
this Agreement shall be severable in the event that for any reason whatsoever
the provisions hereof are invalid, void or otherwise unenforceable, (b) such
invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are as similar as possible in terms to such
invalid, void or otherwise unenforceable provisions, but are valid and
enforceable, and (c) the remaining provisions shall remain enforceable to the
fullest extent permitted by law.
15. No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
collective mutual intent, and no rule of strict construction shall be applied
against any person. The term "including" as used herein shall be by way of
example, and shall not be deemed to constitute a limitation of any term or
provision contained herein. Each defined term used in this Agreement has a
comparable meaning when used in its plural or singular form.
16. Releases on Non-Business Days. In the event that a release of
Escrow Funds hereunder is required to be made on a date that is not a business
day, such release may be made on the next succeeding business day with the same
force and effect as if made when required.
17. Governing Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by, and construed in accordance with, the laws of the State of Utah
without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of Utah or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Utah. In furtherance of the foregoing, the internal law of the State of Utah
shall control the interpretation and construction of this Agreement, even though
under that jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
Notwithstanding the foregoing, each of the parties hereto agrees that each of
the other parties shall have the right to being any action or proceeding for
enforcement of a judgment entered by Utah courts in any other court or
jurisdiction. Additionally, the foregoing shall not be deemed to prohibit any
party hereto or any other person or entity that may have the right to enforce or
sue under this Agreement from commencing an action in any court that may have
jurisdiction.
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18. Counterparts. This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts (including by
means of telecopied signature pages), each of which shall be an original and all
of which shall together constitute one and the same agreement.
(Remainder of this page intentionally left blank)
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
NACO Industries, Inc.
By: _________________________
Its: _________________________
WebBank Corporation
By: _________________________
Its: _________________________
WebBank Corporation,
acting solely in its capacity as
Escrow Agent under this Agreement
By: _________________________
Its: _________________________
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GUARANTY
--------
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned, Verne E. Bray and Beverly Bray
(collectively "Guarantors" and each a "Guarantor"), individuals residing at 1367
Pheasant Hill Place, Logan, Utah 84321, hereby guarantee the payment when due of
the Obligations (as defined below) of NACO Industries, Inc., a Utah corporation
("Parent") and NACO Composites, Inc., a Utah Corporation and a wholly owned
subsidiary of Parent ("Subsidiary" together with Parent collectively referred to
herein as "Obligor") to WebBank Corporation, a Utah corporation ("WebBank"),
whose address is P.O. Box 1831, 136 Heber Avenue, Suite 209, Park City, Utah
84060.
RECITALS
--------
A. Pursuant to that certain Loan Agreement by and among
WebBank and Obligor dated as of the date hereof (the "Loan Agreement"), Obligor
has executed that certain Adjustable Rate Promissory Note dated as of the date
hereof in the original principal amount of ONE MILLION, ONE HUNDRED THOUSAND
DOLLARS (the "Note") in favor of WebBank, Parent has executed that certain
Mortgage in favor of WebBank dated as of the date hereof (the "Mortgage"), and
Obligor has executed that certain Security Agreement in favor of WebBank dated
as of the date hereof (the "Security Agreement," and together with the Loan
Agreement, the Note, the Mortgage and all other related documents the "Related
Documents").
B. Guarantor Verne E. Bray is an officer of Parent and owns
approximately 70% of the issued and outstanding stock of Parent. Guarantor
Beverly Bray is the spouse of Verne E. Bray.
AGREEMENT
---------
NOW, THEREFORE, to induce WebBank to enter into the Loan Agreement and
accept the Note, each Guarantor has executed and delivered this Guaranty:
1. Definitions. When used in this Guaranty and not defined
herein, the capitalized terms have the meanings given to them in the Loan
Agreement.
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2. Guaranty of Payment and Performance Obligation.
-----------------------------------------------
a. Guarantors and each of them hereby jointly
and severally and absolutely, unconditionally and irrevocably guarantee to
WebBank and its respective successors, indorsees, transferees and assigns (i)
the prompt and complete payment when due of all principal, interest and other
amounts, and all extensions, renewals, refunding, replacements and modifications
thereof under the Note and the other Related Documents, including without
limitation, payments due under the Note and the other Related Documents for any
breach under such agreements and (ii) the prompt and complete performance of all
obligations under the Note and the other Related Documents (collectively, the
"Obligations"). Guarantors jointly and severally further agree to pay any and
all expenses which may be paid or incurred by WebBank enforcing any rights under
this Guaranty, including, but not limited to, attorneys' fees. Guarantors hereby
jointly and severally guarantee that any amounts due WebBank under the
Obligations will be paid in full to WebBank, without set-off or counterclaim, in
lawful currency of the United States of America at the office of WebBank as set
forth herein.
b. No payment, payments or performance made by
Obligor or any other Person or received or collected by WebBank from Obligor or
any other Person by virtue of any action or proceeding or any set-off or
appropriation or application at any time or from time to time in reduction of or
in payment of the Obligations, shall be deemed to release the liability of any
Guarantor hereunder, both of whom shall, notwithstanding any such payment,
payments or performance, remain jointly and severally liable for the Obligations
until each of the Obligations is paid or performed in full.
3. Unconditional Character of Guaranty.
-----------------------------------
a. The obligations of Guarantors under this
Guaranty shall be absolute and unconditional, joint and several, and shall be a
guaranty of payment and performance and not of collection, irrespective of the
validity, regularity or enforceability of the Related Documents, or any
provisions thereof, the absence of any action to enforce the same, any waiver or
consent with respect to any provision thereof, the recovery of any judgment
against any person or entity or action to enforce the same, any failure or delay
in the enforcement of the obligations of the Obligor under the Note, or any
set-off, counterclaim, recoupment, limitation, defense or termination. Each
Guarantor hereby waives diligence, demand for payment, filing of claims with any
court, any proceeding to enforce any provision of the Related Documents, any
right to require a proceeding first against Obligor, any protest, presentment,
notice or demand whatsoever, and each Guarantor hereby covenants that this
Guaranty shall not be terminated, discharged or released except upon
satisfaction of the conditions specified in Section 2 above, and only to such
extent of any such payment and performance.
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b. Without limiting the generality of the
foregoing, such obligations, and the rights of WebBank to enforce the same by
proceedings, whether by action at law, suit in equity or otherwise, shall not be
in any way affected by (i) any insolvency, bankruptcy, liquidation,
reorganization, readjustment, composition, dissolution, winding up or other
proceeding involving or affecting Obligor or any Guarantor or others, or (ii)
any change in the ownership of any of the capital stock of the Obligor, or any
of its respective affiliates.
c. Guarantors and each of them hereby waive to
the fullest extent possible under applicable law:
(1) any defense based upon the doctrine of
marshalling of assets or upon an election of remedies by WebBank, including,
without limitation, an election to proceed by nonjudicial rather than judicial
foreclosure which election destroys or otherwise impairs the subrogation rights
of any Guarantor or the right of any Guarantor to proceed against Obligor for
reimbursement, or both;
(2) any defense based upon any statute or
rule of law which provides that the obligation of a surety must be neither
larger in amount nor in other respects more burdensome than that of the
principal;
(3) any duty on the part of WebBank to
disclose to any Guarantor any facts WebBank may now or hereafter know about
Obligor regardless of whether WebBank has reason to believe that any such facts
materially increase the risk beyond that which any Guarantor intends to assume
or has reason to believe that such facts are unknown to any Guarantor or has a
reasonable opportunity to communicate such facts to any Guarantor, as each
Guarantor acknowledges that he or she is fully responsible for being and keeping
informed of the financial condition of Obligor and of all circumstances bearing
on the risk of breach of any representations, warranties, covenants or agreement
or nonpayment of any obligation caused by such breach hereby guaranteed;
(4) any defense arising because of WebBank's
election, in any proceeding instituted under the Federal Bankruptcy Code, of the
application of Section 1111(b)(2) of the Federal Bankruptcy Code, as amended or
supplemented;
(5) any claim for reimbursement,
contribution, indemnity or subrogation which any Guarantor may have or obtain
against Obligor by reason of the payment by any Guarantor of any Obligation; and
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(6) any other event or action (excluding
Guarantors' compliance with the provisions hereof) that would result in the
discharge by operation of law or otherwise of any Guarantor from the performance
or observance of any obligation, covenant or agreement contained in this
Guaranty.
d. WebBank may deal with Obligor in the same
manner and as freely as if this Guaranty did not exist, and WebBank shall be
entitled, without notice to any Guarantor, among other things, to grant to
Obligor such extension or extensions of time to perform any act or acts as may
seem advisable to WebBank at any time and from time to time without terminating,
affecting or impairing the validity or enforceability of this Guaranty or the
obligations of Guarantors hereunder.
e. WebBank may proceed, either in its own name
or in the name of any Guarantor or both, or otherwise, to protect and enforce
any or all of its rights under this Guaranty by suit in equity, action at law or
by other appropriate proceedings, or to take any action authorized or permitted
under applicable law, and shall be entitled to require and enforce the
performance of all acts and things required to be performed hereunder by
Guarantors. Each and every remedy of WebBank shall, to the extent permitted by
law, be cumulative and shall be in addition to any other remedy given hereunder
or now or hereafter existing at law or in equity.
f. No waiver or release shall be deemed to have
been made by WebBank of any of its rights hereunder unless the same shall be in
writing and signed by or on behalf of WebBank, and any such waiver shall be a
waiver or release only with respect to the specific matter involved and shall in
no way impair the rights of WebBank or the obligations of any Guarantor under
this Guaranty in any other respect at any other time.
g. At the option of WebBank, any Guarantor or
both may be joined in any action or proceeding commenced by WebBank against
Obligor for any Obligation covered by this Guaranty in connection with or based
upon the Related Documents, or other obligation, or any other provision thereof,
and recovery may be had against any Guarantor in such action or proceeding or in
any independent action or proceeding against any Guarantor, without any
requirement that WebBank first assert, prosecute or exhaust any remedy or claim
against Obligor.
4. Subrogation. Notwithstanding any payment or payments made
by any Guarantor hereunder or any set-off or application of funds of any
Guarantor by WebBank, no Guarantor shall be entitled to be subrogated to any of
the rights of WebBank against Obligor or any collateral security or guaranty or
right of offset held by WebBank for the payment of the Obligation, nor shall any
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Guarantor seek any reimbursement from the Obligor in respect of payments made by
any Guarantor hereunder, until all amounts owing to WebBank by Obligor for or on
account of the Obligation are paid in full.
5. Representations and Warranties. Each Guarantor makes the
following representations and warranties to WebBank, each of which shall survive
the execution, delivery and performance of this Guaranty until each of the
Obligations is fully satisfied:
a. Guarantors have delivered to WebBank the
unaudited financial statement attached hereto as Schedule 5(a) (the "Financial
Statement") which Financial Statement fairly and accurately presents the net
assets and financial position of Guarantors as of the date hereof;
b. Guarantor has made no agreements or
representations of any kind that would limit or qualify the terms of this
Guaranty;
c. This Guaranty is executed at Obligor's
request and not at the request of WebBank;
d. WebBank has made no representation to
Guarantor as to the credit worthiness of Obligor; and
e. This Guaranty constitutes the legal, valid
and binding obligation of Guarantor.
6. Covenants.Each Guarantor covenants with WebBank as
follows:
a. Except as provided in this Guaranty and the
Related Documents, Guarantor will not, without the prior written consent of
WebBank, sell, dispose of, assign, pledge, mortgage, hypothecate, or otherwise
encumber or transfer any property of any kind owned by Guarantor if such
encumbering or transfer (i) relates to property of such monetary value as to be
deemed "material" to this Guaranty, (ii) would materially and adversely affect
Guarantor's financial condition, as such financial condition is reflected by
Guarantor's current Financial Statement, or (iii) would materially impair
WebBank's ability to enforce this Guaranty; and
b. Guarantor will notify WebBank in writing in
the event there is any change in his or her Financial Statement, and shall
furnish WebBank with (i) a current Financial Statement within ninety (90) days
after the end of each calendar year and at any other time WebBank requests such
current Financial Statement and (ii) copies of each Guarantor's federal and
state tax returns within 30 days of filing such returns.
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7. Event of Default; Remedies.
--------------------------
a. Event of Default. The occurrence of any of
the following events or existence of any of the following conditions shall
constitute an Event of Default under this Guaranty (each such occurrence an
"Event of Default"):
(1) Any Guarantor shall default in the
performance of or compliance with any covenant or agreement contained in this
Guaranty or in any document related hereto, and such default is not cured within
five (5) days;
(2) Any material representation or warranty
made by any Guarantor herein or in any statement, certificate or other document
related hereto proves to have been false or incorrect in any material respect
when made; and
(3) Any Event of Default as defined in the
Loan Agreement shall occur and shall not be cured within the applicable cure
period, if any, provided in the Loan Agreement.
b. Remedies upon Default. In the event that any
Event of Default shall occur and be continuing, WebBank shall be entitled to all
remedies set forth in this Guaranty, the Loan Agreement and the other Related
Documents, and to all remedies available at law or in equity.
8. Consent. Each Guarantor hereby consents that, without the
necessity of any reservation of rights against any Guarantor and without notice
to or further assent by any Guarantor, any demand for payment or performance of
any of the Obligations made by WebBank may be rescinded by WebBank and any of
the Obligations continued, and the Obligations, or the liability of any other
party upon or for any part thereof, or any collateral security or guaranty
therefor or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by WebBank, as WebBank may deem
advisable from time to time, and any collateral security or guaranty or right of
offset at any time held by WebBank for the payment or performance of the
Obligations may be sold, exchanged, waived, impaired, surrendered or released,
all without the necessity of any reservation of rights against any Guarantor and
without notice to or further assent by any Guarantor who will remain bound
hereunder, notwithstanding any such renewal, extension, modification,
acceleration, compromise, amendment, supplement, termination, sale, exchange,
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waiver, impairment, surrender or release. Except to the extent the applicable
law provides that Guarantors may not so agree, WebBank shall not have any
obligation to protect, secure, perfect or insure any collateral security
document or property subject thereto at any time held as security for the
Obligations of this Guaranty. THIS IS A GUARANTY OF PAYMENT AND PERFORMANCE, NOT
OF COLLECTION. WEBBANK MAY SEEK TO COLLECT PAYMENT OR ENFORCE PERFORMANCE OF THE
OBLIGATIONS FROM ANY GUARANTOR AS THOUGH THE OBLIGATIONS WERE THE DIRECT AND
PRIMARY OBLIGATION OF SUCH GUARANTOR AND MAY SEEK PAYMENT OR PERFORMANCE OF THE
OBLIGATIONS FROM ANY GUARANTOR WITHOUT MAKING ANY DEMAND FOR PAYMENT THEREOF
UPON OBLIGOR OR TAKING ANY OTHER ACTION TO COLLECT OR ENFORCE THE OBLIGATIONS
FROM OBLIGOR. When making any demand hereunder against any Guarantor, WebBank
may, but shall be under no obligation to, make a similar demand on Obligor, and
any failure by WebBank to make any such demand or to collect any payments from
Obligor shall not relieve any Guarantor of such Guarantor's obligations or
liabilities hereunder, and shall not impair or affect the rights and remedies,
express or implied, or as a matter of law, of WebBank against any Guarantor. For
the purposes hereof, "demand" shall include the commencement and continuance of
any legal proceedings.
9. Enforcement.No lawful act of commission or omission of
any kind or at any time upon the part of WebBank in respect of any matter
whatsoever shall in any way affect or impair the rights of WebBank to enforce
any right, power or benefit under this Guaranty. Nothing in this Guaranty shall
be construed as a waiver by any Guarantor of any rights or claims he or she may
have against Obligor under this Guaranty or otherwise, but any recovery upon
such rights and claims shall be had from Obligor separately, it being the intent
of this Guaranty that each Guarantor shall be unconditionally and absolutely,
jointly and severally obligated to perform fully all of such Guarantor's
obligations, covenants and agreements hereunder for the benefit of WebBank.
10. Continuing Effect. This Guaranty shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of the Obligation is rescinded or must otherwise be restored or
returned by WebBank upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of Obligor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee, custodian or similar officer
for Obligor or any substantial part of its property, or other wise, all as
though such payments had not been made.
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11. Miscellaneous.
-------------
a. Governing Law. This Guaranty shall be
interpreted and the rights of the parties hereunder shall be determined under
the laws of the State of Utah, without reference to conflict of laws principles.
b. Severability. If any term or provision of
this Guaranty or the application thereof to any circumstances shall, to any
extent, be invalid or unenforceable, the remainder of this Guaranty, or the
application of such term or provision to circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each term and provision of this Guaranty shall be valid and enforceable to the
fullest extent permitted by law.
c. Notices. All notices, requests, demands and
other communications which are required or permitted to be given under this
Guaranty will be in writing and will be deemed to have been duly given if (i)
delivered in person, or (ii) mailed, first class certified, registered or
express mail, return receipt requested and postage prepaid, or (iii) sent by
recognized overnight courier, with proof of delivery requested and charges
prepaid, to:
If to Guarantors:
Verne E. Bray and Beverly Bray
1367 Pheasant Hill Place
Logan, Utah 84321
If to WebBank:
WebBank Corporation
P.O. Box 1831
136 Heber Avenue, Ste. 209
Park City, Utah 84060-1831
Attention: Douglas L. Hesse
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with a copy to:
Douglas C. Waddoups
Parr Waddoups Brown Gee & Loveless
185 South State, Suite 1300
Salt Lake City, Utah 84111
or to such other address as a party may specify by written notice to the other
parties.
d. Right of Offset. Each Guarantor acknowledges
the right of WebBank to offset against any obligations of such Guarantor to
WebBank under this Guaranty, any amount owing by WebBank to such Guarantor.
e. Right to Cure. Notwithstanding the
provisions of Section 7 hereof, any Guarantor shall have the right to cure an
Event of Default occurring pursuant to the Loan Agreement, provided, that such
cure is effected within the applicable period set forth in the Loan Agreement;
and provided further that such cure can be effected in compliance with the Note.
The exercise of such right to cure by any Guarantor shall not reduce or
otherwise affect the liability of any Guarantor under this Guaranty.
f. Jurisdiction. Each Guarantor hereby
expressly and irrevocably submits to the non-exclusive personal jurisdiction of
the United States Dis trict Court for the District of Utah - Central Division
and to the jurisdiction of any other competent court of the State of Utah
located in the County of Salt Lake (collectively, the "Utah Courts"),
preserving, however, all rights of removal to such federal court under 28 U.S.C.
Section 1441, in connection with all disputes arising out of or in connection
with this Agreement or the transactions contemplated hereby and agrees not to
commence any litigation relating thereto except in such courts. If the
aforementioned courts do not have subject matter jurisdiction, then the
proceeding shall be brought in any other state or federal court located in the
State of Utah, preserving, however, all rights of removal to such federal court
under 28 U.S.C. Section 1441. Each Guarantor hereby waives the right to any
other jurisdiction or venue for any litigation arising out of or in connection
with this Guaranty or the transactions contemplated hereby to which he or she
may be entitled by reason of present or future domicile. Notwithstanding the
foregoing, each Guarantor hereto agrees that WebBank shall have the right to
bring any action or proceeding for enforcement of a judgment entered by the Utah
Courts in any other court or jurisdiction, including, without limitation, the
courts of the States of Kansas and California. Additionally, the foregoing shall
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not be deemed to prohibit any party hereto or any other person or entity that
may have the right to enforce this Guaranty from commencing an action in any
court or courts that may have jurisdiction.
g. Service of Process. Each Guarantor
irrevocably consents to the service of process outside the territorial
jurisdiction of the courts referred to in Section 11(f) hereof in any such
action or proceeding by mailing copies thereof by registered United States mail,
postage prepaid, return receipt requested, to such address as specified in or
pursuant to Section 11(c) hereof. However, the foregoing shall not limit the
right of WebBank to effect service of process on any Guarantor by any other
legally available method.
h. WAIVER OF JURY TRIAL. AS AN IMPORTANT
INDUCEMENT TO WEBBANK TO ENTER THIS AGREEMENT, EACH GUARANTOR WAIVES THE RIGHT
TO TRIAL BY JURY IN ANY ACTION ARISING UNDER OR IN ANY WAY RELATED TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
i. Section Headings. The section headings
contained in this Guaranty are for reference purposes only and shall not affect
the meaning or interpretation of this Guaranty.
j. Delay. No failure to exercise and no delay
in exercising, on the part of WebBank, any right, power or privilege shall
preclude any other or further exercise thereof, or the exercise of any other
power or right. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
k. Modification. No provision of this Guaranty
shall be waived, amended, supplemented or released except by a written
instrument executed by Guarantors and WebBank.
l. Binding Effect. This Guaranty shall be
binding upon the successors, assigns, heirs and legal representatives of each
Guarantor.
[Remainder of Page Left Blank Intentionally]
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IN WITNESS WHEREOF, and intending to be legally bound, the undersigned
have caused this Guaranty to be duly exercised and delivered as of the day and
year first above written.
GUARANTORS
/s/Verne E. Bray
-------------------------------
Verne E. Bray, individually
/s/Beverly Bray
-------------------------------
Beverly Bray, individually
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SCHEDULE 5(a)
FINANCIAL STATEMENTS OF EACH GUARANTOR
[To be provided by counsel for Obligor.]
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LOAN AGREEMENT
This Loan Agreement (this "Agreement") is entered into this _____ day of April,
1999, by and between NACO Industries, Inc., a Utah corporation (the "Borrower"),
and WebBank Corporation, a Utah corporation (the "Lender").
WHEREAS, the Lender desires to make a loan to the Borrower in the amount of ONE
MILLION, ONE HUNDRED THOUSAND AND 00/100 DOLLARS ($1,100,000.00) (the "Loan")
which is eighty percent (80%) guaranteed by RBS/USDA (the "RBS/USDA Guaranty"),
in accordance with and subject to the terms and conditions of such RBS/USDA
Guaranty, all of which are incorporated herein by reference; and
WHEREAS, the Borrower desires that the Lender make the Loan to the Borrower.
NOW, THEREFORE, in consideration of the representations, warranties, and
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
DEFINITIONS
Unless the context otherwise requires, all capitalized terms not otherwise
specifically defined herein shall have the meanings set forth below in this
Article 1:
"Accounting Terms" are those generally accepted in accordance with GAAP.
"Affiliate" as applied to any Person shall mean any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For purposes of this definition, a Person shall be deemed to
control another Person if such first Person possesses directly or indirectly the
power to (a) vote 10% or more of the securities having ordinary voting power for
the selection of directors of such Person or (b) direct, or cause the direction
of, the management and policies of the second Person, whether through the
ownership of voting securities, by contract or otherwise. In addition, as to the
Lender, "Affiliate" shall include any partnership a majority of the partners of
which are officers, directors, employees or Affiliates of the Lender; and as to
the Borrower, "Affiliate" shall not include any Lender.
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"Assets" shall mean all of the properties, asset rights, claims, leasehold
interests, contracts, and goodwill used in the Business or owned by the Borrower
of every kind and character, wherever located, whether real or personal,
tangible or intangible.
"Business" shall mean the business of the Borrower and all activities related
thereto, including but not limited to the activities, at any location, conducted
by the Borrower under the name "NACO Industries, Inc." or "NACO Composites,
Inc."
"Capital Expenditure" means any payment made directly or indirectly for the
purpose of acquiring or constructing fixed assets, Real Property or equipment
which in accordance with GAAP would be added as a debit to the fixed asset
account of the Person making such expenditure, including, without limitation,
amounts paid or payable under any conditional sale or other title retention
agreement or under any lease or other periodic payment arrangement which is of
such a nature that payment obligations of the lessee or obligor thereunder would
be required by GAAP to be capitalized and shown as liabilities on the balance
sheet of such lessee or obligor.
"Change of Control" shall mean:
(a) if any Person or group besides Verne E. Bray shall
beneficially own more than 50% of the voting power of the then-outstanding
voting equity interests of Borrower; or
(b) if any shares of capital stock of Borrower which Verne E. Bray
beneficially owns shall by any means come into the beneficial ownership of any
other Person or any group; or
(c) if Verne E. Bray or Jeffrey Kirby shall cease to be an
executive officer of Borrower.
For purposes of this definition, the terms "beneficially own,"
"beneficial ownership" and "group" shall have the respective meanings ascribed
to them pursuant to Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
"Closing" shall have the meaning specified in Article 2.
"Closing Date" shall have the meaning specified in Article 2.
"Closing Transactions" means the transactions which will occur on the Closing
Date pursuant to the Loan Documents.
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"Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of any subsequent federal tax laws.
"Deposit and Escrow Agreement" means the Deposit and Escrow Agreement between
the Borrower and the Lender dated as of the date hereof.
"Environmental Complaint" shall mean any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, proceeding, judgment, letter
or other communication from any federal, state, or municipal authority or any
other Person involving a Hazardous Discharge from or on Real Property owned or
leased by the Borrower or any violation of any order, permit or Environmental
Law.
"Environmental Laws" shall mean any federal, state or local laws, common law,
ordinances, regulations or policies, as well as orders, decrees, judgments or
injunctions issued, promulgated, approved, or entered thereunder, relating to
the environment, health and safety, Hazardous Substances (including, without
limitation, the use, handling, transportation, production, disposal, discharge
or storage thereof) or to industrial hygiene or the environmental conditions on,
under or about the Real Property owned or leased by the Borrower including,
without limitation, soil, groundwater, and indoor and ambient air conditions.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and any regulations promulgated thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a member
of the same controlled group of corporations (within the meaning of Section
414(b) of the Code) as the Borrower or is under common control (within the
meaning of Section 414(c) of the Code) with the Borrower.
"GAAP" means generally accepted accounting principles in the United States.
"Guaranty" means the Guaranty executed by Verne E. Bray and Beverly Bray in
favor of the Lender as of the date hereof.
"Hazardous Discharge" shall mean any releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping of Hazardous Substances from or onto Real Property owned or
leased by the Borrower.
"Hazardous Substances" shall mean any pollutant, toxic substance, hazardous
waste, compound, element or chemical that is or shall be defined as hazardous,
toxic, noxious or dangerous pursuant to Laws or regulated in any manner pursuant
to any Law.
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"Indebtedness" means, for any Person, without duplication, (a) all obligations
of such Person for borrowed money, (b) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (c) all indebtedness
of such Person on which interest charges are customarily paid or accrued, (d)
all guarantees by such Person, (e) the unfunded or unreimbursed portion of all
letters of credit issued for the account of such Person, (f) any obligation of
such Person representing the deferred purchase price of property or services
purchased by such Person, (g) all obligations secured by a lien on any property
or asset owned or held by such Person regardless of whether such obligation
shall have been assumed by that Person or is nonrecourse credit of that Person
and (h) all liability of such Person as a general partner or joint venturer for
obligations of the nature described in (a) through (g) preceding.
"Law" or "Laws" shall mean any and all applicable statutes, laws, ordinances,
proclamations, regulations, published requirements, orders, decrees and rules of
any foreign, federal, state or local government, political subdivision or
governmental or regulatory authority, agency, board, bureau, commission,
instrumentality or court or quasi-governmental authority, including, without
limitation, those covering environmental, tax, energy, safety, health,
transportation, bribery, record keeping, zoning, discrimination, antitrust and
wage and hour matters, and in each case as amended and in effect from time to
time.
"Lease Obligation" shall mean any lease, sublease, license or similar
arrangement, pursuant to which a Person leases, subleases, or otherwise is
granted the right to occupy, take possession of or use property, whether, real,
personal or mixed.
"Lien" shall mean any lien, pledge, claim, charge, security interest, mortgage
or encumbrance of any nature whatsoever, other than Permitted Liens.
"Loan Documents" means this Agreement, the Note, the Security Agreement, the
Mortgage, the Guaranty, the Deposit and Escrow Agreement, the RBS/USDA Guaranty,
and all other documents executed by the parties in connection with this
transaction.
"Material Adverse Change" means a material adverse effect on the Assets or on
the financial condition, operations, or prospects of the Business.
"Mortgage" means the Mortgage executed by the Borrower in favor of the Lender as
of the date hereof.
"Multiemployer Plan" means a multiemployer plan defined as such in Section 3(37)
of ERISA to which contributions have been made by the Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA.
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"Note" means the Adjustable Rate Promissory Note of the Borrower of even date
herewith in the original principal sum of $1,100,000.00, payable to the Lender
and secured by the Security Agreement and the Mortgage.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding
to all or any of its functions under ERISA.
"Permitted Liens" as to the business shall mean (a) liens securing the payment
of taxes, assessments or other governmental charges or levies which are not yet
delinquent or which are being contested in good faith and as to which reserves
have been established in accordance with GAAP; (b) materialmen's, mechanics',
carriers', workmen's, repairmen's, or other like liens incurred in the ordinary
course of business securing obligations not yet due; (c) zoning restrictions,
easements, licenses, restrictions on the use of Real Property or minor
irregularities in title thereto, which do not materially impair, alone or in the
aggregate, the use of the property affected thereby in the operation of the
Business or the value of such property for the purpose of the Business; (d)
workers' compensation, Social Security or unemployment compensation liens for
amounts not yet due; (e) liens in favors of holders of additional Indebtedness
incurred pursuant to Section 3.5(A) hereof; and (f) and contractual and
statutory liens in favor of landlords and lessors.
"Person" shall mean a corporation, an association, a partnership, a limited
liability company, a joint venture, a trust, an organization, a business, an
individual, a government or political subdivision thereof, a governmental agency
or any other legal entity.
"Plan" means any employee benefit plan established or maintained by the Borrower
or any ERISA Affiliate and which is covered by Title IV of ERISA.
"Prohibited Transaction" means any transaction set forth in Section 406 or 407
of ERISA or Section 4975(c)(1) of the Code for which there does not exist a
statutory or administrative exemption.
"RBS/USDA" means the Rural Business-Cooperative Service, an agency of the United
States Department of Agriculture, and any successor department, agency, or
instrumentality authorized to administer the Business and Industrial Guaranteed
Loan Program.
"RBS/USDA Guaranty" shall be given the meaning set forth in the recitals above.
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"Real Property" shall mean all real property, buildings and fixtures owned,
leased or used by a Person.
"Reportable Event" means any of the events set forth in Section 4043 of ERISA
for which the 30-day notice requirement has not been waived by the PBGC.
"Security Agreement" means the Security Agreement executed by the Borrower in
favor of the Lender as of the date hereof.
"Subsidiary" shall mean any corporation, association, partnership, limited
liability company, joint venture or other business entity of which more than 50%
of the outstanding voting stock (or equivalent interest) is at the time owned by
the Borrower or by one or more Subsidiaries or by the Borrower and one or more
Subsidiaries.
"Tax" means any federal, state, or local tax, assessment, or charge of any
nature whatsoever, including, without limitation, (i) income, franchise, sales
and use, unemployment compensation, excise, severance, property, gross receipts,
profits, and payroll taxes, and (ii) any penalties, additions, fines, and
interest assessed on or related to any of the foregoing.
"Transactions" means the transactions contemplated by this Agreement.
ARTICLE 2
THE LOAN
2.1 Amount and Term of Loan. The amount of the Loan shall be $1,100,000.00 (the
"Loan Amount"), and the Loan Amount shall be amortized over a period of fifteen
(15) years with monthly installments of principal and interest in accordance
with the terms of the Note.
2.2 Interest Rate. The Loan Amount shall bear interest as provided in the Note.
2.3 Loan Disbursement. The closing (the "Closing") of the Transactions is taking
place at the offices of Parr Waddoups Brown Gee & Loveless on April ____, 1999
(the "Closing Date"). At the Closing, the Lender will deliver the full Loan
Amount in United States money to the Borrower by wire transfer as further
explained in the Wire Transfer Instructions and Receipt of Funds attached hereto
as Exhibit "2.3."
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2.4 Prepayment Premium. The principal balance of the Loan may be prepaid
according to the terms, and subject to the prepayment penalties, set forth in
the Note.
2.5 Origination Fee; RBS/USDA Guaranty Fee. The Origination Fee shall be two
percent (2%) of the total Loan amount (in addition to any fees due RBS/USDA),
paid by the Borrower to the Lender at closing. In addition, the Borrower agrees
to pay the RBS/USDA guarantee fee of two percent (2%) of eighty percent (80%) of
the total amount of the Loan.
2.6 Collateral/Security. The collateral/security for the Loan shall consist of
the
following:
A. A first mortgage on the Borrower's real property and improvements
located at 3445 West Jones Avenue, Garden City, Kansas 67846 as described in the
appraisal required by Section 5.12(i) hereof. Title to this property shall be
recorded in the Borrower's name.
B. A first priority security interest in the Borrower's machinery,
equipment, titled and untitled vehicles, furniture, fixtures, deposits, and all
other tangible and intangible assets (including, without limitation, patents and
patent applications), as described in the appraisal required by Section 5.12(ii)
hereof, provided, however, that the Borrower shall not grant the Lender a first
priority interest in inventory or accounts. Title to this property shall be
recorded in the Borrower's name.
C. Life insurance on Verne E. Bray in the amount of no less than
$500,000, and life insurance on Jeffrey Kirby in the amount of no less than
$500,000, as required by Section 4.2(c) hereof.
D. A second priority security interest in the Borrower's inventory and
accounts as described in the appraisal required by Section 5.12(ii) hereof.
E. Absolute and unconditional guarantee of payment and performance of
Verne E. Bray and Beverly Bray, according to the terms of the Guaranty.
F. A first priority security interest in the deposit and escrow account
established and maintained pursuant to the Deposit and Escrow Agreement.
2.7. Escrow Fund. At the option of the Lender, the Lender may require the
Borrower to establish an Escrow Fund (defined below) sufficient to discharge its
obligations for the payment of taxes, insurance premiums, and maintenance
pursuant to this Agreement. (The initial deposits together with the amounts in
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(a), (b), and (c) below shall be called the "Escrow Fund"). Initial deposits for
taxes, premiums, and maintenance shall be made by the Borrower to the Lender in
amounts determined by the Lender in its discretion on the date hereof to be held
in the Lender's Escrow Fund. Additionally, the Borrower shall pay to the Lender
on the first day of each calendar month: (a) one-twelfth of an amount which
would be sufficient to pay the taxes payable, or estimated by the Lender to be
payable, upon the due dates established by the appropriate taxing authority
during the ensuing twelve (12) months; (b) one-twelfth of an amount which would
be sufficient to pay the insurance premiums due for the renewal of the coverage
afforded by the policies upon the expiration thereof; and (c) one-twelfth of an
amount which would be sufficient to pay all costs associated with maintenance
and upkeep of buildings, grounds, equipment, and all other property which needs
to be maintained in the ordinary course of business ("CAM"). The Borrower agrees
to notify the Lender immediately of any changes to the amounts, schedules, and
instructions for payment of taxes, insurance premiums, and CAM of which it has
obtained knowledge and authorized the Lender or its agent to obtain the bills
for taxes and other charges directly from the appropriate taxing authority. The
Escrow Fund and the payments of interest or principal, or both, payable pursuant
to the Note, shall be added together; and shall be paid as the aggregate sum by
the Borrower to the Lender. Provided there are sufficient amounts in the Escrow
Fund and no Event of Default exists, the Lender shall be obligated to pay on
behalf of the Borrower the taxes, insurance premiums, and CAM as they become due
on their respective due dates by applying the Escrow Fund to the payments of
such taxes, insurance premiums, and CAM required to be made by the Borrower
pursuant to this Agreement. If the amount of the Escrow Fund shall exceed the
amounts due for taxes, insurance, and CAM pursuant to this Agreement, the Lender
shall, at its discretion, return any excess against future payments to be made
to the Escrow Fund. In allocating such excess, the Lender may deal with the
persons shown on the records of the Lender to be the owner of the property. If
the Escrow Fund is not sufficient to pay the items set forth in (a), (b), and
(c) above, the Borrower shall promptly pay to the Lender, upon demand, an
amount, which the Lender shall reasonably estimate as sufficient to make up the
deficiency. The Escrow Fund shall not constitute a trust fund and may be
commingled with other monies held by the Lender. Unless otherwise required by
applicable law, no earnings or interest, if any, on the Escrow Fund shall be
payable to the Borrower. Lender may elect to appoint a third party to perform on
Lender's behalf the tasks associated with managing the Escrow Fund as described
in this Section 2.7, in which case Borrower agrees to pay the costs for such
third party. In the event the Lender does not establish an Escrow Fund, the
Borrower shall make all required payments herein described in a timely manner
and shall provide evidence thereof as required by the Lender.
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ARTICLE 3
FINANCIAL COVENANTS
3.1 Financial Statements. A current financial statement from the Borrower, less
than sixty (60) days old, is required at the Closing. An annual audited
financial statement prepared on an accrual basis by a Certified Public
Accountant in accordance with GAAP is required from the Borrower and will be
forwarded to the Lender within ninety (90) days of the Borrower's fiscal
year-end. Quarterly in-house financial statements for the Borrower also must be
submitted to the Lender within forty-five (45) days of the end of each fiscal
quarter, and such additional financial statements as may be requested by the
Lender shall be submitted in a timely manner in a form acceptable to the Lender.
The Borrower must submit to Lender year-end federal and state tax returns within
ninety (90) days of each fiscal year end. The Borrower must submit to the Lender
a copy of each Form 10K and Form 10Q concurrently with the filing of such form
with the Securities and Exchange Commission.
3.2 Certificate of No Default. Concurrently with delivery to the Lender of any
financial statement prepared pursuant to Section 3.1 (except the financial
statement delivered at the Closing), a completed compliance certificate of the
president or chief financial officer of the Borrower in the form of Exhibit
"3.2" shall be delivered to the Lender, certifying (i) compliance with each
financial covenant in Article 3 hereof, and (ii) that to the best of his or her
knowledge no default or Event of Default has occurred and is continuing, or if a
default or Event of Default has occurred and is continuing, a statement as to
the nature thereof and the action proposed to be taken with respect thereto.
3.3 Dividends. The Borrower shall not, during the life of the Loan, declare or
pay a cash dividend unless a profit was made in the fiscal year prior to the
year in which the dividend is being declared, all debts are paid current and all
Loan covenants and ratios are being met and will continue to be met on the
annual statement, and such payment would not result in a reduction of capital
below the prior fiscal year end level (determined in accordance with GAAP) after
the dividends are paid. Authorized dividend payments may not reduce retained
earnings below the amount reflected on the year-end balance sheet of the
immediately preceding fiscal year. If the Borrower operates as a Subchapter S
corporation, dividends may be distributed to the owners to pay taxes on its
profits.
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3.4 Compensation of Officers and Owners.
A. No advances or loans from the Borrower are to be made to officers,
owners, affiliates or others during the life of the Loan without the written
approval of the Lender and RBS/USDA.
B. Salaries, compensation, and/or payments to officers and/or owners
will not be increased unless a profit was made in the preceding fiscal year, all
of the Borrower's debts are paid to a current status and the Borrower is in
compliance with all covenants of this Agreement, including without limitation,
the financial covenants and ratios (calculated after giving effect to the
contemplated increases or payments).
3.5 Fixed Asset Limitation; Sale of Assets.
A. The Borrower may incur up to $150,000 per calendar year for Capital
Expenditures, including through the incurrence of additional Indebtedness, if
the financial ratios of Article 3 would be met after incurring such expense or
such indebtedness. All such purchases are to be added to the collateral for this
Loan under the after-acquired clause and specifically described as collateral
when the Security Agreement is updated.
B. Other than in the ordinary course of business, the Borrower shall
not sell, transfer or assign any of its assets, including, without limitation,
any collateral for the Loan, without the prior written consent of the Lender,
which consent may be withheld in its sole discretion.
3.6 Consolidations, Mergers, Sale of Business. The Borrower will not merge,
consolidate, reclassify or sell the business or any of its capital stock without
the prior written approval of the Lender and RBS/USDA. The Borrower will not
purchase any Treasury stock or redeem any of its capital stock from any
shareholders without the written approval of the Lender and RBS/USDA. The
Borrower shall make no investments outside of the day to day operation of the
business.
3.7 Additional Debt.
A. Except as provided in Section 3.5, the Borrower will not incur
additional Indebtedness other than in the ordinary course of business and due
within one year, nor assume the liabilities or obligations of any other person
or entity, without the prior written consent of the Lender and RBS/USDA.
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B. Borrower will not incur additional borrowing for working capital
purposes that will reduce the current ratio below 1 to 1 or increase the debt to
net worth ratio above 3 to 1.
C. The parties acknowledge and agree that the Lender shall not advance
to the Borrower any additional funds beyond the Loan Amount without the prior
written consent of RBS/USDA.
3.8 Debt to Equity and Other Financial Ratios.
A. The Borrower will maintain a debt-to-equity ratio of not more than 3
to 1, as shown on the annual audited financial statement and defined as total
debt divided by tangible net worth plus subordinated debt, at the end of the
Borrower's fiscal year.
B. Any and all Indebtedness to stockholders now or hereafter made will
be subordinate to the Loan.
C. The Borrower will maintain a debt service coverage ratio of not less
than 1.2 to 1 as shown on the annual audited statement financial statement.
D. The Borrower will maintain a current ratio (current assets divided
by current liabilities) of not less than 1 to 1 and shall maintain a net working
capital position of at least $10,000 as shown on the annual audited financial
statement.
E. The Borrower shall maintain a 1 to 1 loan to value ratio
(outstanding loan balance divided by collateral for loan), with collateral
discounted pursuant to RBS/USDA Form 4279-1, Part B.
F. The annual audited financial statement required by Section 3.1
hereof shall include a calculation of each financial ratio of this Article 3 and
a certification that the Borrower is in compliance with each such ratio.
3.9 Equity. At the Closing, the Borrower will provide the Lender with a
certification from an independent public accountant that the Borrower has a
tangible balance sheet equity position of a minimum of ten percent (10%). The
certification shall detail the sources that constitute such equity. The
certification will also be supported by a pro forma balance sheet of the
Company, reconciled to the most recent balance sheet of the Company (not to
exceed 90 days old), and dated as of the date hereof.
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ARTICLE 4
OTHER COVENANTS
4.1 Use of the Loan Proceeds. The proceeds of the Loan shall be utilized as
follows:
Restructure Debt $ 925,000
Working Capital (including transaction costs) 175,000
===========
Total $ 1,100,000
4.2 Insurance. The Borrower shall obtain and maintain all required insurance at
its own expense, except as modified by Section 2.7 at the Lender's option.
Grantor shall provide the Lender with originals or certified copies of all
required insurance policies (including, without limitation, renewals thereof or
replacements thereto), with copies of all renewal notices and, if requested by
the Lender, with copies of receipts for paid premiums. Required insurance shall
include, but not be limited to, the following:
A. The Borrower shall maintain a policy of general liability insurance
of not less than one million and 00/100 dollars ($1,000,000) designating the
Lender as an additional insured party, placed with an insurance company or
companies acceptable to the Lender. Further, the Borrower shall maintain hazard
insurance and general liability insurance during the entire term of the Loan
with a standard mortgage clause naming the Lender as beneficiary in an amount
which is at least the lesser, with the Lender reserving the right to require the
greater of such, of the depreciated replacement value of the Loan security or
the amount of the Loan balance and that must contain a replacement cost
guarantee. Hazard insurance includes fire, windstorm, lightning, hail,
explosion, riot, civil commotion, aircraft, vehicle, marine, smoke, builder's
risk, public liability, property damage, flood or mudslide, or other hazard
insurance that may be required to protect the collateral, placed with an
insurance company or companies acceptable to the Lender. The Borrower shall
maintain flood insurance if the collateral property is located in an area
designated as an area for special hazards under the National Flood Insurance Act
of 1968. The flood insurance must be in an amount equal to at least 100% of the
value of the insured improvements of the collateral property. All of the
foregoing insurance policies shall be in form and substance satisfactory to the
Lender and must name the Lender as a loss payee.
B. The Borrower shall maintain Worker's Compensation Insurance as
required by applicable law with respect to each of Borrower's places of business
during the period of time the Loan is unpaid, placed with an insurance company
or companies acceptable to the Lender.
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C. The Borrower shall maintain, with an insurance company or companies
acceptable to the Lender, key man life insurance policies on Verne E. Bray and
Jeffrey Kirby in the amount of $500,000 each for the period the Loan is unpaid,
and such policies of insurance shall name the Lender as the loss Payee.
4.3 Inspections. The Borrower will permit the Lender and RBS/USDA to visit and
inspect any of the collateral securing the Loan, to conduct a periodic audit of
the number of jobs to determine program effectiveness, and access to company's
books and records for periodic examination. The Lender reserves the right to
conduct audits on an as- needed basis, as determined solely by the Lender.
4.4 Change of Control. The Borrower will not undergo a Change of Control.
4.5 Legal Existence; Compliance with Laws, etc. The Borrower will:(a) maintain
its corporate existence and business; (b) maintain all properties which are
reasonably necessary for the conduct of such business, now or hereafter owned,
in reasonable repair, working order and condition; and (c) take all actions
necessary to maintain and keep in full force and effect all rights and
franchises reasonable for the operation of the Business; and, comply in all
material respects with all applicable Laws in respect of the conduct of the
Business and the ownership of the Assets; provided that the Borrower shall not
be required by reason of this subsection to comply therewith at any time if the
Borrower shall be contesting its obligations to do so in good faith by
appropriate proceedings timely initiated and diligently conducted, and if it
shall have set aside on its books such reserves, if any, with respect thereto as
are required by GAAP and deemed adequate by the Borrower and its independent
public accountants.
4.6 Environmental Liabilities. The Borrower shall not violate any Law regarding
Hazardous Substances; and, without limiting the foregoing, the Borrower will not
dispose of any Hazardous Substance into or onto, or (except in accordance with
Law) from, any Real Property owned, leased or operated by the Borrower or in
which the Borrower holds, directly or indirectly, any legal or beneficial
interest or estate, nor allow any Lien imposed pursuant to any Law relating to
Hazardous Materials or the disposal thereof to be imposed or to remain on such
Real Property, except for Liens being contested in good faith by appropriate
proceedings and for which adequate reserves have been established and are being
maintained on the books of the Borrower.
4.7 Compliance with ERISA. The Borrower will make all payments or contributions
to employee benefit plans required under the terms thereof and in accordance
with applicable minimum funding requirements of ERISA and the Code and
applicable collective bargaining agreements. The Borrower will cause all
employee benefit plans sponsored by it to be maintained in material compliance
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with ERISA and the Code. The Borrower will not engage in any prohibited
transaction for which an exemption is not available. The Borrower will not
terminate, or cause to be terminated, any employee benefit plan or withdraw from
any multi-employer plan, in any manner which could result in material liability
of the Borrower.
4.8 Mortgages, Liens, etc. The Borrower shall not, directly or indirectly,
create, incur, assume or suffer to exist any Lien with respect to any Asset now
owned or hereafter acquired by the Borrower, except:
(a) Liens set forth on Schedule "4.8" hereof ("Permitted
Senior Indebtedness");
(b) Any Lien securing the Notes;
(c) Any Liens permitted by Section 3.7.
4.9 Creation and Acquisition of Subsidiaries. The Borrower will not create or
acquire any Subsidiaries except for wholly owned Subsidiaries created in the
ordinary course of business. Each new Subsidiary will be required to execute a
Joinder Agreement in the form of Exhibit "4.9" hereto making it a party to the
Security Agreement and the Mortgage and a guarantor of the Borrower's
obligations under this Agreement and the other Loan Documents. Each new
Subsidiary will also be required to grant a security interest in its assets as
collateral for the Loan. The Borrower will ensure that any and all subsidiaries
execute the documents necessary to comply with this Section 4.9.
4.10 Lease Obligations. The Borrower shall not enter into, or become liable as
lessee under, any new Lease Obligations.
4.11 Payment of Taxes. The Borrower will pay and discharge promptly as they
become due and payable, subject to extension, all Taxes, assessments and other
governmental charges or levies imposed upon it or its income or upon any of its
Assets, or upon any part thereof, as well as all lawful claims of any kind
(including claims for labor, materials and supplies) which, if unpaid, might by
law become a Lien (other than a Permitted Lien) or a charge upon its property;
provided that Borrower shall not be required to pay any such Tax, assessment,
charge, levy or claim if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings timely initiated
and diligently conducted and if the Borrower shall have set aside on its books
such reserves, if any, with respect thereto as are required by GAAP and deemed
appropriate by the Borrower and its independent public accountants.
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4.12 Payment of Other Indebtedness, etc. Except as to matters being contested in
good faith and by appropriate proceedings, the Borrower will, and will cause
each Subsidiary to, pay promptly when due all other Indebtedness.
4.13 Loan, Guarantees and Investments. The Borrower shall not (i) make or permit
to remain outstanding any loan or advance to any Person, (ii) guarantee or
endorse (except as a result of endorsing negotiable instruments for deposit or
collection in the ordinary course of business) or otherwise assume or remain
liable with respect to any obligation of any Person, or (iii) make or own any
investment in, or acquire (except in the ordinary course of business) the assets
of, any Person, except:
(a) Extensions of trade credit by the Borrower in the
ordinary course of business in accordance with customary trade practices;
(b) Cash or short-term liquid investments generally
regarded as cash;
(c) Marketable direct obligations of the United States of
America or any department or agency thereof maturing not more than one year from
the date of issuance thereof;
(d) Certificates of deposit, repurchase agreements, money
market deposits or other similar types of investments maturing not more than one
year from the date of acquisition thereof and evidencing direct obligations of
any bank within the United States of America; and
(e) Capital Expenditures to the extent permitted by
Section 3.5.
4.14 Compliance with Year 2000. The Borrower shall perform all acts reasonably
necessary to ensure that the Borrower and any Subsidiary become Year 2000
Compliant in a timely manner. Such acts shall include, without limitation,
performing a comprehensive review and assessment of all of the Borrower's
systems and adopting a detailed plan, with itemized budget, for the remediation,
monitoring and testing of such systems. As used in this Section 4.14, "Year 2000
Compliant" shall mean, in regard to any entity, that all software, hardware,
firmware, equipment, goods or systems utilized by or material to the business
operations or financial condition of such entity, will properly perform date
sensitive functions before, during and after the year 2000. The Borrower shall,
immediately upon request, provide to Lender such certifications or other
evidence of the Borrower's compliance with the terms of this Section 4.14 as
Lender may from time to time reasonably require.
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4.15 Further Assurances. From time to time hereafter, the Borrower will execute
and deliver, or will cause to be executed and delivered, such additional
instruments, certificates or documents, and will take all such actions, as the
Lender may reasonably request, for the purposes of implementing or effectuating
the provisions of the Loan Documents. Upon the exercise by the Lender of any
power, right, privilege or remedy pursuant to this Agreement and the other Loan
Documents which requires any consent, approval, registration, qualification or
authorization of any governmental authority or instrumentality, the Borrower
will execute and deliver, or will cause the execution and delivery of, all
applications, certifications, instruments and other documents and papers that
the Lender may be required to obtain from the Borrower for such governmental
consent, approval, registration, qualification or authorization.
ARTICLE 5
CONDITIONS TO CLOSING
The obligation of the Lender to make the Loan is subject to the
following conditions precedent:
5.1 Government Guarantee. The Lender shall have received the RBS/USDA
Guaranty in a form satisfactory to the Lender.
5.2 The Note. The Lender shall have received the Note, duly completed,
executed, and delivered by the Borrower in the form of Exhibit "5.2" hereto.
5.3 The Guaranty. The Lender shall have received the Guaranty, duly
completed, executed, and delivered by Verne E. Bray and Beverly Bray in the form
of Exhibit "5.3" hereto.
5.4 The Security Agreement. The Lender shall have received the Security
Agreement duly completed, executed, and delivered by the Borrower in the form of
Exhibit "5.4" hereto.
5.5 Opinion of the Borrower's Counsel. The Lender shall have received the
legal opinions of Hillyard, Anderson & Olsen, Weintraub Genshlea & Sproul, and
Calihan, Brown, Burgardt, Wurst & Daniel, dated as of the Closing Date and duly
executed, completed, and delivered in the form of Exhibits "5.5(a)," "5.5(b)"
and "5.5(c)" hereto.
5.6 No Change. No material adverse change shall have occurred with respect
to the financial condition of Verne E. Bray or Beverly Bray.
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5.7 Third-Party Consents. The Lender shall have received the consents (and,
if necessary, waivers of defaults) of any third-parties required for the
Borrower to consumate the transactions contemplated by this Agreement.
5.8 Corporate Authorization. The Lender shall have received any corporate
documents and resolutions necessary to authorize the execution, delivery, and
performance by the Borrower of the Loan Documents to which the Borrower is or is
to be a party.
5.9 Environmental Report. The Lender shall have received from the Borrower
a certified environmental report regarding the Real Property of the Borrower
prepared in accordance with "Standard Practices for Environmental Site
Assessments : Transaction Screen Questionnaire" and "Phase I Environmental
Assessment," both published by the American Society of Testing and Materials.
5.10 Change of Control. No Change in Control shall have occurred.
5.11 Insurance. The Borrower shall have obtained the insurance policies
required by Section 4.2 hereof, and made proof of the same to Lender.
5.12 Appraisal. Lender shall have received (i) a certified appraisal of the
Real Property of Borrower meeting the requirements of Instruction 4279-B,
published by United States Department of Agriculture Rural Development and in
form and substance satisfactory to Lender, and (ii) an itemized list and
valuation of all other collateral for the Loan in form and substance
satisfactory to Lender.
5.13 Survey. Lender shall have received a current survey of the Real
Property in form acceptable to Lender and prepared by a surveyor acceptable to
Lender.
5.14 Title Insurance. Lender shall have received a title policy in favor of
Lender issued by an underwriter acceptable to Lender, (i) showing Borrower to
own fee simple title in its Real Property, (ii) insuring the Mortgage as a first
lien on the Borrower's Real Property, and (iii) not containing any exceptions
other than those approved in writing by Lender.
5.15 Flood Hazard Determination. Lender shall have received a duly completed
Form 81-93, "Standard Flood Hazard Determination," published by the Federal
Emergency Management Administration.
5.16 Mortgage. The Lender shall have received the Mortgage duly completed,
executed, and delivered by the Borrower in the form of Exhibit "5.16" hereto.
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<PAGE>
5.17 The Deposit and Escrow Account. The Lender shall have received the
Deposit and Escrow Agreement duly completed, executed and delivered by the
Borrower in the form of Exhibit "5.17" hereto.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower represents and warrants to the Lender, which
representations and warranties shall survive the Closing and the execution and
delivery of this Agreement, that:
6.1 Incorporation, Good Standing, and Due Qualification. The Borrower is a
corporation duly incorporated, validly existing, and having an active status
under the laws of the State of Utah; has the corporate power and authority to
own its assets and to transact the business in which it is now engaged or
proposed to be engaged; and is duly qualified as a foreign corporation and in
good standing under the Laws of each other jurisdiction in which such
qualification is required, if any.
6.2 Corporate Power and Authority. The execution, delivery, and performance
by the Borrower of the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action and do not and will not (1) require
any consent or approval of its stockholders; (2) contravene its charter or
bylaws; (3) violate any provision of any law, rule, regulation (including,
without limitation, Regulation U of the Board of Governors of the Federal
Reserve System), order, writ, judgment, injunction, decree, determination, or
award presently in effect having applicability to the Borrower; (4) result in a
breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease, or instrument to which the Borrower is
a party or by which it or its properties may be bound or affected; (5) result in
or require the creation or imposition of any lien upon or with respect to any of
the properties now owned or hereafter acquired by the Borrower; and (6) cause
the Borrower to be in default under any such law, rule, regulation, order writ,
judgment, injunction, decree, determination, or award or any such indenture,
agreement, lease, or instrument.
6.3 Capitalization. The authorized capital stock of the Borrower consists
solely of 10,000,000 shares of common stock, par value $.01, 2,147,102 shares of
which are issued and outstanding, and 330,000 shares of 7% cumulative preferred
stock, par value $3.00, 165,412 of which are issued and outstanding. Schedule
"6.3" sets forth the record and beneficial ownership of the fully diluted
outstanding common stock of the Borrower held by Verne E. Bray. Except for the
18
<PAGE>
common stock and the preferred stock, there are no other authorized classes or
series of capital stock of the Borrower. All outstanding shares of common stock
and preferred stock of each of the Borrower are duly authorized, validly issued,
fully paid, and nonassessable and have been offered, issued, sold, and delivered
by the Borrower in compliance with applicable securities laws. Other than as set
forth on Schedule "6.3," there are no preemptive rights, rights of first refusal
or similar rights with respect to the capital stock of the Borrower. Except as
set forth on Schedule "6.3," there are no outstanding subscriptions, options,
warrants, rights, or other arrangements or commitments, whether express or
implied, obligating the Borrower to issue any shares of common stock or
securities exchangeable for or convertible into common stock. Except for the
Articles of Incorporation and Bylaws of the Borrower and the Loan Documents,
there are no outstanding agreements or documents binding on the Borrower or its
shareholders regarding the transfer, voting, pledge, optioning or gifting of any
capital stock of the Borrower. If there are any preemptive rights, rights of
first refusal, or similar rights with respect to the capital stock of the
Borrower, the Borrower has complied with all applicable corporate and statutory
procedures and requirements relating to such rights (including, without
limitation, procedures for giving the holders of such rights the opportunity to
exercise such rights).
6.4 Brokerage Fees. Except as set forth on Schedule "6.4" there are no
claims for investment bankers' fees, brokerage commissions, finders' fees or
similar compensation in connection with the Transactions based on any
arrangement or agreement made by or on behalf of the Borrower.
6.5 Environmental Compliance. Except as set forth on Schedule "6.5" there
has been no Hazardous Discharge or generation, treatment, storage or disposal of
any Hazardous Substance by the Borrower or any other Person resulting from the
operations of the Business or the ownership or use of the Assets, in a manner
which violates any applicable Environmental Law. Except as set forth on Schedule
"6.5" there are no Environmental Complaints now pending to or against the
Borrower or any other Person resulting from the operations of the Business or
the ownership or use of the Assets, and, to the best of the Borrower's
knowledge, there is no reasonable basis for believing that any such
Environmental Complaint may be asserted against the Borrower or any other
persons with respect to the Borrower's operations. Schedule "6.5" lists, for the
entire period of operations of the Borrower, any and all Environmental
Complaints resulting from the Borrower's operations or the ownership or use of
the Assets and the disposition of each such Environmental Complaint. With
respect to each such pending or prior Environmental Complaint, Schedule "6.5"
lists the date of the Environmental Complaint; the claimant or investigating
agency; the nature and a brief description of the matter; the damages claimed or
relief sought; and the status or outcome of the matter. In addition, except as
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<PAGE>
listed on Schedule "6.5," the Borrower is operating and has at all times
previous hereto operated the Business in compliance with all Environmental Laws.
6.6 Other Information. All information relating to the Borrower has been
disclosed to Lender which would reasonably be material to any prospective
third-party investor in the Borrower. In furtherance of the foregoing, and not
in limitation thereof, all information furnished by the Borrower to the Lender
or its representatives in connection with the Loan Documents (including, without
limitation, information contained in the Schedules and Exhibits hereto and
thereto, the instruments referred to in such Exhibits and Schedules and the
certificates and other documents to be executed or delivered pursuant hereto or
thereto by the Borrower) is not, nor at the Closing will be, false or misleading
in any material respect, or contains, or at the Closing will contain, any
misstatement of material fact, or omits, or at the Closing will omit, to state
any material fact required to be stated in order to make the statements therein
not materially misleading.
6.7 Employee Benefits Matters. The Borrower is in compliance with all
applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited
Transaction has occurred and is continuing with respect to any Plan. No notice
of intent to terminate a Plan has been filed, nor has any Plan been terminated.
No circumstances exist which constitute grounds entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings. Neither the Borrower nor any ERISA
Affiliate has completely or partially withdrawn from a Multiemployer Plan. The
Borrower and each ERISA Affiliate have met their minimum funding requirements
under ERISA with respect to all of their Plans. The present value of all vested
benefits under each Plan do not exceed the fair market value of all Plan assets
allocable to such benefits, as determined on the most recent valuation date of
the Plan and in accordance with ERISA. Neither the Borrower nor any ERISA
Affiliate has incurred any liability to the PBGC under ERISA (other than
liability for the payment of PBGC premiums in the ordinary course of business).
6.8 Legally Enforceable Agreement. This Agreement is and each of the other
Loan Documents to which the Borrower is a party, when delivered under this
Agreement, will be legal, valid, and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, and other similar laws affecting creditor's rights
generally and principles of equity. The Borrower represents and warrants that
neither it or any Guarantor is insolvent or contemplating filing a voluntary
petition for bankruptcy nor is the Borrower aware of any possibility or threat
of being subject to any petition for involuntary bankruptcy.
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<PAGE>
6.9 Financial Statements. All financial statements of the Borrower which
have been furnished to the Lender are complete and correct and fairly present
the financial condition of the Borrower and the results of the operations of the
Borrower for the periods covered by such statements, all in accordance with GAAP
consistently applied to the Borrower's statements, and there has been no
Material Adverse Change. There are no liabilities of the Borrower, fixed or
contingent, which are material but are not reflected in the financial statements
or in the notes thereto, other than liabilities arising in the ordinary course
of business of the Borrower. No information, exhibit, or report furnished by the
Borrower to the Lender in connection with the negotiation of this Agreement
contains any material misstatement of fact or omits to state a material fact or
any fact necessary to make the statement contained therein not materially
misleading.
6.10 Other Agreements. The Borrower is not a party to any indenture, loan,
or credit Agreement, or, to the Borrower's knowledge, to any lease or other
Agreement or instrument, or subject to any charter or corporate restriction
which could have a material adverse effect on the business, properties, assets,
operations, or conditions, financial or otherwise, of the Borrower or the
ability of the Borrower to carry out its obligations under the Loan Documents to
which it is a party. The Borrower is not in default in any material respect in
the performance, observance, or fulfillment of any title obligations, covenants,
or conditions contained in any Agreement or instrument material to its business
to which it is a party.
6.11 Litigation. There is no pending or, to the Borrower's knowledge,
threatened action or proceeding against or affecting the Borrower before any
court, governmental agency or arbitrator which may, in any one case or in the
aggregate, materially adversely affect the financial condition, operations,
properties, or business of the Borrower or the ability of the Borrower to
perform its obligation under the Loan Documents to which it is a party.
6.12 No Defaults on Outstanding Judgments or Orders. The Borrower has
satisfied all judgments, and the Borrower is not in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court, arbitrator,
or federal, state, municipal, or other governmental authority, commission,
board, bureau, agency or instrumentality, domestic or foreign.
6.13 Operation of Business. To the best of the Borrower's knowledge, it
possesses all licenses, permits, franchises, patents, copyrights, trademarks and
trade names, or rights thereto, to conduct its business substantially as now
conducted and as presently proposed to be conducted, is not in violation of any
valid rights of others with respect to any of the foregoing, and is in
compliance with all rules and regulations regarding the operation of its
business.
21
<PAGE>
6.14 Taxes. The Borrower has filed all Tax returns (federal, state and
local) required to be filed and has paid all Taxes which are due.
6.15 Adverse Change. The Borrower certifies that by accepting the Loan, the
Borrower understands that the intent of RBS/USDA Instruction 4279-B, Section
4279.181(m), is that no adverse change has occurred during the period of time
from RBS/USDA's issuance of the Conditional Commitment to issuance of the
RBS/USDA Guaranty relating to the Borrower, regardless of the cause or causes of
the change and whether the change or cause(s) of the change were within the
Borrower's control.
Upon the issuance of the RBS/USDA Guaranty, the Borrower must certify that there
have been no unremedied adverse changes since the date of the application in the
financial or other condition of the Borrower which warranty withholding or not
making the Loan. Therefore, the Borrower does hereby represent and warrant to
the Lender that there have been no adverse changes since the date of its initial
loan application in its financial condition.
6.16 Subsidiaries. The Borrower does not own, directly or indirectly, any of
the capital stock of any other company or any equity, profit sharing,
participation or other interest in any other entity.
6.17 Patents, Trademarks and Licenses. Schedule "6.17" sets forth all
patents, patents pending, inventions (whether or not patentable), trademarks
(registered and unregistered), service marks (registered and unregistered),
trade names (registered and unregistered), brand names (registered and
unregistered) or copyrights (registered and unregistered), owned or used by or
licensed to or by the Business, together with a summary description and full
information in respect of the filing, registration or issuance or the status
thereof. All of such patents, inventions, trademarks, service marks, trade
names, brand names, copyrights, pending applications and licenses are valid and
in good standing and will not be materially adversely affected by the
Transactions; no patent application or patent used in the Business is involved
in any interference proceeding, and no trademark, service mark, trade name, or
brand name, whether or not registered, nor any application therefor, is involved
in any opposition or cancellation proceeding. No licenses, sublicenses,
covenants or agreements have been granted or entered into by the Borrower in
respect of such patents, inventions, trademarks, service marks, trade names,
brand names, copyrights, applications or licenses, except those described on
Schedule "6.17." The Borrower validly owns, is validly licensed under, or has
legal right to use all patents, patent applications, trademarks, service marks,
trade names, brand names, inventions, processes, know-how, trade secrets and
copyrights which are necessary for the conduct of the Business as now conducted,
and all such rights are valid and in good standing, and free and clear of all
22
<PAGE>
Liens and have not been challenged in any way or involved in any interference,
opposition or cancellation proceedings. With respect to the Business and the
operations of the Borrower and the use or publication by the Borrower in
connection with its patents, trademarks, service marks, trade names, brand names
and advertising, technical or other literature do not involve infringement or
claim infringement of any patent, trademark, service mark, trade name or
copyright. Except as set forth on Schedule "6.17" no director, officer,
employee, consultant or Affiliate of the Borrower owns, directly or indirectly,
in whole or in part, any inventions or patents, trademarks, service marks, trade
names, brand names, or copyrights or applications therefor which the Business is
presently using or which is necessary or useful for the Business as now
conducted or has made any invention not assigned to the Borrower which is
necessary or useful for the Business as now conducted. Except as set forth on
Schedule "6.17," no officer, director, employee, agent or Affiliates of the
Borrower has entered into any agreement regarding know-how, trade secrets,
assignment of rights in inventions, or prohibition or restriction of competition
or solicitation of customers, or any other similar restrictive agreement or
covenant relating to the Business, whether written or oral, with any Person
other than the Borrower.
ARTICLE 7
EVENTS OF DEFAULT
7.1 Events of Default. The occurrence of one or more of the following
events or existence of one or more of the following conditions shall constitute
an Event of Default (each such occurrence or existence an "Event of Default"):
A. The Borrower shall fail to perform or observe any term, covenant, or
agreement contained in this Agreement, and such failure is not cured within 30
days after written notice to the Borrower, provided, that no cure period shall
apply if such failure to perform is a breach pursuant to Section 7.1(B) hereof.
B. The Borrower shall default in the payment of principal or interest
on the Note or any other fee, charge, tax or other payment due under any of the
Loan Documents (including, without limitation, premiums on insurance policies
required by this Agreement) when the same becomes due and payable, whether on
maturity, acceleration, or otherwise.
C. A default occurs under any document evidencing Indebtedness
(including Indebtedness incurred after the date hereof) or any related document,
and is not cured or waived within the applicable grace period.
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D. Any representation or warranty made by the Borrower herein or in any
other Loan Document shall prove to have been false or incorrect in any material
respect when made.
E. The Borrower shall (i) discontinue its business, (ii) make an
assignment for the benefit of creditors, (iii) fail generally to pay its debts
as such debts become due, (iv) apply for or consent to the appointment of or
taking possession by a trustee, receiver or liquidator (or other similar
official) of the Borrower or any substantial part of the Assets or (v) take
action to dissolve or liquidate the Borrower.
F. If, within sixty (60) days after the commencement against the
Borrower of a case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law, (i) such case shall have been consented to or shall not have
been dismissed or all orders or proceedings thereunder affecting the operations
or the business of the Borrower stayed, or (ii) if the stay of any such order or
proceeding shall thereafter be set aside or (iii) if within sixty (60) days
after the entry of a decree appointing a trustee, receiver or liquidator (or
other similar official ) of the Borrower or any substantial part of the property
of the Borrower, such appointment shall not have been vacated.
G. An uninsured final judgment which, with other outstanding uninsured
final judgments against the Borrower, exceeds $50,000 shall be rendered against
the Borrower unless such judgment has been appealed and an execution thereof
stayed pending appeal or unless, within sixty (60) days after the expiration of
any such stay, such judgment has been discharged, or if any such judgment shall
not be discharged forthwith upon the commencement of proceedings to foreclose
any Lien which may attach as security therefor and before any of the Assets
shall have been seized in satisfaction thereof.
H. A Material Adverse Change shall occur.
I. A Change in Control shall occur.
J. A defined Event of Default shall occur under any of the Loan
Documents.
7.2 Remedies Upon Default; Acceleration. In case any one or more Events of
Default shall occur and be continuing:
A. The Lender, at its sole option and discretion, may declare the
principal of and accrued interest in respect of the Note to be immediately due
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and payable, whereupon the principal of and accrued interest in respect of the
Note shall become immediately due and payable without notice of intent to
accelerate, notice of acceleration, presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by the Borrower; and
B. The Lender may proceed to protect and enforce its rights by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any provision contained herein or in any other Loan
Document or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law; and
C. The Lender shall be entitled to any other remedy available at law or
under any of the Loan Documents.
ARTICLE 8
MISCELLANEOUS
8.1 Amendments, Etc. No amendment, modification, termination, or waiver of
any provision of any Loan Document to which the Borrower is a party nor consent
to any departure by the Borrower from any Loan Document to which it is a party
shall in any event be effective unless the same shall be in writing and signed
by the Lender and RBS/USDA, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
8.2 Notices, Etc. All notices and other communications provided for under
this Agreement and under the other Loan Documents to which the Borrower is a
party shall be in writing (including telefacsimile or telegraphic
communications) and faxed, mailed, telegraphed, or delivered
If to the Borrower:
NACO Industries, Inc.
395 West 1400 North
Logan, UT 84341
Attention: Verne E. Bray
25
<PAGE>
If to the Lender:
WebBank Corporation
P.O. Box 1831
136 Heber Avenue, Ste. 209
Park City, UT 84060-1831
Attention: Douglas L. Hesse
and
Parr Waddoups Brown Gee & Loveless
185 South State Street, Ste. 1300
Salt Lake City, UT 84111
Attention: Douglas C. Waddoups
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 8.2. All such notices and communications shall, when mailed or
telegraphed, be effective when deposited in the mails or delivered to the
telegraph company, respectively, addressed as aforesaid, and when faxed, when
machine confirmation of receipt is acquired, except that notices to the Lender
pursuant to the provisions of Article 3 shall not be effective until received by
the Lender.
8.3 No Waiver; Remedies. No failure on the part of the Lender to exercise
and no delay in exercising any right, power, or remedy under any Loan Document
shall operate as a waiver thereof; nor shall any single or partial exercise of
any rights under any Loan Documents preclude any other or further exercise
thereof of any other right. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law.
8.4 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Borrower and the Lender and their respective successors
and assigns, except that the Borrower may not assign or transfer any of its
rights under any Loan Document to which the Borrower is a party without the
prior written consent of the Lender and RBS/USDA. Notwithstanding the foregoing,
an assumption fee equal to one percent (1%) of the outstanding principal balance
shall be paid by the Borrower to the Lender upon written consent of any
assignment.
8.5 Costs, Expense, and Taxes. The Borrower agrees to pay on demand all
costs and expenses in connection with the preparation, execution, delivery,
filing, recording, administration and termination of any of the Loan Documents
26
<PAGE>
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Lender, with respect thereto and with respect to advising the
Lender as to its rights and responsibilities under any of the Loan Documents,
and all costs and expenses, if any, in connection with the enforcement of any of
the Loan Documents all as provided in the Loan commitment letter from the Lender
to the Borrower. In addition, the Borrower shall pay any and all stamp and other
taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing and recording of any of the Loan Documents and the
other documents to be delivered under any such Loan Documents, and agrees to
save the Lender harmless from and against any and all liabilities with respect
to or resulting from any delay in paying or omission to pay such taxes and fees.
Notwithstanding the foregoing, the Borrower shall not be responsible for the
Lender's attorneys' fees and costs incurred in connection with the preparation
of the Loan Documents and the Closing which exceed $10,000.
8.6 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Utah, without reference to conflict of
law principles.
8.7 Severability of Provisions. Any provision of any Loan Document which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of such Loan Documents or affecting the
validity or enforceability of such provision in any other jurisdiction.
8.8 Headings. Article and Section headings in the Loan Documents are
included in such Loan Documents for the convenience of reference only and shall
not constitute a part of the applicable Loan Documents for any other purpose.
8.9 Survive Closing. The covenants contained herein, which obligate the
Borrower to perform any covenant following closing, shall be deemed to survive
the closing.
8.10 WAIVER OF JURY TRIAL. AS AN IMPORTANT INDUCEMENT TO THE LENDER TO ENTER
THIS AGREEMENT, THE BORROWER WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION
ARISING UNDER OR IN ANY WAY RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS.
8.11 Indemnification. The Borrower and its successors and assigns will
indemnify and hold harmless Lender, its directors, officers, shareholders,
agents, employees, servants, partners, contractors, any person who controls the
Lender and Lender's successors and assigns (collectively, the "Indemnified
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Persons") from and against any and all claims, suits, costs, damages, losses,
liabilities, judgments, and expenses (including, without limitation, attorney's
fees and litigation expenses) (collectively, "Losses") which are incurred by or
asserted against any Indemnified Person in connection with or arising out of any
litigation, investigation, proceeding, or subpoena involving, or act or omission
of, the Borrower or its Affiliates, Subsidiaries, directors, officers,
shareholders, agents, employees, servants, partners, contractors, invitees,
licensees, successors, or assigns. Without limiting the foregoing, the Borrower
and its successors and assigns will indemnify and hold harmless the Indemnified
Persons from and against any and all Losses connected with or arising from any
Hazardous Discharge, whether such discharge occurred before or after the
execution of this Agreement or before or after Lender exercises any of its
remedies available upon default, and from and against any and all losses
relating to any Environmental Complaint.
8.12 Jurisdiction. Each of the parties hereto hereby expressly and
irrevocably submits to the non-exclusive personal jurisdiction of the United
States District Court for the District of Utah - Central Division and to the
jurisdiction of any other competent court of the State of Utah located in the
County of Salt Lake (collectively, the "Utah Courts"), preserving, however, all
rights of removal to such federal court under 28 U.S.C. Section 1441, in
connection with all disputes arising out of or in connection with this Agreement
or the transactions contemplated hereby and agrees not to commence any
litigation relating thereto except in such courts. If the aforementioned courts
do not have subject matter jurisdiction, then the proceeding shall be brought in
any other state or federal court located in the State of Utah, preserving,
however, all rights of removal to such federal court under 28 U.S.C. Section
1441. Each party hereby waives the right to any other jurisdiction or venue for
any litigation arising out of or in connection with this Agreement or the
transactions contemplated hereby to which any of them may be entitled by reason
of its present or future domicile. Notwithstanding the foregoing, each of the
parties hereto agrees that each of the other parties shall have the right to
bring any action or proceeding for enforcement of a judgment entered by the Utah
Courts in any other court or jurisdiction, including, without limitation, the
States of Kansas and California. Additionally, the foregoing shall not be deemed
to prohibit any party hereto or any other person or entity that may have the
right to enforce or sue under this Agreement from commencing an action in any
court that may have jurisdiction.
8.13 Service of Process. Each party irrevocably consents to the service of
process outside the territorial jurisdiction of the Utah Courts referred to in
Section 8.12 hereof in any such action or proceeding by mailing copies thereof
by registered United States mail, postage prepaid, return receipt requested, to
its address as specified in or pursuant to Section 8.2 hereof. However, the
foregoing shall not limit the right of a party to effect service of process on
the other party by any other legally available method.
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8.14 Other Certification. The Borrower shall execute such certification as
may be required by Lender and RBS/USDA from time to time.
(The remainder of this page is intentionally left blank)
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized as of the date first above
written.
THE BORROWER:
NACO INDUSTRIES, INC.
a Utah corporation
By: __________________________
Title: _________________________
THE LENDER:
WEBBANK CORPORATION
a Utah corporation
By: __________________________
Title: _________________________
NOTICE TO BORROWER
------------------
THIS WRITTEN LOAN AGREEMENT IS THE FINAL EXPRESSION OF THE LOAN
AGREEMENT BETWEEN BORROWER AND LENDER. THIS WRITTEN LOAN AGREEMENT MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL LOAN AGREEMENT OR OF A
CONTEMPORANEOUS ORAL LOAN AGREEMENT BETWEEN BORROWER AND LENDER.
Affirmation of No Unwritten Oral Credit Agreements. Borrower and Lender
affirm by their initials below that no unwritten, oral credit agreement exists
between them.
---------- -----------
Borrower's Lender's
Initials Initials
30
<PAGE>
Schedule "4.8"
--------------
PERMITTED SENIOR INDEBTEDNESS
[See document attached hereto.]
i
<PAGE>
Schedule "6.3"
--------------
CAPITALIZATION
[See document attached hereto.]
ii
<PAGE>
Schedule "6.4"
--------------
BROKERAGE FEES
[See document attached hereto.]
iii
<PAGE>
Schedule "6.5"
--------------
ENVIRONMENTAL COMPLIANCE
[See document attached hereto.]
iv
<PAGE>
Schedule "6.17"
---------------
PATENTS, TRADEMARKS, AND LICENSES
[See document attached hereto.]
v
<PAGE>
Exhibit "2.3"
-------------
WIRE TRANSFER INSTRUCTIONS AND
ACKNOWLEDGMENT OF RECEIPT OF FUNDS
[See document attached hereto.]
vi
<PAGE>
Exhibit "3.2"
-------------
COMPLIANCE CERTIFICATE
Date: _________________________
To: WebBank Corporation, as the Lender under that certain Loan Agreement
dated as of April ____, 1999 (as extended, renewed or restated from
time to time, the "Loan Agreement"), between Lender and NACO
Industries, Inc. (the "Borrower").
Capitalized terms used herein shall be given the respective meanings
set forth in the Loan Agreement.
Enclosed herewith is a copy of the [annual] [quarterly] [other]
financial statement (the "Statement") of the Borrower required by Section 3.1 of
the Loan Agreement. The undersigned, as the [president] [chief financial
officer] of the Borrower hereby certifies, represents and warrants to the Lender
that, (i) for the period for which the Statement has been prepared, the
Statement fairly and accurately presents the financial condition and results of
operations of the Borrower and its Subsidiaries, if any, in accordance with
GAAP; (ii) for the period for which the Statement has been prepared, the
Borrower has fully complied with each financial covenant set forth in Article 3
of the Loan Agreement; and (iii) as of the date hereof, the Borrower is in full
compliance with each financial covenant set forth in Article 3 of the Loan
Agreement.
The undersigned further certifies, represents, and warrants that no
Event of Default has occurred and is continuing as of the date hereof [other
than the following: [INSERT DESCRIPTION AND STEPS, IF ANY, BEING TAKEN TO
CURE]].
NACO INDUSTRIES, INC.
By: _____________________________
Name: _____________________________
Title: _____________________________
vii
<PAGE>
Exhibit "4.9"
-------------
JOINDER AGREEMENT
This Joinder Agreement is executed by ___________________________
("Subsidiary"), a newly created or acquired subsidiary of NACO Industries, Inc.,
a Utah corporation ("Borrower"), pursuant to the requirements of Section 4.9 of
that certain Loan Agreement entered into between Borrower and WebBank
Corporation, a Utah corporation ("Lender"), as of the ____ day of April, 1999
(the "Loan Agreement").
Subsidiary hereby agrees to guarantee the payment and performance of
Borrower under the Loan Agreement or under any other document or agreement
executed by Borrower in connection therewith, to become a party to the Loan
Agreement, and to undertake all obligations and to be bound to all covenants
that may be applicable to Subsidiary with respect to the Loan Agreement.
Subsidiary further agrees to grant a security interest in all its assets to
Lender by separate agreement.
Executed as of the ____ of ___________, _____.
By:__________________________________
Name:________________________________
Title:_________________________________
viii
<PAGE>
Exhibit "5.2"
-------------
THE NOTE
[See document attached hereto.]
ix
<PAGE>
Exhibit "5.3"
-------------
THE GUARANTY
[See document attached hereto.]
x
<PAGE>
Exhibit "5.4"
-------------
THE SECURITY AGREEMENT
[See document attached hereto.]
xi
<PAGE>
Exhibit "5.5(a)"
----------------
OPINION LETTER OF THE BORROWER'S COUNSEL
[See document attached hereto.]
xii
<PAGE>
Exhibit "5.5(b)"
----------------
OPINION LETTER OF THE LENDER'S CALIFORNIA COUNSEL
[See document attached hereto.]
xiii
<PAGE>
Exhibit "5.5(c)"
----------------
OPINION LETTER OF THE LENDER'S KANSAS COUNSEL
[See document attached hereto.]
xiv
<PAGE>
Exhibit "5.16"
--------------
THE MORTGAGE
[See document attached hereto.]
xv
<PAGE>
Exhibit "5.17"
--------------
THE DEPOSIT AND ESCROW AGREEMENT
[See document attached hereto.]
xvi
<PAGE>
ADJUSTABLE RATE PROMISSORY NOTE
-------------------------------
$1,100,000 Dated: April ___, 1999
FOR VALUE RECEIVED, NACO INDUSTRIES, INC., a Utah corporation with an
office at 395 West 1400 North, Logan, UT 84341 ("Maker"), promises to pay to the
order of WEBBANK CORPORATION, a Utah corporation having an office at P.O. Box
1831, 136 Heber Avenue, Suite 209, Park City, UT 84060-1831 (together with its
successors and assigns, "Payee"), at such office of Payee, or such other place
as Payee may designate from time to time in writing, the principal sum of ONE
MILLION, ONE HUNDRED THOUSAND AND NO/100s DOLLARS ($1,100,000), in lawful money
of the United States of America, together with interest thereon from the date
hereof as follows:
1. The Note.
----------
This Adjustable Rate Promissory Note (this "Note") is
being issued by Maker pursuant to a Loan Agreement dated as of the date hereof
by and between Payee and Maker (as amended, from time to time, the "Loan
Agreement"), and Payee's rights and Maker's obligations hereunder are subject to
the provisions of the Loan Agreement. Capitalized terms used in this Note and
not otherwise defined shall have the meanings given those terms in the Loan
Agreement. Reference to the Loan Agreement shall in no way impair the
negotiability hereof or the absolute and unconditional obligation of Maker to
pay both principal and interest hereon as provided herein. The principal balance
of the Note which is outstanding and unpaid from time to time is referred to as
the "Principal Amount."
2. Interest Rate.
--------------
a. Note Rate; Default Rate. The Principal Amount
shall bear interest beginning on and including the date hereof at a variable
rate equal to The Wall Street Journal Prime Interest Rate plus one and one-half
percent (1.5%) ("Note Rate"), provided, however, that the Note Rate shall never
exceed 14.75% nor be less than 9.75%. The initial Note Rate is 9.75% per annum.
While an Event of Default (as defined hereinafter) has occurred and is
continuing, the Principal Amount shall immediately and without notice accrue
interest at the lesser of The Wall Street Journal Prime Interest Rate plus five
percent (5%) or the highest interest rate permitted by law (the "Default Rate").
Interest shall be calculated on the basis of a 360-day year and shall accrue for
1
<PAGE>
the actual number of days elapsed. The term "The Wall Street Journal Prime
Interest Rate" as used herein shall mean, as of any particular date, the rate
quoted as the "Prime Rate" (or comparable reference rate) in the Money Rates
Column of the Wall Street Journal as published on such day (or, if such day is
not a business day of the Lender, as published on the most recent business day
of the Lender), but if more than one such rate is quoted on any such day then
the rate shall be the highest of such rates. In the event of the discontinuance
of such publication or such section thereof, the Wall Street Journal Prime
Interest Rate shall mean the average monthly rate as reported and published in
the Federal Reserve Bulletin published monthly by the Board of Governors of the
Federal Reserve System under the table styled "Prime Rate Charged by Banks Short
Term Business Loans." The rate of interest will be adjusted quarterly on January
1st, April 1st, July 1st, and October 1st of each year or if such date is not a
business day on the next following business day (each such date an "Adjustment
Date"), which adjustment shall be effective on the next following payment date.
b. Maximum Rate. Notwithstanding anything to the
contrary contained herein, the effective rate of interest hereunder shall not
exceed the maximum effective rate of interest permitted by applicable law or
regulation. If the amount of interest payable on any date under this Note would
exceed the maximum amount permitted by applicable law or regulation, then the
amount of interest payable on such date shall be reduced automatically to such
maximum amount. If any interest or other charge paid or payable by Maker in
connection with this Note results in charging, compensation, payment or earning
of interest in excess of the maximum allowed by applicable law or regulation as
aforesaid, then any and all such excess shall be and the same is hereby waived
by Payee, and any and all such excess previously paid shall be automatically
credited against and in reduction of the Principal Amount.
3. Payments of Principal and Interest.
----------------------------------
a. The Principal Amount and all accrued and unpaid
interest shall be payable in full on April _____, 2014 (the "Maturity Date").
Beginning on June 1, 1999, and continuing each month until the Maturity Date,
monthly payments of principal and interest shall be made on the first day of
each month, or if such date is not a business day on the next following business
day, in an amount sufficient to fully amortize the Principal Amount over the
remaining time period before the Maturity Date. The monthly payments of
principal and interest will be made according to the Payment Schedule attached
as Exhibit A hereto which shall be revised by Payee and provided to the Maker
within 15 business days after each Adjustment Date and shall be incorporated by
reference into and made a part of this Note upon receipt by Maker. Any payment
of principal or interest made more than fifteen (15) days after it is due shall
bear a late penalty of five percent (5%) of the late payment. Interest shall not
accrue on late penalties. All amounts of principal, interest, and late penalties
made hereunder shall be paid by Maker by automated bank transfer in immediately
2
<PAGE>
available and freely transferable funds. All payments shall be credited first to
late penalties, second, to Payee's costs and expenses as provided in Section 13
hereof, third, to accrued and unpaid interest, and fourth, to the Principal
Amount.
b. Funds on Deposit. In all circumstances when Maker
has funds available on deposit in the Escrow Account (as defined in the Deposit
and Escrow Agreement as defined below) maintained pursuant to that certain
Deposit and Escrow Agreement (the "Deposit and Escrow Agreement") dated as of
the date hereof among Maker, Payee, and Payee in Payee's capacity as Escrow
Agent ("Escrow Agent"), Maker agrees and acknowledges that Payee shall have the
right pursuant to Section 2(a) of the Deposit and Escrow Agreement to instruct
Escrow Agent to release funds from the Escrow Account to make payments required
under this Note.
4. Prepayment Premium. Subject to the provisions of this
Section 4, the Principal Amount may be prepaid in whole or in part upon not less
than thirty (30) days' prior written notice, provided that each and every such
prepayment, whether made voluntarily or involuntarily because of acceleration of
the payment date due to an Event of Default and whether made directly by the
Borrower or otherwise, shall be accompanied by a prepayment premium as set forth
on the following table (the "Prepayment Premium"):
================================================================================
YEAR IN WHICH
PREPAYMENT MADE PREPAYMENT PENALTY
- --------------------------------------------------------------------------------
First year following closing of Loan 5% of amount prepaid
- --------------------------------------------------------------------------------
Second year following closing of Loan 4% of amount prepaid
- --------------------------------------------------------------------------------
Third year following closing of Loan 3% of amount prepaid
- --------------------------------------------------------------------------------
Fourth year following closing of Loan 2% of amount prepaid
- --------------------------------------------------------------------------------
Fifth year following closing of Loan or 1% of amount prepaid
any year thereafter
================================================================================
The Maker agrees that the Prepayment Premium has been freely bargained between
the parties to provide the Payee with compensation for the loss of the
contracted-for return on the Loan, that the Prepayment Premium is not a penalty,
and that such Prepayment Premium is reasonable. The Payee's determination of the
Prepayment Premium shall be conclusive and binding, absent manifest error.
Prepayments shall be credited first to Prepayment Premiums, second to Payee's
costs and expenses as provided in Section 13 hereof, third, to accrued and
unpaid interest, and fourth, to the Principal Amount.
3
<PAGE>
5. Events of Default. The occurrence or existence of any
one or more of the following events or conditions shall constitute an Event of
Default hereunder (each such occurrence or existence an "Event of Default"):
a. Maker shall fail to pay any principal or interest
under this Note when due.
b. A defined Event of Default shall occur under the
Loan Agreement.
6. Remedies. Upon the occurrence of and during the
continuation of any Event of Default, Payee shall have the rights, and shall be
entitled to the remedies, set forth in the Loan Agreement and the other Loan
Documents, which rights include, but are not limited to, the right to declare
the outstanding Principal Amount together with accrued interest to be due and
payable immediately.
7. Remedies Cumulative; Waiver; Jurisdiction; No Jury
Trial.
a. Remedies Cumulative. No right or remedy conferred
upon or reserved to Payee, or now or hereafter existing at law or in equity or
by statute or other legislative enactment, is intended to be exclusive of any
other right or remedy, and each and every such right or remedy shall be
cumulative and concurrent, and shall be in addition to every other such right or
remedy, and may be pursued singly, concurrently, successively, or otherwise, at
the sole discretion of Payee, and shall not be exhausted by any one exercise
thereof but may be exercised as often as occasion therefor shall occur. No act
of Payee shall be deemed or construed as an election to proceed under any one
such right or remedy to the exclusion of any other such right or remedy.
Furthermore, each such right or remedy of Payee shall be separate, distinct, and
cumulative and none shall be given effect to the exclusion of any other. The
failure to exercise or delay in exercising any such right or remedy, or the
failure to insist upon strict performance of any term of this Note shall not be
construed as a waiver or release of the same, or of any event of default
thereunder, or of any obligation or liability of Maker thereunder.
b. Waiver of Notice, etc. Maker hereby waives
presentment for payment, demand of notice of nonpayment, protest, notice of
protest, or other notice of dishonor, and any and all other notices in
connection with any default in the payment of, or any enforcement of the payment
of all amounts due under this Note. To the extent permitted by law, Maker waives
the right to any stay of execution and the benefit of all exemption laws now or
hereafter in effect.
4
<PAGE>
c. Submission to Jurisdiction. Maker hereby agrees
that any action or proceeding against Maker to enforce this Note shall be
commenced in any court having jurisdiction in the County of Salt Lake in the
State of Utah (the "Utah Courts") and Maker waives personal service of process
and agrees that a summons and complaint commencing an action or proceeding in
any such court shall be properly served and shall confer personal jurisdiction
if served by registered or certified mail in accordance with the notice
provisions set forth herein. Notwithstanding the foregoing, each of the parties
hereto agrees that each of the other parties shall have the right to bring any
action or proceeding for enforcement of a judgment entered by the Utah Courts in
any other court or jurisdiction, including, without limitation, the courts of
the states of California and Kansas. Additionally, the foregoing shall not be
deemed to prohibit any party hereto or any other person or entity that may have
the right to enforce or sue under this Note from commencing an action in any
court that may have jurisdiction.
d. Service of Process. Maker irrevocably consents to
the service of process outside the territorial jurisdiction of the Utah Courts
in any such action or proceeding by mailing copies thereof by registered United
States mail, postage prepaid, return receipt requested, to its address as
specified in the first paragraph of this Note. However, the foregoing shall not
limit the right of a party to effect service of process on the other party by
any other legally available method.
e. Waiver of Jury Trial. AS AN IMPORTANT INDUCEMENT
TO THE PAYEE TO ENTER THIS AGREEMENT, THE MAKER WAIVES THE RIGHT TO TRIAL BY
JURY IN ANY ACTION ARISING UNDER OR IN ANY WAY RELATED TO THIS NOTE OR ANY OF
THE OTHER LOAN DOCUMENTS.
8. Guaranty; Security. Payment and performance of this
Note is guaranteed by Verne E. Bray and Beverly Bray pursuant to a Guaranty
dated as of the date hereof. This Note is secured by a Security Agreement by and
between Maker and Payee and dated as of the date hereof, by a Mortgage by and
between Maker and Payee dated as of the date hereof, and by an Escrow and
Deposit Agreement by and between Maker and Payee dated as of the date hereof.
9. Severability. If for any reason one or more of the
provisions of this Note or their application to any person or circumstance shall
be held to be invalid, illegal, or unenforceable in any respect or to any
extent, such provisions shall nevertheless remain valid, legal, and enforceable
in all such other respects and to such extent as may be permissible. In
addition, any such invalidity, illegality, or unenforceability shall not affect
any other provisions of this Note, but this Note shall be construed as if such
invalid, illegal, or unenforceable provision had never been contained herein.
5
<PAGE>
10. Successors and Assigns. This Note inures to the
benefit of Payee and binds Maker, and their respective successors and assigns,
and the words "Payee" and "Maker" whenever occurring herein shall be deemed and
construed to include such respective successors and assigns.
11. Notices. All notices required to be given to any of
the parties hereunder shall be given as provided in the Loan Agreement.
12. Captions. The captions or headings of the paragraphs
in this Note are for convenience only and shall not control or affect the
meaning or construction of any of the terms or provisions of this Note.
13. Reimbursement of Expenses. Maker shall reimburse
Payee for the reasonable costs and expenses incurred by Payee (including
reasonable attorneys' fees, advisory and consulting fees, travel and
communication expenses, and reproduction costs) in connection with this Note and
all reasonable costs and expenses incurred in amending, modifying, or enforcing
this Note.
14. Governing Law. This Note shall be governed by and
construed in accordance with the internal laws of the State of Utah without
regard to conflict of law principles.
[Remainder of Page Left Blank Intentionally]
6
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note as of the day and year
first above written.
NACO INDUSTRIES, INC.
a Utah corporation
By: _____________________________
Its: _____________________________
7
<PAGE>
Exhibit A
---------
to
ADJUSTABLE RATE PROMISSORY NOTE
-------------------------------
Payment Schedule
Initial payments under this Note will be made monthly in the amount of
$11,653.01. Payee will provide Maker an updated Payment Schedule as provided in
Section 3(a) of the Note.
8
<PAGE>
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (the "Security Agreement") is made as of April
__, 1999, by NACO Industries, Inc. a Utah corporation, with principal offices at
395 West 1400 North, Logan, Utah 84341 ("Debtor"), in favor of WEBBANK
CORPORATION, a Utah corporation, with offices at 136 Heber Avenue, Ste. 209,
P.O. Box 1831, Park City, Utah 84060-1831 ("Lender" or "Secured Party").
RECITALS
--------
A. Pursuant to that certain Loan Agreement of even date herewith by and
between Debtor and Lender (the "Loan Agreement") Lender has advanced a loan to
Debtor (the "Loan"), as evidenced by that certain Adjustable Rate Promissory
Note dated of even date herewith (as amended, modified or restated from time to
time, the "Note"); and
B. It is a condition to Lender's willingness to make the Loan that
Debtor has entered into this Security Agreement.
AGREEMENT
---------
NOW THEREFORE, to induce Lender to make the Loan, and in consideration
of the mutual covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, Debtor and Lender hereby agree as follows:
1. Definitions. All capitalized terms not otherwise
defined herein shall have the meaning ascribed to such terms in the Loan
Agreement except as the context requires otherwise. For the purposes of this
Security Agreement, the following terms shall have the following meanings:
a. "Books and Records" means all of Debtor's books
and records, including, but not limited to, records indicating, summarizing, or
evidencing the Collateral, the Secured Obligations, and Debtor's property,
business operations, or financial condition, computer runs, invoices, disks,
cd-roms, tapes, processing software, processing contracts (such as contracts for
computer time and services) and any computer-prepared information, disks,
cd-roms, tapes, or data of every kind and description, whether in the possession
of Debtor or in the possession of third parties.
1
<PAGE>
b. "Collateral" means all tangible and intangible
property owned by Debtor or in which Debtor has an interest, whether now owned
or hereafter acquired, including, but not limited to, Debtor's interest now and
in the future in the following types or items of property:
(1) Accounts: All presently owned and
hereafter acquired accounts, accounts receivable, contract rights, bills,
acceptances, and other forms of obligations arising out of the sale, lease or
consignment of goods or the rendition of services by Debtor; together with any
property evidencing or relating to the Accounts (such as guaranties, credit
insurance, Letters of Credit), any security for the Accounts, all Books and
Records relating thereto, and all Proceeds of any of the foregoing, including
returned or reclaimed inventory;
(2) Inventory: All presently owned and
hereafter acquired inventory of every nature, kind, and description, wherever
located, including, without limitation, raw materials, goods, work in process,
finished goods, parts or supplies; all goods and property held for sale or lease
or to be furnished under contracts of service; and all goods and inventory
returned, reclaimed or repossessed, together with all Proceeds of any of the
foregoing;
(3) Equipment: All presently owned and
hereafter acquired equipment, whether or not affixed to realty, including,
without limitation, machines, computers, trucks, trailers, vehicles, goods,
accessories, handling and delivery equipment, fixtures, improvements, office
machines, restaurant equipment and furniture, together with all Proceeds of any
of the foregoing, and all accessions, accessories, replacements and the rights
of the Debtor under any manufacturer's warranties relating to the foregoing;
(4) Chattel Paper: All presently owned and
hereafter acquired chattel paper, including, but not limited to, any writing or
writings which evidence both a monetary obligation and a security interest in or
a lease of specific goods, together with all Proceeds of any of the foregoing;
(5) General Intangibles:All presently owned
and hereafter acquired general intangibles, including, without limitation, any
"general intangible" as that term is defined in the Uniform Commercial Code, any
software products, any personal property, choses in action, causes of action,
designs, plans, goodwill, tax refunds, licenses, franchises, IP Collateral,
trade agreements, customer lists and all rights under license agreements for use
of the same, together with all Proceeds of any of the foregoing;
2
<PAGE>
(6) Instruments: All presently owned and
hereafter acquired instruments, including, without limitation, bills of
exchange, notes, and all negotiable instruments, all certificated securities,
all certificates of deposit and any other writing that evidences a right to the
payment of money and is not itself a security agreement or lease and is of a
type that is in the ordinary course of business transferred by delivery with any
necessary endorsement or assignment, together with all Proceeds of any of the
foregoing;
(7) Documents: All presently owned and
hereafter acquired documents, including, but not limited to, documents of title
(as that term is defined in the Uniform Commercial Code) and any and all
receipts, including, but not limited to, receipts of the kind described in
Article 7 of the Uniform Commercial Code, together with all Proceeds of any of
the foregoing;
(8) Letters of Credit: All presently owned
and hereafter acquired letters of credit, including, but not limited to, any
written undertaking to pay money conditioned upon presentation of specified
documents, and advices of letters of credit, together with all Proceeds of any
of the foregoing; and
(9) Proceeds: All presently owned and
hereafter acquired proceeds, as that term is defined in the Uniform Commercial
Code, including, without limitation, whatever is received upon the use, lease,
sale, exchange, collection, any other utilization or any disposition of any of
the Collateral described in this section 1(b), whether cash or non-cash, all
rental or lease payments, accounts, chattel paper, instruments, documents,
contract rights, general intangibles, equipment, inventory, substitutions,
additions, accessions, replacements, products, and renewals of, for, or to such
property and all insurance therefor.
(10) The Escrow Account: All of Debtor's
interest in and to the deposit and escrow account established and maintained
pursuant to that certain Deposit and Escrow Agreement among Debtor, Lender, and
Escrow Agent dated of even date herewith.
c. "Loan Documents" means collectively, the Loan
Agreement, the Note, all credit accommodations, notes, loan agreements,
guarantees, security agreements, mortgages, instruments, pledge agreements,
assignments, acceptance agreements, commitments, facilities, reimbursement
agreements and any other agreements, documents and instruments, now or hereafter
existing, creating, evidencing, guarantying, securing or relating to any or all
of the Secured Obligations, together with all amendments, modifications,
renewals, or extensions thereof.
3
<PAGE>
d. "Event of Default" means any Event of Default as
defined in the Loan Agreement which is not cured within the cure period, if any,
provided in the Loan Agreement or any Event of Default as defined in any of the
other Loan Documents, (ii) failure of Debtor to pay any sum due pursuant to any
of the Secured Obligations as and when due, whether by stated maturity, demand,
acceleration or otherwise, or (iii) any breach or violation of any
representation, warranty, covenant or term of this Security Agreement.
e. "IP Collateral" means any and all patents, patent
applications and related filings, trademarks (both registered and unregistered),
trademark applications and related filings, service marks (both registered and
unregistered), service mark applications and related filings, trade names,
know-how and trade secrets, copyrights, copyright registrations and related
filings, computer software, programs and technology, and all other intellectual
property and proprietary rights, and shall include without limitation all of the
Debtor's right, title and interest in and to:
(1) all of its now owned or existing or
hereafter acquired trademarks, service marks, trademark or service mark
applications, whether the foregoing are domestic (state or federal) or foreign,
including, without limitation, each mark, registration, and application listed
on Schedule A, attached hereto and made a part hereof, and (A) renewals thereof,
(B) all income, royalties, damages and payments hereafter due and/or payable
with respect thereto, including, without limitation, damages and payment for
past, present or future infringements thereof, (C) the right to sue for past,
present and future infringements thereof, (D) all rights corresponding thereto
throughout the world, (E) the Trademark License Rights, as hereinafter defined,
(F) trade dress, (G) all customer and other lists related to any of the
foregoing, (H) together in each case with the goodwill of Debtor's business
connected with the use of, and symbolized by any of the foregoing and (I)
Debtor's entire right, title and interest in, to and under all license
agreements with any person or entity, whether Debtor is licensor or licensee
under any such license agreement, including, without limitation, the licenses
listed on Schedule A (the "Trademark License Rights," and together with all
other interests described in this clause (1), the "Trademark Collateral");
(2) all of its now owned or existing, or
hereafter acquired inventions (whether patentable or not), patents and patent
applications, whether the foregoing be domestic or foreign, including without
limitation the inventions and improvements described and claimed therein, those
patents listed on Schedule B which is attached hereto and made a part hereof,
and together with (A) the reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, (B) all income, royalties, damages
and payments now or hereafter due and/or payable with respect thereto, including
4
<PAGE>
without limitation damages and payments for past, present or future
infringements thereof, (C) the right to sue for past, present and future
infringements thereof, (D) all rights corresponding thereto throughout the
world, and (E) all rights as licensor or licensee with respect to any patents,
patent applications and rights thereto and thereunder, including without
limitation the licenses listed on Schedule B (such rights as licensor or
licensee, collectively, the "Patent License Rights," and together with all other
interests described in this clause (2), the "Patent Collateral"); and
(3) all of its now owned or existing, or
hereafter acquired copyrights, copyright registrations, whether the foregoing be
domestic or foreign, including without limitation each copyright registration
listed on Schedule C which is attached hereto and made a part hereof, and
together with (A) the derivatives thereof, (B) all income, royalties, damages
and payments now or hereafter due and/or payable with respect thereto, including
without limitation damages and payments for past, present or future
infringements thereof, (C) the right to sue for past, present and future
infringements thereof, (D) all rights corresponding thereto throughout the
world, (E) all rights as licensor or licensee with respect to any copyrights,
copyright registrations and rights thereto and thereunder, including without
limitation the licenses listed on Schedule C (such rights as licensor or
licensee, collectively, the "Copyright License Rights," and together with all
other interests described in this clause (3), the "Copyright Collateral");
f. "Secured Obligations" shall mean, collectively,
the principal of and interest on the Loan, the Note, and all other amounts owing
to the Lender by Debtor under, the Loan Agreement, the Loan Documents or
hereunder; and
g. "Uniform Commercial Code" shall mean the Uniform
Commercial Code as in effect in the State of Utah from time to time.
2. Security Interest. As security for the due and
punctual payment and full and complete performance of each of the Secured
Obligations, Debtor hereby grants to Lender for the benefit of the Secured Party
a security interest in and general lien upon all of Debtor's right, title and
interest in and to all the Collateral and any part thereof.
3. Representations and Warranties. Debtor represents and
warrants to Lender for the benefit of the Secured Party, which representations
and warranties shall be continuing representations and warranties until all of
the Secured Obligations are satisfied in full, as follows:
a. Locations. The chief place of business, chief
executive offices and the office(s) where Debtor's records are kept concerning
5
<PAGE>
accounts, contract rights and other similar Collateral, and the locations where
its inventories, goods, equipment, fixtures and other similar Collateral are
kept, are as set forth on Schedule D attached hereto, and as set forth on
Schedule D, Borrower either owns such premises free and clear of any mortgage or
other liens and encumbrances, except as set forth on Schedule D, or it leases
such premises from the record owner identified on Schedule D.
b. Trade names. It conducts business under and
through its legal name as set forth on the signature page hereto, and no other
names, except as set forth on Schedule D attached hereto.
c. Authority. Debtor is duly organized and validly
existing and in good standing under the laws of the State of Utah and is
qualified and licensed to do business in those jurisdictions where the conduct
of its business or ownership of its properties requires such qualification.
Debtor has the power and authority to own the Collateral, to enter into and
perform this Security Agreement and any other documents or instruments executed
in connection herewith, and to incur the Secured Obligations.
d. Duly Authorized; Not in Violation of Law. This
Security Agreement and any other documents or instruments executed in connection
herewith have been duly authorized, executed, and delivered, and constitute the
legal, valid, and binding obligations of Debtor, enforceable against Debtor in
accordance with their respective terms. This Security Agreement and any other
documents and instruments executed in connection herewith do not and will not
violate any law, the charter, organizational documents, or by-laws of Debtor, or
any other agreement or instrument to which Debtor or any of its property may be
bound or subject.
e. No Consents Necessary.
---------------------
(1) No consent or approval of any person or
entity, including, without limitation, any debt or equity holder of Debtor, or
of any public authority, is necessary for the valid execution, delivery and
performance of this Security Agreement by Debtor, or any document or instrument
executed in connection herewith.
(2) Except for the recording of this
Security Agreement with the United States Patent and Trademark Office and the
United States Copyright Office (with respect to the Trademark Collateral, the
Patent Collateral and the Copyright Collateral) and the filing of Uniform
Commercial Code financing statements naming Debtor as "debtor" and Lender as
"secured party" in the appropriate filing offices, no authorization, consent,
approval or other action by, and no notice to or filing or recording with, any
governmental, administrative or judicial authority or regulatory body is
currently or is reasonably expected to be required either (A) for the grant by
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Debtor of the liens and security interests granted hereby or for the execution,
delivery or performance of this Security Agreement by Debtor, or (B) for the
perfection of or the exercise by Lender of its rights and remedies hereunder.
f. Rights in Collateral.
--------------------
(1) Debtor has the right to grant the
security interests created by this Security Agreement. The Collateral is not
subject to liens, claims or encumbrances, licenses or similar interests except:
(A) as otherwise disclosed on Schedule A (with respect to the Trademark
Collateral), Schedule B (with respect to Patent Collateral) and Schedule C (with
respect to the Copyright Collateral); (B) the liens and encumbrances of Lender
or as is otherwise set forth on Schedule E made a part hereto.
(2) Set forth on Schedule A, Schedule B and
Schedule C are complete and accurate lists of all Trademark License Rights and
other Trademark Collateral and Patent License Rights and other Patent Collateral
and Copyright Rights and other Copyright Collateral respectively, owned by
Debtor.
g. Regarding the IP Collateral.
---------------------------
(1) Each item of Trademark Collateral
identified on Schedule A, each item of Patent Collateral identified on Schedule
B, and each item of Copyright Collateral identified on Schedule C, is subsisting
and has not been adjudged invalid or unenforceable, in whole or in part, and
each such item is, to the best of Debtor's knowledge, validly registered or
registerable and enforceable and subject to no claims or adverse limitations.
Debtor has notified the Lender in writing of: (A) all prior uses of any material
item of Trademark Collateral of which Debtor is aware that could lead to such
items becoming invalid or unenforceable, including prior unauthorized uses by
third parties; (B) any infringement on any proprietary right or default under
any IP Collateral; and (C) prior uses or publications of any material item of IP
Collateral of which Debtor is aware which could lead to Debtor's interest in
such item becoming invalid or unenforceable, including any publication or use
which might place the work in the public domain.
(2) The Trademark License Rights and the
Patent License Rights are in full force and effect and Debtor is not in default
of any of the foregoing License Rights and no event has occurred with notice or
the passage of time, or both, might constitute a material default by Debtor
under the foregoing license rights.
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h. Materially Misleading Statements.
---------------------------------0
No representation, warranty or statement
made herein, on any Schedule hereto or in any certificate or document furnished
or to be furnished pursuant hereto contains or will contain any untrue statement
of material fact or omits or will omit any fact necessary to make it not
misleading in any material respect.
(1) No Fictitious Names. Debtor does not
operate or issue invoices under any name other than the name(s) set forth on the
signature page hereof.
4. Further Assurances; Filing.
a. Delivery of Documents; Inspection of
Collateral. At any time and from time to time, upon the demand of Lender, Debtor
will, at Debtor's expense: (i) immediately deliver and pledge to Lender for the
benefit of the Secured Party, properly endorsed to Lender and/or accompanied by
such instruments of assignment and transfer in such form and substance as Lender
may request, any and all instruments, documents, and/or chattel paper as Lender
may specify in demand; (ii) give, execute, deliver, file, and/or record any
notice, statement, instrument, assignment, document, agreement, or other papers
that may be necessary or desirable, or that Lender may request, in order to
create, preserve, perfect, or validate any security interest granted pursuant
hereto or intended to be granted hereunder or to enable Lender to exercise or
enforce for the benefit of the Secured Party its rights hereunder or with
respect to such security interest; (iii) keep, stamp, or otherwise mark any and
all documents, Instruments, Chattel Paper, and its Books and Records relating to
the Collateral in such manner as Lender may reasonably require; and/or (iv)
permit representatives and agents of Lender access to its premises at any time
reasonably requested by Lender to inspect the Collateral and the Books and
Records and to audit and make abstracts from the Books and Records.
b. Filing of Financing Statement. At the sole
option of Lender, and without Debtor's consent, Lender may file a carbon,
photographic or other reproduction of this Security Agreement or any financing
statement executed pursuant hereto as a financing statement in any jurisdiction
so permitting or as a registration of Lender's interest as to any of the IP
Collateral in any office so permitted. Without the prior written consent of
Lender, Debtor will not file or authorize or permit to be filed in any
jurisdiction any such financing or like statement in which Lender is not named
as the sole secured party.
c. Lender Collateral Custody Duties. With
respect to the Collateral, or any part thereof, which at any time may come into
the possession, custody or under the control of Lender or any of its agents,
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<PAGE>
associates or correspondents, Debtor hereby acknowledges and agrees that the
sole duty of Lender with respect to the custody, safekeeping and physical
preservation of such Collateral, whether pursuant to Section 9-207 of the
Uniform Commercial Code or otherwise, shall be to deal with it in the same
manner as it deals with similar property for its own account. Neither Lender,
nor any of its directors, officers, employees, affiliates, agents, associates or
correspondents shall be liable for failure to demand, collect or realize upon
any of the Collateral or for any delay in doing so.
5. Covenants. Debtor hereby covenants and agrees that
for as long as any Secured Obligations are outstanding:
a. Defense of Collateral. Debtor shall defend the
Collateral against all claims and demands of all persons or entities at any time
claiming any interest therein other than those of Lender.
b. Notice of Changes in Location of Chief Executive
Office, Residence, Books and Records, Collateral. Debtor shall provide Lender
with immediate written notice of: (i) any intended change in the chief executive
office or residence of Debtor, and/or the office where Debtor maintains its
Books and Records; (ii) the location or movement of any Collateral, excluding
movement of motor vehicles in the normal course of business to or at an address
other than Debtor's address as set forth on the signature page hereof; and (iii)
the creation or acquisition of any additional IP Collateral. If any such new
location is on leased or mortgaged premises, then Debtor will furnish Lender,
prior to the effective date of any such change, with landlord's or mortgagee's
waivers pertaining to such premises in form and substance satisfactory to Lender
in its sole discretion.
c. Prompt Payment of Taxes; Delivery to Lender of
Proof of Payment. Debtor shall promptly pay any and all taxes, assessments,
and/or governmental charges upon the Collateral on the dates such taxes,
assessments, and/or governmental charges are due and payable, except to the
extent that such taxes, assessments, and/or charges are contested in good faith
by Debtor by appropriate proceedings and for which Debtor is maintaining
adequate reserves. Upon request of Lender, Debtor shall deliver to Lender such
receipts and other proofs of payment as Lender may reasonably request.
d. Delivery of Instruments, Chattel Paper and
Documents of Title. Immediately upon receipt of any and all Instruments, Chattel
Paper, and/or documents of title (including bills of lading and warehouse
receipts), Debtor shall deliver such Collateral to Lender and shall execute any
form of assignment or endorsement reasonably requested by Lender with respect
thereto.
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e. Notice of Adverse Changes, Events of Default,
Seizures and Institution of Litigation. Debtor shall immediately notify Lender
of: (i) the occurrence of any event or circumstance that is reasonably likely to
result in a Material Adverse Change (as defined in the Loan Agreement),
including, without limitation, any loss of or damage to any Collateral; (ii) the
occurrence of an Event of Default; (iii) any seizure of the Collateral; (iv) any
claim or alleged claim of third parties to the Collateral that, either singly or
in the aggregate, is reasonably likely to have a Material Adverse Change
(including, without limitation, any loss of or damage to any Collateral); and
(v) the institution of any litigation, arbitration, governmental investigation
or administrative proceedings against or affecting Debtor or any of the
Collateral that, if adversely determined, is reasonably likely, either singly or
in the aggregate, to result in an Event of Default or to have a Material Adverse
Change.
f. Insurance. Debtor shall maintain insurance at all
times with respect to the Collateral (including all risk-extended coverage)
against the risks of fire, theft and such other risks, including, without
limitation, liability, errors and omissions and business interruption, as Lender
may require, containing such terms, in such form and amounts, for such periods
and written by such companies as are acceptable to Lender in its reasonable
discretion. All such policies of insurance shall name Lender for the benefit of
the Lender as lender/loss payee and shall provide for not less than thirty (30)
days' prior written notice to Lender of intended cancellation or reduction in
coverage. Upon request of Lender, Debtor shall furnish Lender with certificates
or other evidence satisfactory to Lender of compliance with the foregoing
insurance provisions. Lender shall have the right (but shall be under no
obligation) to pay any of the premiums on such insurance and all such payments
made by Lender shall become part of the Secured Obligations and be considered an
advance at the highest rate of interest provided for in the Loan Documents.
Debtor expressly authorizes its insurance carriers to pay proceeds of all
insurance policies covering all or any part of the Collateral directly to
Lender.
g. Disposition of Collateral. Debtor shall not
license, sell, offer to sell, otherwise assign or permit the involuntary
transfer of, or disposition of the Collateral or any interest therein, without
the prior written consent of Lender; provided, however, that unless, following
(i) a demand for payment under the Loan Agreement or Note, or (ii) the
occurrence of an Event of Default, or (iii) Lender or any Lender notifies Debtor
otherwise, Debtor may sell its Inventory or grant nonexclusive licenses in the
ordinary course of its business.
h. Security Interests in Collateral. Debtor shall
keep the Collateral free from any lien, security interest or encumbrance except
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(i) those set forth on Schedule E hereto and (ii) those in favor of Lender, in
good order and repair, reasonable wear and tear excepted, and will not waste or
destroy the Collateral or any part thereof. If reasonably requested by Lender,
Debtor shall give notice of Lender's security interests in the Collateral to any
third person with whom Debtor has any actual or prospective contractual
relationship or other business dealings.
i. Collateral Not to Be Used in Violation of Laws.
Debtor shall not use the Collateral or any of its property in violation of any
law, statute, regulation, or ordinance.
j. Compliance with Laws. Debtor shall continue to be
in compliance with all applicable laws, statutes, rules, and regulations.
k. Maintenance, Inspection of Books and Records.
Debtor shall maintain complete and accurate Books and Records in accordance with
generally accepted accounting principles in effect in the United States from
time to time, and shall make all necessary entries therein to reflect the costs,
values and locations of its Inventory and Equipment and the transactions giving
rise to its Accounts and all payments, credits and adjustments thereto. Debtor
shall keep Lender fully informed as to the location of all such Books and
Records and shall permit Lender and its authorized agents to have full, complete
and unrestricted access thereto at all reasonable times to inspect, audit and
make copies of any and all such Books and Records, at Lender's sole expense.
Lender's rights hereunder shall be enforceable at law or in equity, and Debtor
consents to the entry of judicial orders or injunctions enforcing specific
performance of such obligations hereunder.
l. Assignment of United States Accounts. If any of
the Accounts arise out of contracts with the United States or any of its
departments, agencies or instrumentalities, Debtor shall immediately notify and
identify same to Lender, and shall promptly execute and deliver to Lender for
the benefit of the Secured Party an assignment of claims for such Accounts in a
form reasonably acceptable to Lender, and shall take all steps deemed necessary
or desirable by Lender to protect Lender's interest therein under the Federal
Assignment of Claims Act or any similar law or regulation.
m. Maintenance and Inspection of Equipment and
Inventory. With respect to Equipment and Inventory, Debtor shall: (i) keep
accurate books and records with respect thereto, including, without limitation,
maintenance records and current stock, and cost and sales records accurately
itemizing the types and quantities thereof; (ii) upon request, deliver to Lender
all evidence of ownership in such Collateral, including certificates of title
11
<PAGE>
with Lender's interests appropriately noted on the certificate; (iii) permit
Lender and its authorized agents to inspect any or all of the Inventory and
Equipment at all reasonable times; and (iv) preserve the Inventory and Equipment
in good condition and repair, and pay the cost of all replacement parts, repairs
to and maintenance of the Inventory and Equipment.
n. Assignment of Accounts. Following (i) demand for
payment under the Loan Agreement or Note, or (ii) the occurrence of an Event of
Default, and upon request by Lender, Debtor shall promptly give Lender
assignments, in a form acceptable to Lender, of all Accounts, all original and
other documents evidencing a right to payment of Accounts, financial statements,
agings, reports, lists of account debtors, copies of purchase orders, invoices,
contracts, shipping and delivery receipts and such other data concerning the
Accounts as Lender may request. Debtor agrees that Lender and its authorized
agents shall at all times have the right to confirm orders and to verify any or
all of the Accounts in Lender's name, or in any fictitious name used by Lender
for verifications.
o. Continuing of Perfected Status of Collateral.
(1) Debtor agrees to cooperate and join, at
its expense, with Lender in taking such steps as are necessary, in the
reasonable judgment of Lender, to perfect or continue the perfected status of
the security interests granted herein, including, without limitation, the
execution and delivery of any financing statements, amendments thereto and
continuation statements, the delivery of Chattel Paper, Documents or Instruments
to Lender, the obtaining of landlords' and mortgagees' waivers required by
Lender, the notation of encumbrances in favor of Lender on certificates of
title, prompt registration of all copyrights with the United States Copyright
Office, prompt registration of all trademarks with the United States Patent and
Trademark Office, and the execution and filing of any collateral assignments and
any other Instruments requested by Lender to perfect its security interests in
any and all of Debtor's patents, trademarks, service marks, trade names,
copyrights and other General Intangibles including, without limitation, with
respect to the issuance of any patents pursuant to any now pending or future
patent applications. Lender is expressly authorized to file financing statements
without Debtor's signature.
(2) Following indefeasible payment in full
of all Secured Obligations, Lender agrees to cooperate and join, at Debtor's
expense, in executing and delivering all documents and taking all actions as are
necessary to release and terminate Lender's security interests in and
assignments of the Collateral.
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<PAGE>
p. Joinder by Subsidiaries. Debtor agrees to cause
any and all subsidiaries that may be acquired at any time during the term of
this Security Agreement to sign a joinder to this Security Agreement.
6. General Authority.
a. Lender as Attorney-in-Fact. Debtor hereby
irrevocably appoints Lender (and any of its attorneys, officers, employees, or
agents) as its true and lawful attorney-in-fact, said appointment being coupled
with an interest, with full power of substitution, in the name of Debtor,
Lender, or otherwise, for the sole use and benefit of Lender in its sole
discretion, but at Debtor's expense, to exercise, to the extent permitted by
law, in Lender's name or in the name of Debtor or otherwise, the powers set
forth herein, whether or not any of the Secured Obligations are due, such
powers, including, but not limited to, the powers at any time following demand
for payment under the Loan Agreement or Note, or the occurrence of an Event of
Default: (i) to endorse the name of Debtor upon any instruments of payment,
invoice, freight, or express bill, bill of lading, storage, or warehouse receipt
relating to the Collateral; (ii) to demand, collect, receive payment of, settle,
compromise or adjust all or any of the Collateral; (iii) to sign and file one or
more financing statements naming Debtor as debtor and Lender, as secured party
and indicating therein the types or describing the items of Collateral herein
specified; (iv) to correspond and negotiate directly with insurance carriers to
the extent necessary to provide Lender with the benefit of the rights granted
pursuant to Section 5(f) hereof; (v) to sign and record one or more assignments
or other instruments in favor of Lender to transfer ownership of any IP
Collateral to Lender; and (vi) to execute any notice, statement, instrument,
agreement, or other paper that Lender may require to create, preserve, perfect,
or validate any security interest granted pursuant hereto or to enable Lender to
exercise or enforce its rights hereunder or with respect to such security
interest.
b. Liability of Lender as Attorney-in-Fact. Neither
Lender nor its attorneys, officers, employees, or agents shall be liable for
acts, omissions, any error in judgment or mistake in fact in its/their capacity
as attorney-in-fact. Debtor hereby ratifies all acts of Lender as its
attorney-in-fact other than as a result of the gross negligence or willful
misconduct of Lender. This power, being coupled with an interest, is irrevocable
until the Secured Obligations have been fully satisfied. Lender shall not be
required to take any steps necessary to preserve any rights against prior
parties with respect to any of the Collateral.
c. Effect of Extensions and Modifications. Lender may
extend the time of payment, arrange for payment in installments or otherwise
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<PAGE>
modify the terms of, or release, any of the Collateral, without thereby
incurring responsibility to, or discharging or otherwise affecting any liability
of, Debtor.
7. Remedies.
a. Acceleration of Secured Obligations; General
Rights of Lender. Upon the occurrence of an Event of Default, at Lender's sole
option, all Secured Obligations shall immediately become due and payable in
full, all without protest, presentment, demand or further notice of any kind to
Debtor, all of which are expressly waived. Upon and following an Event of
Default, Lender may, at its option, exercise any and all rights and remedies it
has under this Security Agreement, any other Credit Document and/or applicable
law, including, without limitation, the right to charge and collect interest on
the principal portion of the Secured Obligations at a rate equal to the highest
rate allowed by law, such rate of interest to apply to the Secured Obligations,
at Lender's option, both before and after an Event of Default, maturity (whether
by acceleration or otherwise) and entry of a judgment in favor of Lender for the
benefit of the Secured Party with respect to any or all of the Secured
Obligations.
b. Right of Set-off. Upon the occurrence of an Event
of Default, Lender shall have the right, without notice to Debtor and regardless
of the adequacy of the Collateral for the Secured Obligations or other means of
obtaining repayment of the Secured Obligations, and is specifically authorized
hereby to apply toward and set-off against and apply to the then unpaid balance
of the Secured Obligations any items or funds held by Lender including, without
limitation, any and all deposits (whether general or special, time or demand,
matured or unmatured) or any other property of Debtor, including, without
limitation, securities, now or hereafter maintained by Debtor for its own
account with Lender and any other indebtedness at any time held or owing by
Lender to or for the credit or the account of Debtor, even if effecting such
set-off results in a loss or reduction of interest or the imposition of a
penalty applicable to the early withdrawal of time deposits. For such purpose,
Lender shall have, and Debtor hereby grants to Lender, a first lien on and
security interest in such deposits, property, funds and accounts and the
proceeds thereof. Such right of set- off shall exist whether or not Lender shall
have made any demand under any Credit Document, or any other document executed
in connection therewith, and whether or not the Secured Obligations are matured
or unmatured.
c. Additional Rights and Remedies. In addition to the
rights and remedies available to Lender as set forth above and any other rights
or remedies available to Lender under applicable law, upon the occurrence of an
Event of Default hereunder, or at any time thereafter, Lender may at its option,
immediately and without notice, do any or all of the following, which rights and
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<PAGE>
remedies are cumulative, may be exercised from time to time, and are in addition
to any rights and remedies available to Lender under any other agreement or
instrument by and between Debtor and Lender:
(1) Exercise any and all of the rights and
remedies of a secured party under the Uniform Commercial Code, including,
without limitation, the right to require Debtor to assemble the Collateral and
make it available to Lender at a place reasonably convenient to the parties;
(2) Operate, utilize, recondition and/or
refurbish any of the Collateral for the purpose of enhancing or preserving the
value thereof by any means deemed appropriate by Lender, in its reasonable
discretion, including, without limitation, converting raw materials and/or
work-in-process into finished goods;
(3) Notify the account debtors for any of
the Accounts to make payment directly to Lender, or to such post office box as
Lender may direct;
(4) Demand, sue for,collect or retrieve any
money or property at any time payable, receivable on account of or in exchange
for, or make any compromise, or settlement deemed desirable with respect to any
of the Collateral;
(5) Notify the post office authorities to
change the address for delivery of Debtor's mail to an address designated by
Lender and to receive, open, and distribute all mail addressed to Debtor,
retaining all mail relating to the Collateral and forwarding all other mail to
Debtor; and/or
(6) Upon seven (7) calendar days' prior
written notice to Debtor or one (1) day's notice by telephone with respect to
Collateral that is perishable or threatens to decline rapidly in value, which
Debtor hereby acknowledges to be sufficient, commercially reasonable and proper,
Lender may sell, lease or otherwise dispose of any or all of the Collateral at
any time and from time to time at public or private sale, with or without
advertisement thereof, and apply the proceeds of any such sale first to Lender's
expenses in preparing the Collateral for sale (including reasonable attorneys'
fees) and second to the complete satisfaction of the Secured Obligations in any
order deemed appropriate by Lender in its sole discretion. Debtor waives the
benefit of any marshaling doctrine with respect to Lender's exercise of its
rights hereunder. Lender or anyone else may be the purchaser of any or all of
the Collateral so sold and thereafter hold such Collateral absolutely, free from
any claim or right of whatsoever kind, including any equity of redemption of
Debtor any such notice, right and/or equity of redemption being hereby expressly
waived and released.
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8. Grant of License to Use Intangibles. In addition to
the grant of a security interest in the IP Collateral hereinbefore provided, for
the purposes of enabling Lender to exercise its rights and remedies hereunder at
such time as Lender, without regard to this Section 8, shall be lawfully
entitled to exercise such rights and remedies, the Debtor hereby grants to
Lender an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to the Debtor, provided that the actual proceeds
received by Lender of any use or sale of Lender's rights under such license
shall be applied to the Secured Obligations) to use, assign or sublicense any of
the IP Collateral, now owned or hereafter acquired by Debtor, and wherever the
same may be located, including in such license reasonable access to all media in
which any of the licensed items may be recorded or stored, all computer software
and programs and all source code and object code relating to such computer
software and programs.
9. Miscellaneous.
a. Remedies Cumulative; No Waiver. The rights, powers
and remedies of Lender provided in this Security Agreement and any of the other
Loan Documents are cumulative and not exclusive of any right, power or remedy
provided by law or equity. No failure or delay on the part of Lender or either
of them in the exercise of any right, power or remedy shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or remedy
preclude any other or further exercise thereof, or the exercise of any other
right, power or remedy.
b. Notices. All notices, requests, demands and other
communications which are required or permitted to be given under this Agreement
will be in writing and will be deemed to have been duly given if (i) delivered
in person, or (ii) mailed, first class certified, registered or express mail,
return receipt requested and postage prepaid, or (iii) sent by recognized
overnight courier, with proof of delivery requested and charges prepaid, to:
If to Debtor:
NACO Industries, Inc.
395 West 1400 North
Logan, Utah 84341
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If to Lender:
WebBank Corporation
136 Heber Avenue, Suite 209
P.O. Box 1831
Park City, Utah 84060-1831
with a copy to:
Douglas C. Waddoups
Parr Waddoups Brown Gee & Loveless
185 South State, Suite 1300
Salt Lake City, Utah 84111
Facsimile: (801) 532-7750
or to such other address as a party may specify by written notice to the other
parties.
c. Costs and Expenses. Whether or not the
transactions contemplated by this Security Agreement and the other Loan
Documents are fully consummated, Debtor shall promptly pay (or reimburse, as
Lender may elect) all costs and expenses that Lender may hereafter incur in
connection with the perfection and enforcement of the Loan Documents, the
collection of all amounts due under the Loan Documents, and all amendments,
modifications, consents or waivers, if any, to the Loan Documents. Such costs
and expenses shall include, without limitation, the reasonable fees and
disbursements of counsel to Lender, the costs of appraisals, searches of public
records, costs of filing and recording documents with public offices, internal
and/or external audit and/or examination fees and costs, stamp, excise and other
taxes, the reasonable fees of Lender's accountants, consultants or other
professionals, costs and expenses from any actual or attempted sale of all or
any part of the Collateral, or any exchange, enforcement, collection,
compromise, or settlement of any of the Collateral or receipt of the proceeds
thereof, and for the care and preparation for sale of the Collateral (including
insurance costs) and defending and asserting the rights and claims of Lender in
respect thereof, by litigation or otherwise. Debtor's reimbursement obligations
under this Section 9 shall survive any termination of the Loan Documents.
d. Governing Law. This Security Agreement shall be
construed in accordance with and governed by the substantive laws of the State
of Utah without reference to conflict of laws principles provided that as to
Collateral located in any jurisdiction other than Utah, the Lender shall have
all the rights to which a secured party under the laws of such jurisdiction is
entitled.
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e. Integration. This Security Agreement and the other
Loan Documents constitute the sole agreement of the parties with respect to the
subject matter hereof and thereof and supersede all oral negotiations and prior
writings with respect to the subject matter hereof and thereof.
f. Amendment; Waiver. No amendment of this Security
Agreement, and no waiver of any one or more of the provisions hereof shall be
effective unless set forth in writing and signed by the parties hereto.
g. Successors and Assigns. This Security Agreement
(i) shall be binding upon Debtor and Lender and, where applicable, their
respective heirs, executors, administrators, successors and permitted assigns,
and (ii) shall inure to the benefit of Debtor and Lender and, where applicable,
their respective heirs, executors, administrators, successors and permitted
assigns; provided, however, that Debtor may not assign its rights hereunder or
any interest herein without the prior written consent of Lender, in its sole
discretion, and any such assignment or attempted assignment by Debtor shall be
void and of no effect with respect to Lender.
h. Severability. The illegality or unenforceability
of any provision of this Security Agreement or any instrument or agreement
required hereunder shall not in any way affect or impair the legality or
enforceability of the remaining provisions of this Security Agreement or any
instrument or agreement required hereunder. In lieu of any illegal or
unenforceable provision in this Security Agreement, there shall be added
automatically as a part of this Security Agreement a legal and enforceable
provision as similar in terms to such illegal or unenforceable provision as may
be possible.
i. Headings. The headings of sections and paragraphs
have been included herein for convenience only and shall not be considered in
interpreting this Security Agreement.
[Remainder of Page Left Blank Intentionally]
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IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement on this date above first written.
NACO INDUSTRIES, INC.,
a Utah corporation
--------------------------------
By:
Its:
WEBBANK CORPORATION,
a Utah Corporation
--------------------------------
By:
Its:
19
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Schedule A
----------
Trademarks, Service Marks or Service Mark Applications
20
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Schedule B
----------
Patents and Patent Applications
21
<PAGE>
Schedule C
----------
Copyrights and Copyright Registrations
22
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Schedule D
----------
Debtor Places of Business and Location of Collateral
NACO Industries, Inc.
395 West 1400 North
Logan, Utah 84321
NACO Industries, Inc.
3445 West Jones Avenue
Garden City, Kansas 67846
NACO Industries, Inc.
2395 Maggio Circle
Lodi, California 95240
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Schedule E
----------
Liens or Encumbrances on Collateral
24
INTERCREDITOR AGREEMENT
This Agreement is made as of April 22, 1999 by and between WELLS FARGO
BUSINESS CREDIT, INC., f/k/a Norwest Business Credit, Inc. ("WFBCI"), and
WebBank Corporation ("WebBank").
WHEREAS, WFBCI has made and may in the future make advances and grant
other financial accommodations to Naco Industries, Inc., a Utah corporation (the
"Borrower") including without limitation advances and other financial
accommodations made in accordance with a Credit and Security Agreement and
certain documents executed in connection therewith, each dated as of April 22,
1999 between the Borrower and WFBCI, as the same may hereafter be amended,
supplemented or restated from time to time (the "WFBCI Credit Agreement"); and
WHEREAS, in connection with the WFBCI Credit Agreement, the Borrower
has granted to WFBCI a security interest (the "WFBCI Security Interest") in
substantially all of the Borrower's assets, including but not limited to all of
the Borrower's accounts receivable, equipment, inventory, general intangibles,
and all proceeds and products of the foregoing (collectively, the "Collateral").
Collateral as used herein specifically excludes real property owned by the
Borrower; and
WHEREAS, WebBank intends to provide the Borrower with a loan in the
amount of $1,100,000 (the "WebBank Loan") secured by certain equipment and real
property as set forth on Exhibit A attached hereto and incorporated herein (the
"WebBank Collateral") and in connection with such loan, WebBank desires to
acquire a security interest in the WebBank Collateral (the "WebBank Security
Interest"); and
WHEREAS, in accordance with the WFBCI Credit Agreement and the WebBank
Loan, the Borrower is proscribed from borrowing money from any person or
granting to any person a security interest in any of its assets without the
consent of WFBCI or WebBank, as the case may be, and breach of such covenants
would cause a default under the WFBCI Credit Agreement and the WebBank Loan, as
the case may be; and
WHEREAS, WFBCI is willing to consent to the WebBank Loan and the grant
by the Borrower of the WebBank Security Interest and WebBank is willing to
consent to the WFBCI Credit Agreement and the grant by the Borrower of the WFBCI
Security Interest, on the terms and subject to the conditions hereof;
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and in consideration of the recitals, which are hereby
made a part of this Agreement, it is hereby agreed by the parties that:
1. Priorities. At all times, whether before, during or after the
pendency of any bankruptcy, reorganization or other insolvency proceeding, and
notwithstanding the actual priority of the perfected security interests, liens
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or other encumbrances of the respective parties, which any such party would
otherwise obtain over and by virtue of a prior filing or obtaining prior
possession of any collateral pledged by the Borrower in connection with the
WFBCI Credit Agreement or the WebBank Loan (if any such liens are perfected by
possession), the priority with respect to such security interests, liens or
other encumbrances will be as follows:
(a) As to the WebBank Collateral, the WebBank Security
Interest shall have priority over the WFBCI Security Interest and the WFBCI
Security Interest is hereby expressly subordinated thereto.
(b) As to the Collateral (exclusive of the WebBank
Collateral), the WFBCI Security Interest shall have priority over the WebBank
Security Interest and the WebBank Security Interest is hereby expressly
subordinated thereto.
(c) WFBCI specifically disclaims any right, title, security
interest, lien or encumbrance on any of the real property owned by the Borrower.
The subordinations and relative priority agreements set forth in this paragraph
1 are expressly conditioned upon the non-voidability and perfection of the
security interests described herein. If the security interest to which another
interest is subordinated is not perfected or is voidable for any reason, then
the subordination provided for herein shall not be effective as to that
particular part of the Collateral.
2. Collections. None of the parties hereto will (i) exercise any
collection rights with respect to any of the Collateral to the extent such party
has subordinated its interest in such Collateral pursuant to paragraph 1 hereof;
(ii) take possession of, sell or dispose of, or otherwise deal with such
Collateral; or (iii) exercise or enforce any right or remedy which may be
available to such party with respect to such Collateral upon default, without
the prior written consent of the party holding a senior security interest in
such Collateral pursuant to paragraph 1 above.
3. Perfection and Possession. Neither WFBCI nor WebBank (i) makes any
representation or warranty concerning the Collateral or the validity, perfection
or (except as to the subordination effected hereby) priority of any security
interest therein, or (ii) shall have any duty to preserve, protect, care for,
insure, take possession of, collect, dispose of or otherwise realize upon any of
the Collateral.
4. License to Use IP Collateral.
(a) Grant of Limited Non-Exclusive License to Sell Collateral.
WebBank hereby grants to WFBCI a limited non-exclusive license to use the IP
Collateral (as defined in Exhibit A hereto) upon the occurrence of any Event of
Default (as defined in the WFBCI Credit Agreement) for the exclusive purpose of
selling any of the Collateral. The license granted pursuant to this paragraph
4(a) shall expire 180 days after the date upon which all of the following are
satisfied: (a) WFBCI has completed manufacture of and taken possession of all
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Products, (b) any outstanding stay, injunction or other court order or process
has been lifted or terminated so that WFBCI has the legal ability to sell and
convey title of any and all Products, and (c) all steps necessary under WFBCI
Credit Agreement or law have been completed so that WFBCI has the immediate
right to sell and convey title to any and all Products.
(b) Grant of Limited Non-Exclusive License to Use Equipment
and to Manufacture. Upon and conditioned upon the payment to WebBank of the rent
pursuant to paragraph 7(b) hereof, WebBank agrees to grant to WFBCI a limited
non-exclusive license to use the IP Collateral to manufacture products produced
by the Borrower (the "Products") and to exercise all rights which the Borrower
or WebBank has in the IP Collateral, including without limitation, the rights to
complete the manufacture of any partially completed Products. The license
granted pursuant to this paragraph 4(b) shall expire upon WFBCI's termination of
rent payments to WebBank pursuant to paragraph 7(b) hereof or upon WFBCI's
failure to pay such rental payments when due.
5. Application of Proceeds of Collateral.
(a) Subject to the terms of the WFBCI Credit Agreement, in the
event of the repossession, sale, collection or other disposition of any of the
Collateral other than the WebBank Collateral, the proceeds thereof shall be
first applied in satisfaction of any indebtedness owing from the Borrower to
WFBCI that is secured by such Collateral, whether for principal, interest, fees,
expenses or otherwise; and when all such indebtedness owing to WFBCI shall have
been paid in full, any remaining proceeds of such Collateral shall be delivered
to WebBank to be applied against any indebtedness owing from the Borrower to
WebBank that is secured by such Collateral.
(b) Subject to the terms of the WebBank Loan, in the event of
the repossession, sale, collection or other disposition of any of the WebBank
Collateral, the proceeds thereof shall be first applied in satisfaction of any
indebtedness owing from the Borrower to WebBank that is secured by the WebBank
Collateral, whether for principal, interest, fees, expenses or otherwise; and
when all such indebtedness owing to WebBank shall have been paid in full, any
remaining proceeds of the WebBank Collateral shall be delivered to WFBCI to be
applied against any indebtedness owing from the Borrower to WFBCI that is
secured by such WebBank Collateral.
6. Adjustment of Insurance Proceeds.
In the event of any occurrence of any casualty with respect to
any Collateral, the parties hereto agree that the party holding the first and
prior security interest pursuant to the terms of this Intercreditor Agreement
with respect to that portion of the Collateral affected by the casualty shall
have the exclusive right to adjust, compromise or settle any such loss with the
insurer thereof, and to collect and receive the proceeds from such insurer and
to hold such proceeds subject to the terms of the security agreement with
respect thereto and to the terms of this Intercreditor Agreement. Any insurer
shall be fully protected if it acts in reliance on the provisions of this
paragraph.
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7. Occupation of the Borrower's Premises.
(a) General. In the event that WFBCI and WebBank occupy any of
the Borrower's premises for the purpose of the repossession, sale, collection or
other disposition of any of the Collateral, WFBCI and WebBank shall in good
faith cooperate to maximize the combined value of the Collateral and to minimize
the costs incident thereto, provided that, neither WFBCI nor WebBank shall be
required to cooperate in any action which such party reasonably believes will
reduce the value of its collateral. The time during which such occupation occurs
shall be called herein the "Occupation Period."
(b) Use of Equipment to Finish WIP. Without limiting the
foregoing, during the Occupation Period, upon written request by WFBCI, WebBank
shall allow WFBCI to use any equipment located at such premises that is
necessary to finish any work-in-process inventory for a reasonable period of
time (the "WIP Finish Period"). During the WIP Finish Period, WFBCI shall pay to
WebBank monthly rent equal to the payment due from the Borrower to WebBank under
the WebBank Loan and related promissory note; provided that WFBCI may terminate
such rental payments upon not less than 30 days' prior written notice to WebBank
of the end of the WIP Finish Period. During the WIP Finish Period, WebBank may
appraise such equipment and take other actions in preparation for sale of such
equipment provided that (i) no such actions interfere materially with WFBCI's
ability to use such equipment to finish work-in-process inventory and (ii)
WebBank gives WFBCI 30 days' prior written notice of any sale of any such
equipment.
(c) Payment of Rent. In the event that only one party hereto
is occupying a given premises, such party shall be solely responsible for
payment of Rent for such premises. As used in this agreement, "Rent" for any
premises shall mean rent and related payments to be paid to the owner of such
premises as required by law or by agreement. In the event both parties
simultaneously occupy a given leased premises, other than a premises owned by
the Borrower, each party shall be responsible for payment of one-half of Rent
for such premises. To the extent a party has actually paid Rent for which the
other party is responsible as set forth in this paragraph, the party responsible
for such payment shall promptly reimburse the other party for the amount of such
Rent. For the purpose of this paragraph 7(c), no party shall be deemed to occupy
a premises simply by making periodic visits to such premises to inspect or
appraise such party's collateral located on the premises.
(d) Damage to Premises. If any premises is damaged during
occupation of such premises by both parties hereto and payment for such damage
must be made to the owner of such premises by either party, the parties shall
make a good-faith effort to determine which party (or which party's agent)
caused such damage. If after such good-faith effort no party can be shown to be
clearly at fault, each party shall pay one-half of the cost of such damage;
otherwise, the party determined to be at fault shall pay all of the cost of such
damage. If any premises are damaged during occupation of such premises by one
party and payment for such damage must be made to the owner of such premises,
such party shall pay the entire cost of such damage.
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8. Continuing Agreement. The subordinations, agreements, and
priorities set forth hereinabove shall remain in full force and effect
regardless of whether either party hereto in the future seeks to rescind, amend,
terminate, or reform, by litigation or otherwise, its agreements with the
Borrower.
9. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the parties hereto, but neither the
Borrower nor any other secured party shall be entitled to rely on or enforce
this Agreement and the parties hereto warrant that any purchaser or transferee
of, or successor to, any security interest of any of the parties hereto in any
or all of the Collateral will be given detailed written notice of the
subordination accomplished hereby, prior to the time of purchase, transfer or
succession.
(b) Either party may at any time and from time to time amend
its agreement with the Borrower without notice to or consent of the other party
and without affecting or impairing the subordination affected hereby.
(c) The parties hereto hereby agree to execute any and all
other further documents, agreements or instruments or to take such other steps
as from time to time are necessary in order to effectuate the purposes of the
foregoing.
(d) All notices, requests, consents and demands hereunder
shall be in writing and telexed, telecopied, telegraphed, cabled or delivered to
the intended recipient at its address or telex number specified beneath its
signature hereto or at such other telex number or address as shall be designated
by any party in a notice to each other party. Except as otherwise provided
herein, all notices and other communications hereunder shall be deemed to have
been duly given when transmitted by telex or telecopier, delivered to the
telegraph or cable office or personally delivered or, in the case of a mailed
notice, seven days after the date deposited in the mails, postage prepaid, in
each case given or addressed as aforesaid.
(e) This Agreement may be executed in any number of
counterparts or by facsimile, each of which when so executed and delivered shall
be an original, but such counterparts shall together constitute one and the same
instrument.
(f) This Agreement is made and executed under and in all
respects is to be governed and construed in accordance with the internal laws of
the State of Utah.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
WELLS FARGO BUSINESS CREDIT, INC., f/k/a Norwest Business Credit, Inc.
By:
Its: Vice President
1740 Broadway
Denver, Colorado 80274-8625
Att.: Kim Carmichael
Phone: (303) 863-5335
Fax: (303) 863-4904
WEBBANK CORPORATION
By:
Its:
136 Heber Avenue, Suite 209
P.O. Box 1831
Park City, Utah 84060-1831
Att.: __________________
Phone: (435) 658-0930
Fax: (435) 658-0931
ACKNOWLEDGED BY:
Naco Industries, Inc.
By:
Its: President
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Exhibit A
INTERCREDITOR AGREEMENT
DESCRIPTION OF WEBBANK COLLATERAL
The WebBank Collateral is all of Naco Industries, Inc.'s (the
"Borrower") interest in the Equipment, IP Collateral, Proceeds, Escrow Account
and Fixtures, all as defined below, whether now owned or existing or hereafter
acquired or arising, together with any and all additions thereto and
replacements therefor and proceeds and products thereof:
a. Equipment: All presently owned and hereafter acquired equipment,
whether or not affixed to realty, including, without limitation, machines,
computers, trucks, trailers, goods, accessories, handling and delivery
equipment, fixtures, improvements, office machines, restaurant equipment and
furniture, and all accessions, accessories, replacements and the rights of the
Borrower under any manufacturer's warranties relating to the foregoing (the
"Equipment");
b. Intellectual Property:All presently owned and hereafter acquired IP
Collateral (as defined below) and all general intangibles directly related to
the IP Collateral, the Equipment or the manufacturing process of the Borrower,
including, without limitation, an "general intangible" as that term is defined
in the Uniform Commercial Code. For the purpose of this Agreement, IP Collateral
means any and all patents, patent applications and related filings, trademarks
(both registered and unregistered), trademark applications and related filings,
service marks (both registered and unregistered), service mark applications and
related filings, trade names, know-how and trade secrets, copyrights, copyright
registrations and related filings, computer software, programs and technology,
and all other intellectual property and proprietary rights;
c. Proceeds: All presently owned and hereafter acquired proceeds as
that term is defined in the Uniform Commercial Code, of the Equipment, IP
Collateral, Escrow Agreement and Fixtures, including, without limitation,
whatever is received upon the use, lease, sale, exchange, collection, any other
utilization or any disposition of any of the Equipment, IP Collateral, Escrow
Account or Fixtures, whether cash or non-cash;
d. Escrow Account:All of the Borrower's interest in and to the deposit
and escrow account established and maintained pursuant to that certain Deposit
and Escrow Agreement between WebBank, Escrow Agent and Borrower dated as of the
date hereof (the "Escrow Account"); and
e. Fixtures: All presently owned and hereafter acquired fixtures, as
that term is defined in the UCC, and all accessions, accessories, replacements
and the rights of the Borrower under any manufacturer's warranties relating to
the foregoing (the "Fixtures").
Any of the foregoing terms which are defined in the Uniform Commercial
Code as adopted in Utah (the "UCC") shall have the meaning provided in the UCC
as supplemented and expanded by the foregoing.
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<PAGE>
GUARANTY
Denver, Colorado
April 22, 1999
This Guaranty, dated as of April 22, 1999 is made by Verne
Bray (the "Guarantor") for the benefit of Wells Fargo Business Credit, Inc.,
f/k/a Norwest Business Credit, Inc., a Minnesota corporation (with its
participants, successors and assigns, the "Lender").
The Lender and Naco Industries, Inc., a Utah corporation (the
"Borrower"), are parties to a Credit and Security Agreement of even date
herewith pursuant to which the Lender may make advances and extend other
financial accommodations to the Borrower.
As a condition to extending such credit to the Borrower, the
Lender has required the execution and delivery of this Guaranty.
ACCORDINGLY, the Guarantor, in consideration of the premises
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, hereby agrees as follows:
1. Definitions.All terms defined in the Credit Agreement that
are not otherwise defined herein shall have the meanings given them in the
Credit Agreement.
2. Indebtedness Guaranteed. The Guarantor hereby absolutely
and unconditionally guarantees to the Lender the full and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise, of
(i) the Obligations and (ii) each and every other sum now or hereafter owing to
the Lender by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to the
Lender or owed to others by reason of participations granted to or interests
acquired or created for or sold to them by the Lender, in each case whether now
existing or hereafter arising, whether arising directly in a transaction or
event involving the Lender or acquired by the Lender from another by purchase or
assignment or as collateral security, whether owed by the Borrower as drawer,
maker, endorser, accommodation party, guarantor, principal, surety or as a
member of any partnership, syndicate, association or group or in any other
capacity, whether absolute or contingent, direct or indirect, primary or
secondary, sole, joint, several or joint and several, secured or unsecured, due
or not due, contractual, tortious or statutory, liquidated or unliquidated,
arising by agreement or imposed by law or otherwise (all of said sums being
hereinafter called the "Indebtedness").
3. Unconditional Guaranty. No act or thing need occur to
establish the liability of the Guarantor hereunder, and no act or thing, except
full payment and discharge of all of the Indebtedness, shall in any way
exonerate the Guarantor hereunder or modify, reduce, limit or release the
Guarantor's liability hereunder. This is an absolute, unconditional and
continuing guaranty of payment of the Indebtedness and shall continue to be in
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force and be binding upon the Guarantor, whether or not all of the Indebtedness
is paid in full, until this Guaranty is revoked prospectively as to future
transactions, by written notice actually received by the Lender, and such
revocation shall not be effective as to the amount of Indebtedness existing or
committed for at the time of actual receipt of such notice by the Lender, or as
to any renewals, extensions, refinancings or refundings thereof. The death or
incompetence of the Guarantor shall not revoke this Guaranty, except upon actual
receipt of written notice thereof by the Lender and only prospectively, as to
future transactions, as herein set forth.
4. Death or Insolvency of Guarantor. If the Guarantor shall
die or shall be or become insolvent (however defined), then the Lender shall
have the right to declare immediately due and payable, and the Guarantor will
forthwith pay to the Lender, the full amount of all of the Indebtedness whether
due and payable or unmatured. If the Guarantor voluntarily commences or there is
commenced involuntarily against the Guarantor a case under the United States
Bankruptcy Code, the full amount of all of the Indebtedness, whether due and
payable or unmatured, shall be immediately due and payable without demand or
notice thereof.
5. Subrogation, etc. The Guarantor hereby waives all rights
that the Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrower or from any property of the Borrower any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrower or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
6. Enforcement Expenses. The Guarantor will pay or reimburse
the Lender for all costs, expenses and attorneys' fees paid or incurred by the
Lender in endeavoring to collect and enforce the Indebtedness and in enforcing
this Guaranty.
7. Lender's Rights. The Lender shall not be obligated by
reason of its acceptance of this Guaranty to engage in any transactions with or
for the Borrower. Whether or not any existing relationship between the Guarantor
and the Borrower has been changed or ended and whether or not this Guaranty has
been revoked, the Lender may enter into transactions resulting in the creation
or continuance of the Indebtedness and may otherwise agree, consent to or suffer
the creation or continuance of any of the Indebtedness, without any consent or
approval by the Guarantor and without any prior or subsequent notice to the
Guarantor. The Guarantor's liability shall not be affected or impaired by any of
the following acts or things (which the Lender is expressly authorized to do,
omit or suffer from time to time, both before and after revocation of this
Guaranty, without consent or approval by or notice to the Guarantor): (i) any
acceptance of collateral security, guarantors, accommodation parties or sureties
for any or all of the Indebtedness; (ii) one or more extensions or renewals of
the Indebtedness (whether or not for longer than the original period) or any
modification of the interest rates, maturities, if any, or other contractual
terms applicable to any of the Indebtedness or any amendment or modification of
any of the terms or provisions of any loan agreement or other agreement under
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which the Indebtedness or any part thereof arose; (iii) any waiver or indulgence
granted to the Borrower, any delay or lack of diligence in the enforcement of
the Indebtedness or any failure to institute proceedings, file a claim, give any
required notices or otherwise protect any of the Indebtedness; (iv) any full or
partial release of, compromise or settlement with, or agreement not to sue, the
Borrower or any guarantor or other person liable in respect of any of the
Indebtedness; (v) any release, surrender, cancellation or other discharge of any
evidence of the Indebtedness or the acceptance of any instrument in renewal or
substitution therefor; (vi) any failure to obtain collateral security (including
rights of setoff) for the Indebtedness, or to see to the proper or sufficient
creation and perfection thereof, or to establish the priority thereof, or to
preserve, protect, insure, care for, exercise or enforce any collateral
security; or any modification, alteration, substitution, exchange, surrender,
cancellation, termination, release or other change, impairment, limitation, loss
or discharge of any collateral security; (vii) any collection, sale, lease or
disposition of, or any other foreclosure or enforcement of or realization on,
any collateral security; (viii) any assignment, pledge or other transfer of any
of the Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of any payments or credits upon the Indebtedness; and (x) any
election by the Lender under Section 1111(b) of the United States Bankruptcy
Code. The Guarantor waives any and all defenses and discharges available to a
surety, guarantor or accommodation co- obligor.
8. Waivers by Guarantor. The Guarantor waives any and all
defenses, claims, setoffs and discharges of the Borrower, or any other obligor,
pertaining to the Indebtedness, except the defense of discharge by payment in
full. Without limiting the generality of the foregoing, the Guarantor will not
assert, plead or enforce against the Lender any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti- deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrower or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Lender to the Borrower or any other such person, whether
or not on account of a related transaction. The Guarantor expressly agrees that
the Guarantor shall be and remain liable for any deficiency remaining after
foreclosure of any mortgage or security interest securing the Indebtedness,
whether or not the liability of the Borrower or any other obligor for such
deficiency is discharged pursuant to statute or judicial decision. The liability
of the Guarantor shall not be affected or impaired by any voluntary or
involuntary liquidation, dissolution, sale or other disposition of all or
substantially all the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other similar
event or proceeding affecting, the Borrower or any of its assets. The Guarantor
will not assert, plead or enforce against the Lender any claim, defense or
setoff available to the Guarantor against the Borrower. The Guarantor waives
presentment, demand for payment, notice of dishonor or nonpayment and protest of
any instrument evidencing the Indebtedness. The Lender shall not be required
first to resort for payment of the Indebtedness to the Borrower or other
persons, or their properties, or first to enforce, realize upon or exhaust any
collateral security for the Indebtedness, before enforcing this Guaranty.
9. If Payments Set Aside, etc. If any payment applied by the
Lender to the Indebtedness is thereafter set aside, recovered, rescinded or
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required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrower or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
10. Additional Obligation of Guarantor. The Guarantor's
liability under this Guaranty is in addition to and shall be cumulative with all
other liabilities of the Guarantor to the Lender as guarantor, surety, endorser,
accommodation co-obligor or otherwise of any of the Indebtedness or obligation
of the Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
11. Financial Information. The Guarantor will provide to the
Lender annually a personal financial statement prepared as of December 31
listing all assets, liabilities and net worth of the Guarantor. The statement
will be signed and dated and will be forwarded with the tax returns to the
Lender not later than April 30th of each year. The Guarantor acknowledges and
agrees that the Lender may at any time and from time to time without notice to
the Guarantor, investigate the Guarantor's background, personal and credit
history and perform other due diligence concerning the Guarantor and his
creditworthiness.
12. No Duties Owed by Lender. The Guarantor acknowledges and
agrees that the Lender (i) has not made any representations or warranties with
respect to, (ii) does not assume any responsibility to the Guarantor for, and
(iii) has no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrower or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Lender continue to make such determinations.
13. Miscellaneous. This Guaranty shall be effective upon
delivery to the Lender, without further act, condition or acceptance by the
Lender, shall be binding upon the Guarantor and the heirs, representatives,
successors and assigns of the Guarantor and shall inure to the benefit of the
Lender and its participants, successors and assigns. Any invalidity or
unenforceability of any provision or application of this Guaranty shall not
affect other lawful provisions and application thereof, and to this end the
provisions of this Guaranty are declared to be severable. This Guaranty may not
be waived, modified, amended, terminated, released or otherwise changed except
by a writing signed by the Guarantor and the Lender. This Guaranty shall be
governed by and construed in accordance with the substantive laws (other than
conflict laws) of the State of Colorado. The Guarantor hereby (i) consents to
the personal jurisdiction of the state and federal courts located in the State
of Colorado in connection with any controversy related to this Guaranty; (ii)
waives any argument that venue in any such forum is not convenient, (iii) agrees
that any litigation initiated by the Lender or the Guarantor in connection with
this Guaranty shall be venued in either the District Court of the City and
County of Denver, Colorado, or the United States District Court for the District
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of Colorado; and (iv) agrees that a final judgment in any such suit, action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
14. Waiver of Jury Trial. THE UNDERSIGNED HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by
the Guarantor as of the date first written above.
/s/Verne Bray
-------------
Verne Bray
Address:
c/o Naco Industries, Inc.
395 West 1400 North
Logan, Utah 84341
STATE OF UTAH )
)
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me the ____
day of April, 1999, by Verne Bray.
Notary Public
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CERTIFICATE OF AUTHORITY
I, Jeff Kirby, do hereby certify that I am Secretary of Naco
Industries, Inc., a corporation organized under the laws of the State of Utah;
that the following is a true, complete and correct copy of resolutions duly
adopted (check one):
|_| at a meeting of the board of directors of said corporation
duly and properly called and held on the ____ day of April,
1999, at which a quorum was present and acting throughout;
|_| by unanimous written action duly and lawfully taken,
subscribed by all the directors of said corporation;
and I further certify that said resolutions are now in full force and effect:
First Resolution
RESOLVED that the President, each Vice President, the Secretary, the
Treasurer and each other officer and agent of this corporation, acting
alone or acting with others, be and each of them hereby is authorized:
i) To borrow money and obtain other credit or financial
accommodations, in any amount, from Wells Fargo Business
Credit, Inc., f/k/a Norwest Business Credit, Inc. (herein,
with its participants, successors and assigns called the
"Lender") for and on behalf of and in the name of this
corporation;
ii) To sign, execute and deliver loan or credit agreements,
promissory notes, acceptances or other evidences of
indebtedness therefor, or in renewal or amendment thereof, in
such amounts and for such time, at such rates of interest and
upon such terms as such officer or agent may approve, such
approval to be conclusively evidenced by such officer or
agent's signature thereon;
iii) To discount, sell, assign, transfer, mortgage, or pledge
to the Lender, or create security interests in, the real
property, goods, instruments, documents of title, securities,
chattel paper, accounts, contract rights or other intangibles
or any other property now or hereafter owned by this
corporation, either absolutely, with or without recourse, for
such consideration as such officer or agent may deem to be
appropriate or as security for the payment or performance of
any debts, liabilities or obligations owed to the Lender;
iv) To do such other acts and things, make such other
agreements and execute and deliver such other contracts or
writings as such officer or agent may deem to be appropriate
in connection with any of the foregoing.
-1-
<PAGE>
Second Resolution
RESOLVED FURTHER that (without limiting the generality of the foregoing
resolution) each officer and agent referred to in the foregoing
resolution, acting alone or acting with others, be and is hereby
authorized and directed to execute, deliver and perform the following
instruments and agreements:
(a) Credit and Security Agreement, by and between this
corporation and the Lender, in the form finally approved and executed
by any of the officers authorized above.
(b) All other Loan Documents (as defined in said Credit and
Security Agreement), in the form finally approved and executed by any
of the officers authorized above.
Third Resolution
RESOLVED FURTHER that the Secretary or an Assistant Secretary shall
certify to the Lender the names and signatures of the persons who
presently are duly elected, qualified and acting as the officers or
agents referred to in the foregoing resolutions, and the Secretary or
an Assistant Secretary shall from time to time hereafter, upon a change
in the facts so certified, immediately certify to the Lender the names
and signatures of the persons then authorized to sign or to act; the
Lender shall be fully protected in relying on such certificates and on
the obligation of the Secretary or an Assistant Secretary (set forth
above) immediately to certify to the Lender any change in any facts so
certified; and the Lender shall be indemnified and saved harmless by
this corporation from any claims, demands, expenses, loss or damage
resulting from or growing out of honoring or relying on the signature
or other authority (whether or not properly used) of any officer or
person whose name and signature was so certified, or refusing to honor
any signature or authority not so certified.
Fourth Resolution
RESOLVED FURTHER that the foregoing resolutions are in addition to, and
do not limit and shall not be limited by, any resolutions heretofore or
hereafter adopted by this corporation for the conduct of business with
the Lender; and the foregoing resolutions shall continue in force until
express written notice of their prospective rescission or modification,
as to future transactions not then undertaken or committed for, has
been received by the Lender.
-2-
<PAGE>
Fifth Resolution
RESOLVED FURTHER that any and all transactions by or on behalf of this
corporation with the Lender prior to the adoption of these resolutions
be and the same hereby are in all respects ratified, approved and
confirmed.
I further certify that the board of directors of said
corporation has, and at the time of adoption of the foregoing resolutions had,
full power and lawful authority to adopt the foregoing resolutions and to confer
the powers therein granted to the persons named and that such persons have full
power and authority to exercise same. I further certify that the signatures
appearing below are the authentic and official signatures of the officers and
agents referred to in the foregoing resolutions, that the persons named below as
officers have been duly elected to and now hold the offices in said corporation
set forth opposite their respective names, and that the persons named as agents
below have been duly authorized to sign and to act on behalf of said corporation
pursuant to the foregoing resolutions:
Name Title Sample Signature
Verne Bray President /s/Verne Bray
-------------
Jeff Kirby Secretary /s/Jeff Kirby
-------------
I further certify (check one):
|_| that the foregoing resolutions were duly approved by the
shareholders of said corporation at a meeting duly and
properly called and held on the _____ day of April, 1999, at
which a quorum was present and acting throughout, or otherwise
as permitted by law;
|_| that the foregoing resolutions are effective and binding on
said corporation without approval by its shareholders.
I further certify that the forms of Credit and Security
Agreement and the other Loan Documents, and any other writings identified in the
Second Resolution set forth above, executed on behalf of said corporation by its
President and delivered to the Lender are the agreements and writings referred
to in and approved by the Second Resolution set forth above.
I further certify that attached hereto as Exhibits A and B,
respectively, are true, correct and complete copies of the articles of
incorporation and bylaws of said corporation, which articles and bylaws are in
-3-
<PAGE>
full force and effect and have not been altered, amended or revised. I further
certify that attached hereto as Exhibit C is a Certificate of Good Standing of
the Company not more than ten days old.
IN WITNESS WHEREOF, I have hereunto subscribed my name this
22nd day of April, 1999.
Secretary
Attest by One Other Officer
President
-4-
<PAGE>
Exhibit A to Secretary's Certificate
ARTICLES OF INCORPORATION
[TO BE PROVIDED BY BORROWER]
A-1
<PAGE>
Exhibit B to Secretary's Certificate
BYLAWS
[TO BE PROVIDED BY BORROWER]
B-1
<PAGE>
Exhibit C to Secretary's Certificate
CERTIFICATE OF GOOD STANDING
[TO BE PROVIDED BY BORROWER]
C-1
<PAGE>
PATENT AND TRADEMARK SECURITY AGREEMENT
This Agreement, dated as of April 22, 1999, is made by and
between Naco Industries, Inc., a Utah corporation whose address and principal
place of business is 395 West 1400 North, Logan, UT 84341 (the "Debtor"), and
WELLS FARGO BUSINESS CREDIT, INC., f/k/a Norwest Business Credit, Inc., a
Minnesota corporation whose address and principal place of business is 1740
Broadway, Denver, CO 80274-8625 (the "Secured Party").
Recitals
The Debtor and the Secured Party have entered into a Credit
and Security Agreement of even date herewith (as the same may hereafter be
amended, supplemented or restated from time to time, the "Credit Agreement")
setting forth the terms on which the Secured Party may now or hereafter make
certain loans or other financial accommodations to or for the account of the
Debtor.
As a further condition to making any loan or other financial
accommodation under the Credit Agreement or otherwise, the Secured Party has
required the execution and delivery of this Agreement by the Debtor.
ACCORDINGLY, in consideration of the mutual covenants
contained in the Credit Agreement and herein, the parties hereby agree as
follows:
1. Definitions. All terms defined in the Recitals hereto or in
the Credit Agreement that are not otherwise defined herein shall have the
meanings given to them therein. In addition, the following terms have the
meanings set forth below:
"Obligations" means each and every debt, liability and
obligation of every type and description arising under or in connection
with any Loan Document (as defined in the Credit Agreement) which the
Debtor may now or at any time hereafter owe to the Secured Party,
whether such debt, liability or obligation now exists or is hereafter
created or incurred and whether it is or may be direct or indirect, due
or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, independent, joint, several or joint and
several, and including specifically, but not limited to, the
Obligations (as defined in the Credit Agreement).
"Patents" means all of the Debtor's right, title and interest
in and to patents or applications for patents, fees or royalties with
respect to each, and including without limitation the right to sue for
past infringement and damages therefor, and licenses thereunder, all as
presently existing or hereafter arising or acquired, including without
limitation the patents listed on Exhibit A.
"Trademarks" means all of the Debtor's right, title and
interest in and to trademarks, service marks, collective membership
-1-
<PAGE>
marks, the respective goodwill associated with each, and licenses
thereunder, all as presently existing or hereafter arising or acquired,
including, without limitation, the marks listed on Exhibit B.
2. Security Interest. The Debtor hereby irrevocably pledges
and assigns to, and grants the Secured Party a security interest, with power of
sale to the extent permitted by law (the "Security Interest"), in the Patents
and in the Trademarks to secure payment of the Obligations.
3. Representations, Warranties and Agreements. The Debtor
hereby represents, warrants and agrees as follows:
(a) Existence; Authority. The Debtor is a corporation, having
full power to and authority to make and deliver this Agreement. The
execution, delivery and performance of this Agreement by the Debtor
have been duly authorized by all necessary action of the Debtor's board
of directors, and if necessary its stockholders, and do not and will
not violate the provisions of, or constitute a default under, any
presently applicable law or its articles of incorporation or bylaws or
any agreement presently binding on it. This Agreement has been duly
executed and delivered by the Debtor and constitutes the Debtor's
lawful, binding and legally enforceable obligation. The correct name of
the Debtor is Naco Industries, Inc. The authorization, execution,
delivery and performance of this Agreement do not require notification
to, registration with, or consent or approval by, any federal, state or
local regulatory body or administrative agency.
(b) Patents. Exhibit A accurately lists all Patents owned or
controlled by the Debtor as of the date hereof and accurately reflects
the existence and status of registrations pertaining to the Patents as
of the date hereof.
(c) Trademarks. Exhibit B accurately lists all Trademarks
owned or controlled by the Debtor as of the date hereof and accurately
reflects the existence and status of Trademarks and all registrations
pertaining thereto as of the date hereof.
(d) Title. The Debtor has absolute title to each Patent and
each Trademark listed on Exhibits A and B, free and clear of all
security interests, liens and encumbrances, except the Security
Interest and the security interest of WebBank Corporation. The Debtor
(i) will have, at the time the Debtor acquires any rights in Patents or
Trademarks hereafter arising, absolute title to each such Patent or
Trademark free and clear of all security interests, liens and
encumbrances, except the Security Interest, and (ii) will keep all
Patents and Trademarks free and clear of all security interests, liens
and encumbrances except the Security Interest.
(e) No Sale. The Debtor will not sell or otherwise dispose of
the Patents or Trademarks, or any interest therein, without the Secured
Party's prior written consent.
-2-
<PAGE>
(f) Defense. The Debtor will at its own expense, and using its
best efforts, protect and defend the Patents and Trademarks against all
claims or demands of all persons other than the Secured Party.
(g) Maintenance. The Debtor will at its own expense maintain
the Patents and the Trademarks to the extent reasonably advisable in
its business including, but not limited to, filing all applications to
register and all affidavits and renewals possible with respect to
issued registrations. The Debtor covenants that it will not abandon nor
fail to pay any maintenance fee or annuity due and payable on any
Patent or Trademark, nor fail to file any required affidavit in support
thereof, without first providing the Secured Party: (i) sufficient
written notice, as provided in the Credit Agreement, to allow the
Secured Party to timely pay any such maintenance fees or annuity which
may become due on any of said Patents or Trademarks, or to file any
affidavit with respect thereto, and (ii) a separate written power of
attorney or other authorization to pay such maintenance fees or
annuities, or to file such affidavit, should such be necessary or
desirable.
(h) Secured Party's Right to Take Action. If the Debtor fails
to perform or observe any of its covenants or agreements set forth in
this Section 3, and if such failure continues for a period of ten (10)
calendar days after the Secured Party gives the Debtor written notice
thereof (or, in the case of the agreements contained in subsection (g),
immediately upon the occurrence of such failure, without notice or
lapse of time), or if the Debtor notifies the Secured Party that it
intends to abandon a Patent or Trademark, the Secured Party may (but
need not) perform or observe such covenant or agreement on behalf and
in the name, place and stead of the Debtor (or, at the Secured Party's
option, in the Secured Party's own name) and may (but need not) take
any and all other actions which the Secured Party may reasonably deem
necessary to cure or correct such failure.
(i) Costs and Expenses. Except to the extent that the effect
of such payment would be to render any loan or forbearance of money
usurious or otherwise illegal under any applicable law, the Debtor
shall pay the Secured Party on demand the amount of all moneys expended
and all costs and expenses (including reasonable attorneys' fees)
incurred by the Secured Party in connection with or as a result of the
Secured Party's taking action under subsection (h) or exercising its
rights under Section 6, together with interest thereon from the date
expended or incurred by the Secured Party at the highest rate then
applicable to any of the Obligations.
(j) Power of Attorney. To facilitate the Secured Party's
taking action under subsection (h) and exercising its rights under
Section 6, the Debtor hereby irrevocably appoints (which appointment is
coupled with an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with the right (but not the duty) from
time to time to create, prepare, complete, execute, deliver, endorse or
file, in the name and on behalf of the Debtor, any and all instruments,
documents, applications, financing statements, and other agreements and
-3-
<PAGE>
writings required to be obtained, executed, delivered or endorsed by
the Debtor under this Section 3, or, necessary for the Secured Party,
after an Event of Default, to enforce or use the Patents or Trademarks
or to grant or issue any exclusive or non-exclusive license under the
Patents or Trademarks to any third party, or to sell, assign, transfer,
pledge, encumber or otherwise transfer title in or dispose of the
Patents or Trademarks to any third party. The Debtor hereby ratifies
all that such attorney shall lawfully do or cause to be done by virtue
hereof. The power of attorney granted herein shall terminate upon the
termination of the Credit Agreement as provided therein and the payment
and performance of all Obligations (as defined therein).
4. Debtor's Use of the Patents and Trademarks. The Debtor
shall be permitted to control and manage the Patents and Trademarks, including
the right to exclude others from making, using or selling items covered by the
Patents and Trademarks and any licenses thereunder, in the same manner and with
the same effect as if this Agreement had not been entered into, so long as no
Event of Default occurs and remains uncured.
5. Events of Default. Each of the following occurrences shall
constitute an event of default under this Agreement (herein called "Event of
Default"): (a) an Event of Default, as defined in the Credit Agreement, shall
occur; or (b) the Debtor shall fail promptly to observe or perform any covenant
or agreement herein binding on it; or (c) any of the representations or
warranties contained in Section 3 shall prove to have been incorrect in any
material respect when made.
6. Remedies.Upon the occurrence of an Event of Default and at
any time thereafter, the Secured Party may, at its option, take any or all of
the following actions:
(a) The Secured Party may exercise any or all remedies
available under the Credit Agreement.
(b) The Secured Party may sell, assign, transfer, pledge,
encumber or otherwise dispose of the Patents and Trademarks.
(c) The Secured Party may enforce the Patents and Trademarks
and any licenses thereunder, and if Secured Party shall commence any
suit for such enforcement, the Debtor shall, at the request of Secured
Party, do any and all lawful acts and execute any and all proper
documents required by Secured Party in aid of such enforcement.
7. Miscellaneous. This Agreement has been duly and validly
authorized by all necessary action, corporate or otherwise. This Agreement can
be waived, modified, amended, terminated or discharged, and the Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. A waiver signed by the Secured Party shall be effective only in the
specific instance and for the specific purpose given. Mere delay or failure to
act shall not preclude the exercise or enforcement of any of the Secured Party's
rights or remedies. All rights and remedies of the Secured Party shall be
-4-
<PAGE>
cumulative and may be exercised singularly or concurrently, at the Secured
Party's option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. The Secured Party shall not be obligated to preserve any rights the
Debtor may have against prior parties, to realize on the Patents and Trademarks
at all or in any particular manner or order, or to apply any cash proceeds of
Patents and Trademarks in any particular order of application. This Agreement
shall be binding upon and inure to the benefit of the Debtor and the Secured
Party and their respective participants, successors and assigns and shall take
effect when signed by the Debtor and delivered to the Secured Party, and the
Debtor waives notice of the Secured Party's acceptance hereof. The Secured Party
may execute this Agreement if appropriate for the purpose of filing, but the
failure of the Secured Party to execute this Agreement shall not affect or
impair the validity or effectiveness of this Agreement. A carbon, photographic
or other reproduction of this Agreement or of any financing statement signed by
the Debtor shall have the same force and effect as the original for all purposes
of a financing statement. This Agreement shall be governed by the internal law
of Colorado without regard to conflicts of law provisions. If any provision or
application of this Agreement is held unlawful or unenforceable in any respect,
such illegality or unenforceability shall not affect other provisions or
applications which can be given effect and this Agreement shall be construed as
if the unlawful or unenforceable provision or application had never been
contained herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Patent and
Trademark Security Agreement as of the date written above.
WELLS FARGO BUSINESS CREDIT,
INC., f/k/a Norwest Business Credit, Inc.
By:
Its Vice President
NACO INDUSTRIES, INC.
By:
Its President
-5-
<PAGE>
STATE OF UTAH )
)
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me this 22nd day of
April, 1999, by Verne Bray, the President of Naco Industries, Inc., a Utah
corporation, on behalf of the corporation.
Notary Public
STATE OF UTAH )
)
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me this 22nd day of
April, 1999, by William Kirth, a Vice President of Wells Fargo Business Credit,
Inc., f/k/a Norwest Business Credit, Inc., a Minnesota corporation, on behalf of
the Corporation.
Notary Public
-6-
<PAGE>
EXHIBIT A
---------
UNITED STATES ISSUED PATENTS
Title Patent Number Issue Date
----- ------------- ----------
One Piece Tubular Elbow and 5,597,185 January 28, 1997
Process of Manufacture
Plastic Tee Fitting 4,708,374 July 30, 1984
FOREIGN ISSUED PATENTS
None
A-1
<PAGE>
EXHIBIT B
---------
UNITED STATES ISSUED TRADEMARKS, SERVICE MARKS
----------------------------------------------
AND COLLECTIVE MEMBERSHIP MARKS
-------------------------------
REGISTRATIONS
-------------
None
APPLICATIONS
------------
None
COLLECTIVE MEMBERSHIP MARKS
---------------------------
None
UNREGISTERED MARKS
------------------
None
B-1
<PAGE>
MORTGAGEE'S DISCLAIMER AND CONSENT
To induce Wells Fargo Business Credit, Inc., f/k/a Norwest
Business Credit, Inc., a Minnesota corporation (the "Lender"), to make one or
more loans to Naco Industries, Inc., a Utah corporation (the "Borrower"),
secured by property of the Borrower, and for other good and valuable
consideration, WebBank Corporation, a Utah corporation (the "Mortgagee"), hereby
certifies and agrees for the benefit of the Lender, its participants, successors
and assigns, as follows:
1. The Mortgagee holds a mortgage lien on certain premises
(the "Premises") located in Finney County, Kansas and described in Exhibit A
hereto, pursuant to a mortgage (the "Mortgage"), a true, correct and complete
copy of which is attached hereto as Exhibit B.
2. The Mortgage is in full force and effect and the Borrower
is not in default of any provision of the Mortgage.
3. The Mortgagee acknowledges that except as set forth in this
paragraph 3, the Lender shall have no duty, obligation or liability whatsoever
with respect to the possession, occupancy or use of the Premises. If the Lender
takes possession of or occupies the Premises pursuant to paragraph 5 hereof
whether before or after cancellation or termination of the Mortgage, the Lender
shall pay the Mortgagee rent for the period during which the Lender has
possession of or occupies the Premises equal to the mortgage payments due under
the Mortgage for such period. The Lender shall possess or occupy the Premises
for no less than 30 days and shall be required to give the Mortgagee 30 days'
written notice of its intent to vacate the Premises. In no event, however, shall
the Lender be obligated to make payments due pursuant to the Mortgage for any
period to the extent the Borrower has made such payments for such period. The
Lender shall reimburse the Mortgagee for any physical damage to the Premises
actually caused by the Lender during any period when the Lender is in possession
of the Premises. The Mortgagee acknowledges that the Lender shall not be liable
for any diminution in value of the Premises during the period of time in which
the Lender has physical possession of the Premises.
4. The Mortgagee shall promptly notify the Lender as provided
herein of each of the following events:
(a) Any notice which the Mortgagee may give to the Borrower
regarding any breach of the Mortgage, or any termination of the
Borrower's rights to use, lease or possess the Premises;
(b) Any legal action which the Mortgagee may commence to
foreclose the Borrower's interests in the Premises or to appoint a
receiver for the Premises; and
-1-
<PAGE>
(c) Any agreement or proposal for the Borrower to voluntarily
convey to the Mortgagee title to all or any portion of the Premises.
5. Subject to the terms of paragraph 3 hereof, the Mortgagee
shall allow the Lender to take and remain in possession of the Premises for
purposes of holding, processing, manufacturing, selling, using, storing,
liquidating, realizing upon or otherwise disposing of the Lender's collateral,
and for related and incidental purposes from and after the receipt by the Lender
of the notice required under paragraph 4 hereof.
6. All notices to the Lender shall be deemed given when
received by the Lender at 1740 Broadway, Denver, CO 80274-8625, Attn: Kim
Carmichael, or when received at the Lender's telecopier no. 303/863-4904.
7. This Disclaimer and Consent is binding upon the Mortgagee
and its successors and assigns. This Disclaimer and Consent shall be governed by
and construed in accordance with the substantive laws (other than conflict laws)
of the State of Utah. This Disclaimer and Consent may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. No failure on the part of the Lender to
exercise, and no delay in exercising any right, power or remedy hereunder shall
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any right, power or remedy hereunder preclude any other or
further exercise of such right, power or remedy or the exercise of any other
right, power or remedy. This Disclaimer and Consent expresses completely,
exclusively and finally all the agreements, conditions and covenants of the
parties and does not need evidence (written or oral) of prior, contemporaneous
or subsequent statements or representations (express or implied) to reflect the
intentions of the parties. This Disclaimer and Consent may not be supplemented
or modified except in writing. This does not imply a commitment to lend and
shall be binding as long as any obligations of the Borrower to the Lender remain
outstanding or are subject to recoupment. THE PARTIES WAIVE ANY RIGHT TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS DISCLAIMER
AND CONSENT.
IN WITNESS WHEREOF, this Disclaimer is signed on April __,
1999.
WEBBANK CORPORATION
By
Its
-2-
<PAGE>
This Instrument was Drafted by:
Adrian E. Miller, Esq.
LeBoeuf, Lamb, Greene & MacRae, LLP
633 17th Street, Suite 2000
Denver, CO 80202
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me this ____
day of April, 1999, by _____________, the ________________________, of WebBank
Corporation , a ____________________ corporation, on behalf of said corporation.
Notary Public
-3-
<PAGE>
EXHIBIT A
TO
MORTGAGEE'S DISCLAIMER AND CONSENT
The Premises referred to in the referenced instrument are
located in Finney County, Kansas, and are described as follows:
Beginning at a point 60 feet North and 1,080 feet West of the
Southeast corner of Section Three (3), Township Twenty-four (24) South,
Range Thirty- three (33) West of the 6th P.M., in Finney County,
Kansas, for the point of beginning; thence West on a line parallel to
and 60 feet North of the South line of said Section 3 a distance of 420
feet; thence North at an interior angle of 89(0)07' a distance of 360
feet; thence East at an interior angle of 90(0)53' a distance of 420
feet; and thence South at an interior angle of 89(0)07' a distance of
360 feet to the point of beginning; also described as Tracts 8, 9 and
10 in the Larson Survey of such real estate dated February 23, 1966,
prepared by Robert H. Jones, P.E., and filed for record in the County
Engineer's Office of Finney County, Kansas, in Survey Book 3.
<PAGE>
EXHIBIT B
TO
MORTGAGEE'S DISCLAIMER AND CONSENT
[copy of Mortgage]
<PAGE>
WAIVER OF INTEREST
I, __________________ am the spouse of Verne Bray. I
understand that to induce Wells Fargo Business Credit, Inc., f/k/a Norwest
Business Credit, Inc., a Minnesota corporation (herein, with its participants,
successors and assigns, called the "Lender"), to extend credit to Naco
Industries, Inc., a Utah corporation (the "Borrower"), my spouse has agreed to
guaranty the payment of any indebtedness of the Borrower to the Lender (the
"Indebtedness").
The Lender's credit decision will be based, in part, on our
financial statement which is a joint financial statement that does not
distinguish between assets that are owned separately by one of us or that are
owned jointly. To induce the Lender to extend credit to the Borrower based, in
part, on my spouse's guaranty, I hereby waive as against the Lender any interest
I now have or may in the future have in (1) any real or personal property shown
on any financial statement of ours submitted in connection with my spouse's
guaranty, and (2) any other real or personal property now owned or hereafter
acquired by either of us individually or by both of us jointly (all such
property described in clauses (1) and (2) being referred to as the "Property"),
except for wages or salary that I earn from third parties not directly or
indirectly affiliated with the Borrower or directly or indirectly affiliated
with or related to my spouse so long as such wages and salary are kept separate
from property of my spouse and property I own jointly with my spouse; I
understand that in the event of a dispute between the Lender and me, I will have
the burden of proving that property is subject to the above mentioned exception.
I understand that one of the remedies that the Lender has upon
default in the Indebtedness is to satisfy the Indebtedness out of the Property
either by obtaining a judgment against my spouse or otherwise, and in that event
I understand and agree that if the Lender attempts to satisfy the Indebtedness
out of the Property, I will not claim any ownership or other interest in the
Property.
I also acknowledge that by signing any mortgage or security
agreement securing my spouse's guaranty, I have subjected any interest I may
have in the Property described therein to the lien and security interest of the
mortgage or the security agreement.
By its acceptance of this Waiver and by extending credit to
the Borrower, the Lender agrees that I am not personally liable to repay the
Indebtedness.
Dated April ___, 1999.
Name: _____________________________
-1-
<PAGE>
STATE OF UTAH )
)
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me this ____
day of April, 1999, by ______________.
Notary Public
Accepted this ____ day of April, 1999
WELLS FARGO BUSINESS CREDIT, INC.,
f/k/a NORWEST BUSINESS CREDIT, INC.
By:/s/William Kirth
- -------------------
William Kirth
Its Vice President
-2-
<PAGE>
OFFICER'S CERTIFICATE
TO: Wells Fargo Business Credit, Inc., f/k/a Norwest Business Credit, Inc.
1740 Broadway
Denver, CO 80274-8625
ATTN: Kim Carmichael
To induce you to make one or more loans from time to time to
Naco Industries, Inc., a Utah corporation (the "Borrower"), in accordance with
the Credit and Security Agreement dated April 22, 1999 between it and you (the
"Credit and Security Agreement") and all other Loan Documents (as defined in the
Credit and Security Agreement), I hereby represent and warrant to you, in my
individual capacity, that each and every representation and warranty set forth
in Article V of the Credit and Security Agreement is true and correct as of the
date hereof.
Dated: April 22, 1999
Very truly yours,
/s/Verne Bray
-------------
Verne Bray
<PAGE>
ASSIGNMENT OF LIFE INSURANCE POLICY
AS COLLATERAL
This Assignment, dated as of February ___, 1999, is made by
Naco Industries, Inc., a Utah corporation whose address is 395 West 1400 North,
Logan, UT, 84341 (the "Assignor"), for the benefit of Norwest Business Credit,
Inc., a Minnesota corporation, whose address is 1740 Broadway, Denver, CO
80274-8625 its successors and assigns (the "Assignee").
Recitals
--------
The Assignor and the Assignee have entered into a Credit and
Security Agreement (as the same may hereafter be amended, supplemented or
restated from time to time, the "Credit Agreement") dated as of February_____,
1999. To induce the Assignee to execute the Credit Agreement and to secure
payment and performance of the Assignor's Obligations (as defined in the Credit
Agreement), the Assignee has required the execution and delivery of this
Agreement.
Accordingly, the Assignor hereby agrees for the benefit of the
Assignee as follows:
1. The Assignor hereby assigns, transfers and sets over to the
Assignee, Policy No. _____________ issued by ___________________________ (the
"Insurer") and any supplementary contracts issued in connection therewith (said
policy and contracts being herein called the "Policy"), upon the life of Verne
Bray, whose address is ____________________________________ and all claims,
options, privileges, rights, title and interest therein and thereunder (except
as provided in Paragraph 3 hereof), subject to all terms and conditions of the
Policy and to all superior liens, if any, which the Insurer may have against the
Policy. The Assignor by this instrument agrees and the Assignee by the
acceptance of this Assignment agrees to the conditions and provisions herein set
forth.
2. It is expressly agreed that, without detracting from the
generality of the foregoing, the following specific rights are included in this
Assignment and pass by virtue hereof:
(a) The sole right to collect from the Insurer the net
proceeds of the Policy when it becomes a claim by death or maturity;
(b) The sole right to surrender the Policy and receive the
surrender value thereof at any time provided by the terms of the Policy
and at such other times as the Insurer may allow;
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(c) The sole right to obtain one or more loans or advances on
the Policy, either from the Insurer or, at any time, from other
persons, and to pledge or assign the Policy as security for such loans
or advances;
(d) The sole right to collect and receive all distributions of
shares of surplus, dividend deposits or additions to the Policy now or
hereafter made or apportioned thereto, and to exercise any and all
options contained in the Policy with respect thereto; provided, that
unless and until the Assignee shall notify the Insurer in writing to
the contrary, the distributions or shares of surplus, dividend deposits
and additions shall continue on the plan in force at the time of this
Assignment; and
(e) The sole right to exercise all nonforfeiture rights
permitted by the terms of the Policy or allowed by the Insurer and to
receive all benefits and advantages derived therefrom.
3. It is expressly agreed that the following specific rights,
so long as the Policy has not been surrendered, are reserved and excluded from
this Assignment and do not pass by virtue hereof:
(a) The right to collect from the Insurer any disability
benefit payable in cash that does not reduce the amount of insurance;
(b) The right to designate and change the beneficiary;
(c) The right to elect any optional mode of settlement
permitted by the Policy or allowed by the Insurer;
but the reservation of these rights shall in no way impair the right of the
Assignee to surrender the Policy completely with all its incidents or impair any
other right of the Assignee hereunder, and any designation or change of
beneficiary or election of a mode of settlement shall be made subject to this
Assignment and to the rights of the Assignee hereunder.
4. This Assignment is made and the Policy is to be held as
collateral security for any and all liabilities of the Assignor to the Assignee,
either now existing or that may hereafter arise in the ordinary course of
business between the Assignor and the Assignee, including, without limitation,
all Obligations as defined in Credit Agreement (defined above), (all of which
liabilities secured or to become secured are herein called "Liabilities").
5. The Assignee covenants and agrees with the Assignor as
follows:
(a) That any balance of sums received hereunder from the
Insurer remaining after payment of the then existing Liabilities,
matured or unmatured, shall be paid by the
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Assignee to the persons entitled thereto under the terms of the Policy
as if this Assignment not been executed;
(b) That the Assignee will not exercise either the right to
surrender the Policy or (except for the purpose of paying premiums) the
right to obtain policy loans from the Insurer, until there has been
default in any of the Liabilities or a failure to pay any premium when
due, nor until the Assignees shall have given the Assignor notice, in
accordance with the Credit Agreement, specifically referring to this
Assignment, of the Assignee's intention to exercise such right; and
(c) That the Assignee will upon request forward without
unreasonable delay to the Insurer the Policy for endorsement of any
designation or change of beneficiary or any election of an optional
mode of settlement.
6. The Insurer is hereby authorized to recognize the
Assignee's claims to rights hereunder without investigating the reason for any
action taken by the Assignee, or the validity or the amount of the Liabilities
or the existence of any default therein, or the giving of any notice under
Paragraph 5(b) above or otherwise, or the application to be made by the Assignee
of any amounts to be paid to the Assignee. The sole signature of the Assignee
for any sums received shall be a full discharge and release therefor to the
Insurer. Checks for all or any part of the sums payable under the Policy and
assigned herein, shall be drawn to the exclusive order of the Assignee if, when,
and in such amounts as may be, requested by the Assignee.
7. The Assignee shall be under no obligation to pay any
premium, or the principal of or interest on any loans or advances on the Policy
whether or not obtained by the Assignee, or any other charges on the Policy, but
any such amounts so paid by the Assignee from its own funds, shall become a part
of the Liabilities hereby secured, shall be due immediately, and shall draw
interest at a rate fixed by the Assignee from time to time not exceeding 6% per
annum.
8. The exercise of any right, option, privilege or power
given herein to the Assignee shall be at the option of the Assignee, but (except
as restricted by Paragraph 5(b) above) the Assignee may exercise any such right,
option, privilege or power without notice to, or assent by, or affecting the
liability of, or releasing any interest hereby assigned by the Assignor.
9. The Assignee may take or release other security, may
release any party primarily or secondarily liable for any of the Liabilities,
may grant extensions, renewals or indulgences with respect to the Liabilities,
or may apply to the Liabilities in such order as the Assignee shall determine,
the proceeds of the Policy hereby assigned or any amount received on account of
the Policy by the exercise of any right permitted under this Assignment, without
resorting or regard to other security.
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10. In the event of any conflict between the provisions of
this Assignment and provisions of the note or other evidence of any Liability,
with respect to the Policy or rights of collateral security therein, the
provisions of this Assignment shall prevail.
11. The Assignor declares that no proceeding in bankruptcy is
pending against it and that its property is not subject to any assignment for
the benefit of creditors.
Signed and sealed this ___ day of February, 1999.
Witness
Witness
Assignor:
By:
Its President
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<PAGE>
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this _____
day of ________________, 1999, by _________, the _________ of Naco Industries,
Inc., a Utah corporation, on behalf of the corporation.
Notary Public
Assignee:
NORWEST BUSINESS CREDIT, INC.
By
Its Vice President
Duplicate received and filed at the home office of the Insurer in
_________________, this _____ day of _________________, 1999.
(Life Insurance Company)
By
Its
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CREDIT AND SECURITY AGREEMENT
Dated as of April 22, 1999
NACO INDUSTRIES, INC., a Utah corporation (the "Borrower"),
and WELLS FARGO BUSINESS CREDIT, INC., f/k/a Norwest Business Credit, Inc., a
Minnesota corporation (the "Lender"), hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term
is defined in the UCC, including without limitation the aggregate
unpaid obligations of customers and other account debtors to the
Borrower arising out of the sale or lease of goods or rendition of
services by the Borrower on an open account or deferred payment basis.
"Advance" means a Revolving Advance or a Term Advance.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower, including
(without limitation) any Subsidiary of the Borrower. For purposes of
this definition, "control," when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as
amended, supplemented or restated from time to time.
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in
Minneapolis, Minnesota and Denver, Colorado.
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in
accordance with GAAP.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
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(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(i) 80% of Eligible Accounts,
(ii) the lesser of (A) 50% of Eligible Inventory or
(B) $750,000.
"Capital Expenditures" for a period means any expenditure of
money for the lease, purchase or other acquisition of any capital
asset, or for the lease of any other asset whether payable currently or
in the future.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on
deposit in any Collateral Account, and any items in any Lockbox;
together with (i) all substitutions and replacements for and products
of any of the foregoing; (ii) proceeds of any and all of the foregoing;
(iii) in the case of all tangible goods, all accessions; (iv) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any tangible goods;
(v) all warehouse receipts, bills of lading and other documents of
title now or hereafter covering such goods; and (vi) the Life Insurance
Policy.
"Collateral Account" has the meaning given in the Collateral
Account Agreement.
"Commitment" means the Lender's commitment to make Advances to
or for the Borrower's account pursuant to Article II.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender pursuant to Article II.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has
occurred and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been cured or waived.
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"Default Rate" means an annual rate equal to three percent
(3%) over the Revolving Floating Rate, which rate shall change when and
as the Revolving Floating Rate changes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts that are not created
under the Borrower's "Early Order Program" and that are unpaid
90 days or more after the invoice date, and that portion of
Accounts that are created under the Borrower's "Early Order
Program" that are unpaid 30 days or more after the stated due
date;
(ii) That portion of Accounts that is disputed or
subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government for which the Borrower has provided
evidence satisfactory to the Lender that (A) the Lender has a
first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such
unit of government under all applicable laws);
(v) Accounts owed by an account debtor located
outside the United States which are not (A) backed by a bank
letter of credit naming the Lender as beneficiary or assigned
to the Lender, in the Lender's possession and acceptable to
the Lender in all respects, in its sole discretion, (B)
covered by a foreign receivables insurance policy acceptable
to the Lender in its sole discretion;
(vi) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone
out of business;
(vii) Accounts owed by a shareholder, Subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are subject
to any lien, security interest or claim in favor of any Person
other than the Lender including without limitation any payment
or performance bond;
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(ix) That portion of Accounts that has been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or
excise taxes;
(xi) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if 10% or more of the total
amount due under Accounts from such debtor is ineligible under
clauses (i), (ii) or (ix) above;
(xii) That portion of the aggregate Accounts of a
single customer that exceeds 15% of all Accounts of the
Borrower; provided, however, that such limitation shall not
apply to the Accounts of WCI, LLC, for which such limitation
shall be $250,000; and
(xiii) Accounts, or portions thereof, otherwise
deemed ineligible by the Lender in its sole discretion.
"Eligible Inventory" means all Inventory of the Borrower, at
the lower of cost or market value as determined in accordance with
GAAP; provided, however, that the following shall not in any event be
deemed Eligible Inventory:
(i) Inventory that is: in-transit; located at any
warehouse, job site or other premises not approved by the
Lender in writing; located outside of the states, or
localities, as applicable, in which the Lender has filed
financing statements to perfect a first priority security
interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other
document of title; on consignment from any Person; on
consignment to any Person or subject to any bailment unless
such consignee or bailee has executed an agreement with the
Lender;
(ii) Supplies, packaging, glue, scrap, maintenance
parts or sample Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow moving
or not currently saleable in the normal course of the
Borrower's operations;
(v) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends
to return to the vendor thereof;
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(vi) Inventory that is perishable or live;
(vii) Inventory manufactured by the Borrower pursuant
to a license unless the applicable licensor has agreed in
writing to permit the Lender to exercise its rights and
remedies against such Inventory;
(viii) Inventory that is subject to a security
interest in favor of any Person other than the Lender; and
(ix) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section
5.12.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, shop equipment,
office and recordkeeping equipment, parts, tools, supplies, and
including specifically (without limitation) the goods described in any
equipment schedule or list herewith or hereafter furnished to the
Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.5.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and
future patents, patent applications, copyrights, trademarks, trade
names, trade secrets, customer or supplier lists and contracts,
manuals, operating instructions, permits, franchises, the right to use
the Borrower's name, and the goodwill of the Borrower's business.
"Guarantor" means Verne Bray.
"Hazardous Substance" has the meaning given in Section 5.12.
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired,
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whether consisting of whole goods, spare parts or components, supplies
or materials, whether acquired, held or furnished for sale, for lease
or under service contracts or for manufacture or processing, and
wherever located.
"Investment Property" means all of the Borrower's investment
property, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities,
security entitlements, securities accounts, commodity contracts,
commodity accounts, stocks, bonds, mutual fund shares, money market
shares and U.S. Government securities.
"Life Insurance Assignment" means an Assignment of Life
Insurance Policy as Collateral to be executed by the owner and the
beneficiary thereof, in form and substance satisfactory to the Lender,
granting the Lender a first priority lien on the Life Insurance Policy
to secure payment of the Obligations.
"Life Insurance Policy" has the meaning given in Section 6.11.
"Loan Documents" means this Agreement, the Notes and the
Security Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox and Collection Agreement
among the Borrower, Wells Fargo, the Lender and Regulus West, LLC, of
even date herewith.
"Maturity Date" means April 30, 2002.
"Maximum Line" means $1,500,000, unless said amount is reduced
pursuant to Section 2.6, in which event it means the amount to which
said amount is reduced.
"Minimum Interest Charge" has the meaning given in Section
2.2(b).
"Net Income" means fiscal year-to-date before-tax net income
less extraordinary gains, as determined in accordance with GAAP.
"Note" means the Revolving Note.
"Obligations" means the Notes and each and every other debt,
liability and obligation of every type and description which the
Borrower may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created
or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower,
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and whether it is direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or sole,
joint, several or joint and several, and including specifically, but
not limited to, all indebtedness of the Borrower arising under this
Agreement, the Notes or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter
entered into.
"Patent and Trademark Security Agreement" means the Patent and
Trademark Security Agreement by the Borrower in favor of the Lender of
even date herewith.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained
for the Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without
limitation) the premises legally described in Exhibit C attached
hereto.
"Prime Rate" means the rate publicly announced from time to
time by Wells Fargo as its "prime rate" or, if such bank ceases to
announce a rate so designated, any similar successor rate designated by
the Lender.
"Receivables" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which the
Borrower may at any time have by law or agreement against any account
debtor or other obligor obligated to make any such payment or against
any property of such account debtor or other obligor; all including but
not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
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"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Floating Rate" means an annual rate equal to the
sum of the Prime Rate plus two and one-half percent (2.5%), which
annual rate shall change when and as the Prime Rate changes.
"Revolving Note" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of
Exhibit A hereto and any note or notes issued in substitution therefor,
as the same may hereafter be amended, supplemented or restated from
time to time.
"Security Documents" means this Agreement, the Collateral
Account Agreement, the Lockbox Agreement, the Life Insurance
Assignment, the Patent and Trademark Security Agreement, and any other
document delivered to the Lender from time to time to secure the
Obligations, as the same may hereafter be amended, supplemented or
restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of
directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and
one or more other Subsidiaries, or by one or more other Subsidiaries.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or
(iii) the date the Lender demands payment of the Obligations after an
Event of Default pursuant to Section 8.2.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.13 as the state whose laws
shall govern this Agreement, or in any other state whose laws are held
to govern this Agreement or any portion hereof.
"Wells Fargo" means Wells Fargo Bank, N.A.
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Section 1.2 Cross References. All references in this Agreement
to Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facility
---------------------------------------
Section 2.1 Revolving Advances. The Lender agrees, on the
terms and subject to the conditions herein set forth, to make advances to the
Borrower from time to time from the date all of the conditions set forth in
Section 4.1 are satisfied or waived in writing by the Lender (the "Funding
Date") to the Termination Date (the "Revolving Advances"). The Lender shall have
no obligation to make a Revolving Advance if, after giving effect to such
requested Revolving Advance, the sum of the outstanding and unpaid Revolving
Advances would exceed the Borrowing Base. The Borrower's obligation to pay the
Revolving Advances shall be evidenced by the Revolving Note and shall be secured
by the Collateral as provided in Article III. Within the limits set forth in
this Section 2.1, the Borrower may borrow, prepay pursuant to Section 2.6 and
reborrow. The Borrower agrees to comply with the following procedures in
requesting Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving
Advance to the Lender before 11:00 a.m. (Denver time) of the day of the
requested Revolving Advance. Requests may be made in writing or by
telephone, specifying the date of the requested Revolving Advance and
the amount thereof. Each request shall be by (i) any officer of the
Borrower; or (ii) any person designated as the Borrower's agent by any
officer of the Borrower in a writing delivered to the Lender; or (iii)
any person whom the Lender reasonably believes to be an officer of the
Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested
Revolving Advance by crediting the same to the Borrower's demand
deposit account maintained with Wells Fargo unless the Lender and the
Borrower shall agree in writing to another manner of disbursement. Upon
the Lender's request, the Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall
repay all Advances even if the Lender does not receive such
confirmation and even if the person requesting an Advance was not in
fact authorized to do so. Any request for an Advance, whether written
or telephonic, shall be deemed to be a representation by the Borrower
that the conditions set forth in Section 4.2 have been satisfied as of
the time of the request.
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Section 2.2 Interest; Minimum Interest Charge; Default
Interest; Usury.
(a) Revolving Note. Except as set forth in Section 2.2 (e),
the outstanding principal balance of the Revolving Note shall bear
interest at the Revolving Floating Rate. Interest accruing on the
Revolving Note shall be due and payable in arrears on the first day of
each month.
(b) Minimum Interest Charge. Notwithstanding the interest
payable pursuant to Section 2.2(a), the Borrower shall pay to the
Lender interest of not less than $20,000 per calendar quarter (the
"Minimum Interest Charge") during the term of this Agreement, and the
Borrower shall pay any deficiency between the Minimum Interest Charge
and the amount of interest otherwise calculated under Section 2.2(a) in
arrears in the manner provided in Section 2.4.
(c) Default Interest Rate. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the Advances outstanding
from time to time shall bear interest at the Default Rate, effective
for any periods designated by the Lender from time to time during that
Default Period.
(d) Participations. If any Person shall acquire a
participation in the Advances under this Agreement, the Borrower shall
be obligated to the Lender to pay the full amount of all interest
calculated under this Agreement, along with all other fees, charges and
other amounts due under this Agreement, regardless if such Person
elects to accept interest with respect to its participation at a lower
rate than the Revolving Floating Rate or the Term Floating Rate, or
otherwise elects to accept less than its prorata share of such fees,
charges and other amounts due under this Agreement.
(e) Usury. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law. Notwithstanding anything to the contrary contained in
any Loan Document, all agreements which either now are or which shall
become agreements between the Borrower and the Lender are hereby
limited so that in no contingency or event whatsoever shall the total
liability for payments in the nature of interest, additional interest
and other charges exceed the applicable limits imposed by any
applicable usury laws. If any payments in the nature of interest,
additional interest and other charges made under any Loan Document are
held to be in excess of the limits imposed by any applicable usury
laws, it is agreed that any such amount held to be in excess shall be
considered payment of principal hereunder, and the indebtedness
evidenced hereby shall be reduced by such amount so that the total
liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower
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and the Lender. This provision shall never be superseded or waived and
shall control every other provision of the Loan Documents and all
agreements between the Borrower and the Lender, or their successors and
assigns.
Section 2.3 Fees.
(a) Origination Fee. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable origination fee of $15,000,
due and payable upon the execution of this Agreement. The Lender
acknowledges receipt of $26,000 toward payment of this fee and the
fees, costs and expenses described in Sections 2.3(d) and 9.6.
(b) Unused Line Fee. For the purposes of this Section 2.3(b),
"Unused Amount" means the Maximum Line reduced by outstanding Revolving
Advances. The Borrower agrees to pay to the Lender an unused line fee
at the rate of one quarter percent (0.25%) per annum on the average
daily Unused Amount from the date of this Agreement to and including
the Termination Date, due and payable monthly in arrears on the first
day of the month and on the Termination Date.
(c) Facility Fee. The Borrower hereby agrees to pay to the
Lender an annual facility fee equal to one-quarter percent (0.25%) of
the Maximum Line, payable in arrears on each anniversary of this
Agreement and on the Termination Date.
(d) Audit Fees. The Borrower hereby agrees to pay the Lender,
on demand, audit fees in connection with any audits or inspections
conducted by the Lender of any Collateral or the Borrower's operations
or business at the rates established from time to time by the Lender as
its audit fees (which fees are currently $60 per hour per auditor),
together with all actual out-of-pocket costs and expenses incurred in
conducting any such audit or inspection.
Section 2.4 Computation of Interest and Fees; When Interest
Due and Payable. Interest accruing on the outstanding principal balance of the
Advances and fees hereunder outstanding from time to time shall be computed on
the basis of actual number of days elapsed in a year of 360 days. Interest shall
be payable in arrears on the first day of each month and on the Termination
Date.
Section 2.5 Capital Adequacy. If any Related Lender determines
at any time that its Return has been reduced as a result of any Rule Change,
such Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.5:
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(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital
adequacy, or the interpretation or administration thereof by any
governmental or regulatory authority, central bank or comparable
agency, whether or not having the force of law, that applies to any
Related Lender. Such rules include rules requiring financial
institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters
of credit.
(b) "Return", for any period, means the return as determined
by such Related Lender on the Advances based upon its total capital
requirements and a reasonable attribution formula that takes account of
the Capital Adequacy Rules then in effect. Return may be calculated for
each calendar quarter and for the shorter period between the end of a
calendar quarter and the date of termination in whole of this
Agreement.
(c) "Rule Change" means any change in any Capital Adequacy
Rule occurring after the date of this Agreement, but the term does not
include any changes in applicable requirements that at the Closing Date
are scheduled to take place under the existing Capital Adequacy Rules
or any increases in the capital that any Related Lender is required to
maintain to the extent that the increases are required due to a
regulatory authority's assessment of the financial condition of such
Related Lender.
(d) "Related Lender" includes (but is not limited to) the
Lender, any parent corporation of the Lender and any assignee of any
interest of the Lender hereunder and any participant in the loans made
hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.5, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.6 Voluntary Prepayment; Reduction of the Maximum
Line; Termination of the Credit Facility by the Borrower. Except as otherwise
provided herein, the Borrower may prepay the Revolving Advances in whole at any
time or from time to time in part. The Borrower may terminate the Credit
Facility or reduce the Maximum Line at any time if it (i) gives the Lender at
least 30 days' prior written notice and (ii) pays the Lender the termination or
line reduction fees in accordance with Section 2.7. Any reduction in the Maximum
Line must be in an amount not less than $100,000 or an integral multiple
thereof. If the Borrower reduces the Maximum Line to zero, all Obligations shall
be immediately due and payable. Upon termination of the Credit Facility and
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payment and performance of all Obligations, the Lender shall release or
terminate the Security Interest and the Security Documents to which the Borrower
is entitled by law.
Section 2.7 Termination and Line Reduction Fees; Waiver of
Termination and Line Reduction Fees.
(a) Termination and Line Reduction Fees. If the Credit
Facility is terminated for any reason as of a date other than the
Maturity Date, or the Borrower reduces the Maximum Line, the Borrower
shall pay to the Lender a fee in an amount equal to a percentage of the
Maximum Line (or the reduction, as the case may be) as follows: (i)
three percent (3%) if the termination or reduction occurs on or before
the first anniversary of the Funding Date; (ii) two percent (2.0%) if
the termination or reduction occurs after the first anniversary of the
Funding Date but on or before the second anniversary of the Funding
Date; and (iii) one percent (1%) if the termination or reduction occurs
after the second anniversary of the Funding Date.
(b) Waiver of Termination, Line Reduction and Prepayment Fees.
The Borrower will not be required to pay the termination, line
reduction and prepayment fees otherwise due under this Section 2.7 if
such termination, line reduction or prepayment is made because of
refinancing of the Borrower by an affiliate of the Lender.
Section 2.8 Mandatory Prepayment. Without notice or demand, if
the outstanding principal balance of the Revolving Advances shall at any time
exceed the Borrowing Base, the Borrower shall immediately prepay the Revolving
Advances to the extent necessary to eliminate such excess. Any payment received
by the Lender under this Section 2.8 or under Section 2.6 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine.
Section 2.9 Payment. All payments to the Lender shall be made
in immediately available funds and shall be applied to the Obligations one
Banking Day after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for three (3) additional days before
applying them to the Obligations. Notwithstanding anything in Section 2.1, the
Borrower hereby authorizes the Lender, in its discretion at any time or from
time to time without the Borrower's request and even if the conditions set forth
in Section 4.2 would not be satisfied, to make a Revolving Advance in an amount
equal to the portion of the Obligations from time to time due and payable.
Section 2.10 Payment on Non-Banking Days. Whenever any payment
to be made hereunder shall be stated to be due on a day which is not a Banking
Day, such payment may be made on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of interest
on the Advances or the fees hereunder, as the case may be.
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Section 2.11 Use of Proceeds. The Borrower shall use the
proceeds of Advances for ordinary working capital purposes.
Section 2.12 Liability Records. The Lender may maintain from
time to time, at its discretion, liability records as to the Obligations. All
entries made on any such record shall be presumed correct until the Borrower
establishes the contrary. Upon the Lender's demand, the Borrower will admit and
certify in writing the exact principal balance of the Obligations that the
Borrower then asserts to be outstanding. Any billing statement or accounting
rendered by the Lender shall be conclusive and fully binding on the Borrower
unless the Borrower gives the Lender specific written notice of exception within
30 days after receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
------------------------------------
Section 3.1 Grant of Security Interest. The Borrower hereby
pledges, assigns and grants to the Lender a security interest (collectively
referred to as the "Security Interest") in the Collateral, as security for the
payment and performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other
Obligors. The Lender may at any time (whether or not a Default Period then
exists) notify any account debtor or other person obligated to pay the amount
due that such right to payment has been assigned or transferred to the Lender
for security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, in the Lender's name or in the Borrower's name, (a) demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrower's agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and dispose of the Borrower's mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
Section 3.3 Assignment of Insurance. As additional security
for the payment and performance of the Obligations, the Borrower hereby assigns
to the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of the Borrower with respect to, any and all policies of insurance
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now or at any time hereafter covering the Collateral or any evidence thereof or
any business records or valuable papers pertaining thereto, and the Borrower
hereby directs the issuer of any such policy to pay all such monies directly to
the Lender. At any time, whether or not a Default Period then exists, the Lender
may (but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default
Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5 License. Without limiting the generality of the
Patent Security Agreement, Copyright Security Agreement, Trademark Security
Agreement, the Borrower hereby grants to the Lender a non-exclusive, worldwide
and royalty-free license to use or otherwise exploit all trademarks, franchises,
trade names, copyrights and patents of the Borrower for the purpose of selling,
leasing or otherwise disposing of any or all Collateral during any Default
Period.
Section 3.6 Financing Statement. A carbon, photographic or
other reproduction of this Agreement or of any financing statements signed by
the Borrower is sufficient as a financing statement and may be filed as a
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financing statement in any state to perfect the security interests granted
hereby. For this purpose, the following information is set forth:
Name and address of Debtor:
Naco Industries, Inc.
395 West 1400 North
Logan, Utah 84341
Federal Tax Identification No. 48-0836971
Name and address of Secured Party:
Norwest Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Federal Tax Identification No. 41-1237652
Section 3.7 Setoff. The Borrower agrees that the Lender may at
any time or from time to time, at its sole discretion and without demand and
without notice to anyone, setoff any liability owed to the Borrower by the
Lender, whether or not due, against any Obligation, whether or not due. In
addition, each other Person holding a participating interest in any Obligations
shall have the right to appropriate or setoff any deposit or other liability
then owed by such Person to the Borrower, whether or not due, and apply the same
to the payment of said participating interest, as fully as if such Person had
lent directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
---------------------
Section 4.1 Conditions Precedent to the Initial Revolving and
Term Advances. The Lender's obligation to make the initial Revolving and Term
Advances hereunder shall be subject to the condition precedent that the Lender
shall have received all of the following, each in form and substance
satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Notes, properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
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(d) A true and correct copy of any and all mortgages pursuant
to which the Borrower has mortgaged the Premises, together with a
mortgagee's disclaimer and consent with respect to each such mortgage.
(e) The Life Insurance Assignment, properly executed by the
beneficiary and owner thereof, and the Life Insurance Policy, each in
form and substance satisfactory to the Lender, together with such
evidence as the Lender may request that the Life Insurance Policy is
subject to no assignments or encumbrances other than the Life Insurance
Assignment.
(f) The Lockbox Agreement, properly executed by the Borrower,
Wells Fargo and Regulus West, LLC.
(g) The Patent and Trademark Security Agreement, properly
executed by the Borrower.
(h) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower, (ii) no financing statements or
assignments of patents, trademarks or copyrights have been filed and
remain in effect against the Borrower except those financing statements
and assignments of patents, trademarks or copyrights relating to
Permitted Liens or to liens held by Persons who have agreed in writing
that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations and releases of such assignments of
patents, trademarks or copyrights satisfactory to the Lender, and (iii)
the Lender has duly filed all financing statements necessary to perfect
the Security Interest, to the extent the Security Interest is capable
of being perfected by filing.
(i) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the execution,
delivery and performance of the Loan Documents, (ii) the Borrower's
articles of incorporation and bylaws, and (iii) the signatures of the
Borrower's officers or agents authorized to execute and deliver the
Loan Documents and other instruments, agreements and certificates,
including Advance requests, on the Borrower's behalf.
(j) A current certificate issued by the Secretary of State of
Utah, certifying that the Borrower is in compliance with all applicable
organizational requirements of the State of Utah.
(k) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
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(l) A certificate of an officer of the Borrower confirming, in
his personal capacity, the representations and warranties set forth in
Article V.
(m) An opinion of counsel to the Borrower, addressed to the
Lender.
(n) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(o) A separate guaranty, properly executed by each Guarantor,
pursuant to which each Guarantor unconditionally guarantees the full
and prompt payment of all Obligations.
(p) A waiver of interest, properly executed by the spouse of
the Guarantor, waiving any and all interest such spouse may have in the
assets disclosed to the Lender in the financial statements of the
Guarantor and in any future earnings or assets acquired by the
Guarantor.
(q) An opinion of counsel to each Guarantor, addressed to the
Lender.
(r) Payment of the fees and commissions due through the date
of the initial Advance under Section 2.3 and expenses incurred by the
Lender through such date and required to be paid by the Borrower under
Section 9.6, including all legal expenses incurred through the date of
this Agreement.
(s) Evidence of the commitment of Webb Bank to provide a term
loan to the Borrower, in the amount of $1,100,000, secured by certain
equipment and real estate of the Borrower.
(t) Such other documents as the Lender in its sole discretion
may require.
Section 4.2 Conditions Precedent to All Advances. The Lender's
obligation to make each Advance shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance as though made on and
as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance which constitutes a Default or an Event of Default.
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ARTICLE V
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief
Executive Office; Inventory and Equipment Locations; Tax Identification Number.
The Borrower is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Utah and is duly licensed or qualified
to transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary. The Borrower has all requisite power and
authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. During its existence, the Borrower has done business
solely under the names set forth in Schedule 5.1 hereto. The Borrower's chief
executive office and principal place of business is located at the address set
forth in Schedule 5.1 hereto, and all of the Borrower's records relating to its
business or the Collateral are kept at that location. All Inventory and
Equipment is located at that location or at one of the other locations set forth
in Schedule 5.1 hereto. The Borrower's tax identification number is correctly
set forth in Section 3.6 hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law
or Agreements. The execution, delivery and performance by the Borrower of the
Loan Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and,
upon due execution by the Borrower, the other Loan Documents will constitute the
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legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
Section 5.4 Subsidiaries. Except as set forth in Schedule 5.4
hereto, the Borrower has no Subsidiaries.
Section 5.5 Financial Condition; No Adverse Change. The
Borrower has heretofore furnished to the Lender its audited financial statements
for its fiscal year ended November 30, 1998 and those statements fairly present
the Borrower's financial condition on the dates thereof and the results of its
operations and cash flows for the periods then ended and were prepared in
accordance with generally accepted accounting principles. Since the date of the
most recent financial statements, there has been no material adverse change in
the Borrower's business, properties or condition (financial or otherwise).
Section 5.6 Litigation. There are no actions, suits or
proceedings pending or, to the Borrower's knowledge, threatened against or
affecting the Borrower or any of its Affiliates or the properties of the
Borrower or any of its Affiliates before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Borrower or any of its Affiliates, would
have a material adverse effect on the financial condition, properties or
operations of the Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid
or caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them. The Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may be,
are required to be filed, and the Borrower and its Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and
absolute title to all Collateral described in the collateral reports provided to
the Lender and all other Collateral, properties and assets reflected in the
latest financial statements referred to in Section 5.5 and all proceeds thereof,
free and clear of all mortgages, security interests, liens and encumbrances,
except for Permitted Liens. No financing statement naming the Borrower as debtor
is on file in any office except to perfect only Permitted Liens.
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Section 5.10 Plans. Except as disclosed to the Lender in
writing prior to the date hereof, neither the Borrower nor any of its Affiliates
maintains or has maintained any Plan. Neither the Borrower nor any Affiliate has
received any notice or has any knowledge to the effect that it is not in full
compliance with any of the requirements of ERISA. No Reportable Event or other
fact or circumstance which may have an adverse effect on the Plan's tax
qualified status exists in connection with any Plan. Neither the Borrower nor
any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which are or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11 Default. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 Environmental Matters.
(a) Definitions. As used in this Agreement, the following
terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and the
environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or
quantity as to create any liability or obligation for either the
Borrower or the Lender under common law of any jurisdiction or under
any Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in, on
or under the Premises in such a way as to create any such liability.
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(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the
Borrower, alleging liability under, violation of, or noncompliance with
any Environmental Law or any license, permit or other authorization
issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance
with all Environmental Laws and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary
for the lawful and efficient operation of such businesses are in the
Borrower's possession and are in full force and effect. No permit
required under any Environmental Law is scheduled to expire within 12
months and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's
businesses.
Section 5.13 Submissions to Lender. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14 Financing Statements. The Borrower has provided
to the Lender signed financing statements sufficient when filed to perfect the
Security Interest and the other security interests created by the Security
Documents. When such financing statements are filed in the offices noted
therein, the Lender will have a valid and perfected security interest in all
Collateral and all other collateral described in the Security Documents which is
capable of being perfected by filing financing statements. None of the
Collateral or other collateral covered by the Security Documents is or will
become a fixture on real estate, unless a sufficient fixture filing is in effect
with respect thereto.
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Section 5.15 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
Section 5.16 Financial Solvency. Both before and after giving
effect to all of the transactions contemplated in the Loan Documents, none of
the Borrower or its Affiliates:
(a) was or will be insolvent, as that term is used and defined
in Section 101(32) of the United States Bankruptcy Code and Section 2
of the Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to
engage in a business or a transaction for which any remaining assets of
the Borrower or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or
by taking any action with respect thereto, intends to, nor believes
that it will, incur debts beyond its ability to pay them as they
mature;
(d) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or
by taking any action with respect thereto, intends to hinder, delay or
defraud either its present or future creditors; and
(e) this time contemplates filing a petition in bankruptcy or
for an arrangement or reorganization or similar proceeding under any
law any jurisdiction, nor, to the best knowledge of the Borrower, is
the subject of any actual, pending or threatened bankruptcy, insolvency
or similar proceedings under any law of any jurisdiction.
ARTICLE VI
Borrower's Affirmative Covenants
--------------------------------
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
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Section 6.1 Reporting Requirements. The Borrower will deliver,
or cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days
after the end of each fiscal year of the Borrower, the Borrower's
financial statements reviewed (or, for any year during which the
Borrower's net sales exceeded $10,000,000, audited) by independent
certified public accountants selected by the Borrower and acceptable to
the Lender, which annual financial statements shall include the
Borrower's balance sheet as at the end of such fiscal year and the
related statements of the Borrower's income, retained earnings and cash
flows for the fiscal year then ended, prepared, if the Lender so
requests, on a consolidating and consolidated basis to include any
Affiliates, all in reasonable detail and prepared in accordance with
GAAP, together with (i) copies of all management letters prepared by
such accountants, and (ii) a certificate of the Borrower's chief
financial officer stating that such financial statements have been
prepared in accordance with GAAP and whether or not such officer has
knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) as soon as available and in any event within 20 days after
the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the
end of and for such month and for the year to date period then ended,
prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with GAAP,
subject to year-end audit adjustments; and accompanied by a certificate
of the Borrower's chief financial officer, substantially in the form of
Exhibit B hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit
adjustments, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto, and (iii) all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in Sections
6.13, 6.14 and 7.10;
(c) within 15 days after the end of each month or more
frequently if the Lender so requires, agings of the Borrower's accounts
receivable and its accounts payable, an inventory certification report,
and a calculation of the Borrower's Accounts, Eligible Accounts,
Inventory and Eligible Inventory as at the end of such month or shorter
time period;
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(d) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for
each month of such year, each in reasonable detail, representing the
Borrower's good faith projections and certified by the Borrower's chief
financial officer as being the most accurate projections available and
identical to the projections used by the Borrower for internal planning
purposes, together with such supporting schedules and information as
the Lender may in its discretion require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type
described in Section 5.12 or which seek a monetary recovery against the
Borrower in excess of $50,000;
(f) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or any event which constitutes a Default or
Event of Default hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the
steps being taken by the Borrower to cure the effect of such breach,
default or event;
(g) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the Borrower's chief
financial officer setting forth details as to such Reportable Event and
the action which the Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event to the
Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with
respect to any Plan under Section 412(m) of the Internal Revenue Code
of 1986, as amended, the statement of the Borrower's chief financial
officer setting forth details as to such failure and the action which
the Borrower proposes to take with respect thereto, together with a
copy of any notice of such failure required to be provided to the
Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers; (ii) credit memos;
(iii) any goods returned to or recovered by the Borrower; and (iv) any
change in the persons constituting the Borrower's officers and
directors;
(j) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
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Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
(l) promptly after the sending or filing thereof, copies of
all regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(m) as soon as possible, and in any event by not later than
April 30th of each year, copies of the state and federal tax returns
and all schedules thereto and an updated personal financial statement
of each Guarantor;
(n) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(o) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices in excess of $5,000 to account debtors,
shipment documents and delivery receipts for goods sold in excess of
$5,000, and such other material, reports, records or information as the
Lender may request.
Section 6.2 Books and Records; Inspection and Examination. The
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other collateral covered by the
Security Documents or any other property of the Borrower at any time during
ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time
and from time to time send or require the Borrower to send requests for
verification of accounts or notices of assignment to account debtors and other
obligors. The Lender may also at any time and from time to time telephone
account debtors and other obligors to verify accounts.
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Section 6.4 Compliance with Laws.
(a) Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and
keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable
Environmental Laws and obtain and comply with all permits, licenses and
similar approvals required by any Environmental Laws, and will not
generate, use, transport, treat, store or dispose of any Hazardous
Substances in such a manner as to create any liability or obligation
under the common law of any jurisdiction or any Environmental Law.
Section 6.5 Payment of Taxes and Other Claims. The Borrower
will pay or discharge, when due, (a) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income or profits, upon any
properties belonging to it (including, without limitation, the Collateral) or
upon or against the creation, perfection or continuance of the Security
Interest, prior to the date on which penalties attach thereto, (b) all federal,
state and local taxes required to be withheld by it, and (c) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a lien
or charge upon any properties of the Borrower; provided, that the Borrower shall
not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from
time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent the
Borrower from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the Lender's judgment,
desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the
Collateral or any interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security
interests, liens and encumbrances except Permitted Liens.
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Section 6.7 Insurance. The Borrower will obtain and at all
times maintain insurance with insurers believed by the Borrower to be
responsible and reputable, in such amounts and against such risks as may from
time to time be required by the Lender, but in all events in such amounts and
against such risks as is usually carried by companies engaged in similar
business and owning similar properties in the same general areas in which the
Borrower operates. Without limiting the generality of the foregoing, the
Borrower will at all times maintain business interruption insurance including
coverage for force majeure and keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft, collision (for
Collateral consisting of motor vehicles) and such other risks and in such
amounts as the Lender may reasonably request, with any loss payable to the
Lender to the extent of its interest, and all policies of such insurance shall
contain a lender's loss payable endorsement for the Lender's benefit acceptable
to the Lender. All policies of liability insurance required hereunder shall name
the Lender as an additional insured.
Section 6.8 Preservation of Existence. The Borrower will
preserve and maintain its existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, etc. Upon request by the
Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral, duly endorsed
or assigned by the Borrower.
Section 6.10 Collateral Account; Lockbox.
(a) The Borrower shall irrevocably direct all present and
future Account debtors and other Persons obligated to make payments
constituting Collateral to make such payments directly to the Lockbox.
All of the Borrower's invoices, account statements and other written or
oral communications directing, instructing, demanding or requesting
payment of any Account or any other amount constituting Collateral
shall conspicuously direct that all payments be made to the Lockbox and
shall include the Lockbox address. All payments received in the Lockbox
shall be processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral Account
or, at the Lender's option, to deliver to the Lender all collections on
Accounts, contract rights, chattel paper and other rights to payment
constituting Collateral, and all other cash proceeds of Collateral,
which the Borrower may receive directly notwithstanding its direction
to Account debtors and other obligors to make payments to the Lockbox,
immediately upon receipt thereof, in the form received, except for the
Borrower's endorsement when deemed necessary. Until delivered to the
Lender or deposited in the Collateral Account, all proceeds or
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collections of Collateral shall be held in trust by the Borrower for
and as the property of the Lender and shall not be commingled with any
funds or property of the Borrower.
(c) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
(d) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the
Obligations. The Lender from time to time at its discretion may, after
allowing one Banking Day, apply deposited funds in the Collateral
Account to the payment of the Obligations, in any order or manner of
application satisfactory to the Lender, by transferring such funds to
the Lender's general account.
(e) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected, the
Borrower will immediately pay the Lender, or, for items deposited in
the Collateral Account, the bank maintaining such account, the amount
of that item, or such bank at its discretion may charge any uncollected
item to the Borrower's commercial account or other account. The
Borrower shall be liable as an endorser on all items deposited in the
Collateral Account, whether or not in fact endorsed by the Borrower.
Section 6.11 Key Person Life Insurance. The Borrower shall
maintain insurance upon the life of Verne Bray, its President, with the death
benefit thereunder in an amount not less than $250,000 (the "Life Insurance
Policy"). The right to receive the proceeds of the Life Insurance Policy shall
be assigned to the Lender by the Life Insurance Assignment.
Section 6.12 Performance by the Lender. If the Borrower at any
time fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue for a
period of ten calendar days after the Lender gives the Borrower written notice
thereof (or in the case of the agreements contained in Sections 6.5, 6.7 and
6.10, immediately upon the occurrence of such failure, without notice or lapse
of time), the Lender may, but need not, perform or observe such covenant on
behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of obligations
owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
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incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.12.
Section 6.13 Minimum Book Net Worth. The Borrower will
maintain, as of each date described below, its Book Net Worth at an amount not
less than the amount set forth opposite such period:
Period Minimum Book Net Worth
------ ----------------------
February 28, 1999 $649,000
May 31, 1999 $878,000
August 31, 1999 $1,061,000
November 30, 1999 and
on the last day of each
quarter thereafter $1,281,000
Section 6.14 Minimum Net Income. The Borrower will achieve as
of each date described below, cumulative Net Income of not less than the amount
set forth opposite such period:
Period Minimum YTD Net Income
------ ----------------------
February 28, 1999 $(295,000)
March 31, 1999 $(275,000)
April 30, 1999 $(165,000)
May 31, 1999 $(75,000)
June 30, 1999 $30,000
July 31, 1999 $20,000
August 31, 1999 $145,000
September 30, 1999 $170,000
October 31, 1999 $255,000
November 30, 1999 $365,000
Section 6.15 New Covenants. On or before October 31, 1999, the
Borrower and the Lender shall agree on new covenant levels for Sections 6.13,
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6.14 and 7.10 for periods after November 30, 1999. The new covenant levels will
be based on the Borrower's projections for such periods and shall be no less
stringent than the present levels.
ARTICLE VII
Negative Covenants
------------------
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower agrees that, without the
Lender's prior written consent:
Section 7.1 Liens. The Borrower will not create, incur or
suffer to exist any mortgage, deed of trust, pledge, lien, security interest,
assignment or transfer upon or of any of its assets, now owned or hereafter
acquired, to secure any indebtedness; excluding, however, from the operation of
the foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in
Schedule 7.1 hereto, securing indebtedness for borrowed money permitted
under Section 7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents; and
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not exceeding
the lesser of cost or fair market value thereof and so long as no
Default Period is then in existence and none would exist immediately
after such acquisition.
Section 7.2 Indebtedness. The Borrower will not incur, create,
assume or permit to exist any indebtedness or liability on account of deposits
or advances or any indebtedness for borrowed money or letters of credit issued
on the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto; and
SL 605.3 57131 00596
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(c) indebtedness relating to liens permitted in accordance
with Section 7.1.
Section 7.3 Guaranties. The Borrower will not assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary
course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or
permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including
specifically but without limitation any partnership or joint venture,
except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year
or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Moody's Investors Service or certificates of deposit
or bankers' acceptances having a maturity of one year or less
issued by members of the Federal Reserve System having
deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the
Federal Deposit Insurance Corporation);
(ii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of $25,000; and
(iii) advances in the form of progress payments,
prepaid rent not exceeding twelve months or security deposits.
(b) The Borrower will not create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the date hereof
and listed in Schedule 5.4.
Section 7.5 Dividends. Except as set forth below, the Borrower
will not declare or pay any dividends (other than dividends payable solely in
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stock of the Borrower) on any class of its stock or make any payment on account
of the purchase, redemption or other retirement of any shares of such stock or
make any distribution in respect thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 Consolidation and Merger; Asset Acquisitions. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter
into any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 Restrictions on Nature of Business. The Borrower
will not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 Capital Expenditures. The Borrower will not incur
or contract to incur Capital Expenditures of more than $200,000 in the aggregate
during its fiscal year ending November 30, 1999.
Section 7.11 Accounting. The Borrower will not adopt any
material change in accounting principles other than as required by GAAP. The
Borrower will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 Discounts, etc. The Borrower will not, after
notice from the Lender, grant any discount, credit or allowance to any customer
of the Borrower or accept any return of goods sold, or at any time (whether
before or after notice from the Lender) modify, amend, subordinate, cancel or
terminate the obligation of any account debtor or other obligor of the Borrower.
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Section 7.13 Defined Benefit Pension Plans. The Borrower will
not adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 Other Defaults. The Borrower will not permit any
breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower.
Section 7.15 Place of Business; Name. The Borrower will not
transfer its chief executive office or principal place of business, or move,
relocate, close or sell any business location. The Borrower will not permit any
tangible Collateral or any records pertaining to the Collateral to be located in
any state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.16 Organizational Documents; S Corporation Status.
The Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws. The Borrower will not become an S Corporation within
the meaning of the Internal Revenue Code of 1986, as amended.
Section 7.17 Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than 10% in any one year, either individually or for all
such persons in the aggregate, or pay any such increase from any source other
than profits earned in the year of payment.
Section 7.18 Change in Ownership. The Borrower will not issue
or sell any stock of the Borrower so as to change the percentage of voting and
non-voting stock owned by each of the Borrower's shareholders, and the Borrower
will not permit or suffer to occur the sale, transfer, assignment, pledge or
other disposition of any or all of the issued and outstanding shares of stock of
the Borrower.
ARTICLE VIII
Events of Default, Rights and Remedies
--------------------------------------
Section 8.1 Events of Default. "Event of Default", wherever
used herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become
due and payable;
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(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) The Borrower or any Guarantor shall be or become
insolvent, or admit in writing its or his inability to pay its or his
debts as they mature, or make an assignment for the benefit of
creditors; or the Borrower or any Guarantor shall apply for or consent
to the appointment of any receiver, trustee, or similar officer for it
or him or for all or any substantial part of its or his property; or
such receiver, trustee or similar officer shall be appointed without
the application or consent of the Borrower or such Guarantor, as the
case may be; or the Borrower or any Guarantor shall institute (by
petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him
under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the Borrower
or any such Guarantor; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower or any Guarantor;
(e) A petition shall be filed by or against the Borrower or
any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor;
(f) The Life Insurance Policy shall be terminated, by the
Borrower or otherwise; or the Life Insurance Policy shall be scheduled
to terminate within 30 days and the Borrower shall not have delivered a
satisfactory renewal thereof to the Lender; or the Borrower shall fail
to pay any premium on the Life Insurance Policy when due; or the
Borrower shall take any other action that impairs the value of the Life
Insurance Policy.
(g) Any representation or warranty made by the Borrower in
this Agreement, by any Guarantor in any guaranty delivered to the
Lender, or by the Borrower (or any of its officers) or any Guarantor in
any agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such guaranty shall prove to have
been incorrect in any material respect when deemed to be effective;
(h) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $25,000 and the
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continuance of such judgment, decree or order unsatisfied and in effect
for any period of 30 consecutive days without a stay of execution;
(i) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than
the Lender, or under any indenture or other instrument under which any
such evidence of indebtedness has been issued or by which it is
governed, or under any lease of any of the Premises, and the expiration
of the applicable period of grace, if any, specified in such evidence
of indebtedness, indenture, other instrument or lease;
(j) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to
the Borrower by the Lender; or a trustee shall have been appointed by
an appropriate United States District Court to administer any Plan; or
the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer
any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA; or the Borrower shall have failed
to make any quarterly contribution required with respect to any Plan
under Section 412(m) of the Internal Revenue Code of 1986, as amended,
which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a lien on
the Borrower's assets in favor of the Plan;
(k) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note;
(l) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the Lender's prior written consent;
(m) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any state or federal tax liens shall be
filed or issued;
(n) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder;
-36-
<PAGE>
(o) Any Guarantor shall repudiate, purport to revoke or fail
to perform any such Guarantor's obligations under such Guarantor's
guaranty in favor of the Lender, any individual Guarantor shall die or
any other Guarantor shall cease to exist;
(p) The Borrower shall take or participate in any action which
would be prohibited under the provisions of any Subordination Agreement
or make any payment on the Subordinated Indebtedness (as defined in the
Subordination Agreement) that any Person was not entitled to receive
under the provisions of the Subordination Agreement;
(q) Any event or circumstance with respect to the Borrower
shall occur such that the Lender shall believe in good faith that the
prospect of payment of all or any part of the Obligations or the
performance by the Borrower under the Loan Documents is impaired or any
material adverse change in the business or financial condition of the
Borrower shall occur.
(r) There shall occur any breach, default or event of default
by or attributable to any Affiliate under any agreement between such
Affiliate and the Lender.
Section 8.2 Rights and Remedies. During any Default Period,
the Lender may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith
terminate;
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which
the Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the
Borrower to the payment of the Obligations;
(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, the Borrower will on demand assemble the
-37-
<PAGE>
Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten
calendar days before the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
-------------
Section 9.1 No Waiver; Cumulative Remedies. No failure or
delay by the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
-38-
<PAGE>
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to the Borrower:
Naco Industries, Inc.
395 West 1400 North
Logan, Utah 84341
Telecopier: (435) 752-7041
Attention: Jeff Kirby
If to the Lender:
Norwest Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Telecopier: (303) 863-4904
Attention: Kim Carmichael
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 Further Documents. The Borrower will from time to
time execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's rights
under the Loan Documents (but any failure to request or assure that the Borrower
executes, delivers or endorses any such item shall not affect or impair the
validity, sufficiency or enforceability of the Loan Documents and the Security
Interest, regardless of whether any such item was or was not executed, delivered
or endorsed in a similar context or on a prior occasion).
Section 9.5 Collateral. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
-39-
<PAGE>
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.6 Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses, including (without limitation) attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents, and any other document or agreement related hereto or thereto,
and the transactions contemplated hereby, including without limitation all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
Section 9.7 Indemnity. In addition to the payment of expenses
pursuant to Section 9.6, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):
(a) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the
execution and delivery of the Loan Documents or the making of the
Advances;
(b) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12
proves to be incorrect in any respect or as a result of any violation
of the covenant contained in Section 6.4(b); and
(c) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether or
not such Indemnitee shall be designated a party thereto, which may be
imposed on, incurred by or asserted against any such Indemnitee, in any
manner related to or arising out of or in connection with the making of
the Advances and the Loan Documents or the use or intended use of the
proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
-40-
<PAGE>
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.8 Participants. The Lender and its participants, if
any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
Section 9.9 Execution in Counterparts. This Agreement and
other Loan Documents may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
Section 9.10 Binding Effect; Assignment; Complete Agreement;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the
Borrower waives any right of confidentiality it may have with respect to such
exchange of such information.
Section 9.11 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 Headings. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
-41-
<PAGE>
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial. The Loan Documents shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the State of Colorado.
This Agreement shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Colorado. The
parties hereto hereby (i) consent to the personal jurisdiction of the state and
federal courts located in the State of Colorado in connection with any
controversy related to this Agreement; (ii) waive any argument that venue in any
such forum is not convenient, (iii) agree that any litigation initiated by the
Lender or the Borrower in connection with this Agreement or the other Loan
Documents shall be venued in either the District Court for the City and County
of Denver, Colorado, or the United States District Court, District of Colorado;
and (iv) agree that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
WELLS FARGO BUSINESS CREDIT,
INC., f/k/a Norwest Business Credit, Inc.
By:/s/William Kirth
- -------------------
William Kirth
Its Vice President
NACO INDUSTRIES, INC.
By:/s/Verne Bray
- ----------------
Verne Bray
Its President
-1-
<PAGE>
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Compliance Certificate
Exhibit C Premises
----------------------------------
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and
Locations of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
-2-
<PAGE>
Exhibit A to Credit and Security
Agreement
REVOLVING NOTE
$1,500,000 Denver, Colorado
April 22, 1999
For value received, the undersigned, Naco Industries, Inc., a Utah
corporation (the "Borrower"), hereby promises to pay on the Termination Date
under the Credit Agreement (defined below), to the order of NORWEST BUSINESS
CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in
Denver, Colorado, or at any other place designated at any time by the holder
hereof, in lawful money of the United States of America and in immediately
available funds, the principal sum of One Million Five Hundred Thousand Dollars
($1,500,000) or, if less, the aggregate unpaid principal amount of all Revolving
Advances made by the Lender to the Borrower under the Credit Agreement (defined
below) together with interest on the principal amount hereunder remaining unpaid
from time to time, computed on the basis of the actual number of days elapsed
and a 360-day year, from the date hereof until this Note is fully paid at the
rate from time to time in effect under the Credit and Security Agreement of even
date herewith (as the same may hereafter be amended, supplemented or restated
from time to time, the "Credit Agreement") by and between the Lender and the
Borrower. The principal hereof and interest accruing thereon shall be due and
payable as provided in the Credit Agreement. This Note may be prepaid only in
accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
NACO INDUSTRIES, INC.
By/s/Verne Bray
---------------
Verne Bray
Its President
A-1
<PAGE>
Exhibit B to Credit and Security
Agreement
COMPLIANCE CERTIFICATE
To: Kimberly Carmichael
Wells Fargo Business Credit, Inc.
Date: __________________, ______
Subject: Naco Industries, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as
of April 22, 1999 (the "Credit Agreement"), attached are the financial
statements of Naco Industries, Inc. (the "Borrower") as of and for
________________, 19___ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower's financial condition and the results of its operations as of the
date thereof.
Events of Default. (Check one):
-----------------
o The undersigned does not have knowledge of the
occurrence of a Default or Event of Default under the
Credit Agreement.
o The undersigned has knowledge of the occurrence of a
Default or Event of Default under the Credit
Agreement and attached hereto is a statement of the
facts with respect to thereto.
I hereby certify to the Lender as follows:
o The Reporting Date does not mark the end of one of
the Borrower's fiscal quarters, hence I am completing
only paragraph __ below.
o The Reporting Date marks the end of one of the
Borrower's fiscal quarters, hence I am completing all
paragraphs below except paragraph __.
o The Reporting Date marks the end of the Borrower's
fiscal year, hence I am completing all paragraphs
below.
B-1
<PAGE>
Financial Covenants. I further hereby certify as follows:
-------------------
1. Minimum Book Net Worth. Pursuant to Section 6.13 of the
Credit Agreement, as of the Reporting Date, the Borrower's Book Net
Worth was $____________ which o satisfies o does not satisfy the
requirement that such amount be not less than $_____________ on the
Reporting Date as set forth in table below:
Period Minimum Book Net Worth
------ ----------------------
February 28, 1999 $649,000
May 31, 1999 $878,000
August 31, 1999 $1,061,000
November 30, 1999 $1,281,000
2. Minimum Net Income. Pursuant to Section 6.14 of the Credit
Agreement, the Borrower's Net Income as of the Reporting Date, was
$____________, which o satisfies o does not satisfy the requirement
that such amount be not less than $_____________ on the Reporting Date
as set forth in table below:
Period Minimum YTD Net Income
------ ----------------------
February 28, 1999 $(295,000)
March 31, 1999 $(275,000)
April 30, 1999 $(165,000)
May 31, 1999 $(75,000)
June 30, 1999 $30,000
July 31, 1999 $20,000
August 31, 1999 $145,000
September 30, 1999 $170,000
October 31, 1999 $255,000
November 30, 1999 $365,000
3. Capital Expenditures. Pursuant to Section 7.10 of the
Credit Agreement, for the year-to-date period ending on the Reporting
Date, the Borrower has expended or contracted to expend during the
fiscal year ended November 30, _____, for Capital Expenditures,
$__________________ in the aggregate, which o satisfies o does not
satisfy the requirement that such expenditures not exceed $__________
in the aggregate and $___________ for any one transaction during such
year.
B-2
<PAGE>
4. Salaries. As of the Reporting Date, the Borrower o is o is
not in compliance with Section 7.17 of the Credit Agreement concerning
salaries.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
NACO INDUSTRIES, INC.
By:
Its Chief Financial Officer
B-3
<PAGE>
Exhibit C to Credit and Security
Agreement
PREMISES
The Premises referred to in the Credit and Security Agreement
are legally described as follows:
395 West 1400 North
Logan, Utah 84341
3445 West Jones Avenue
Garden City, Kansas 67846
812 West 17th Street
Ogden, Utah 84404
D-1
<PAGE>
Schedule 5.1 to Credit and Security
Agreement
Trade Names, Chief Executive Office, Principal Place of Business, and Locations
- -------------------------------------------------------------------------------
of Collateral
-------------
Trade Names
-----------
NACO Industries, Inc.
NACO West
Valor Division
NACO Composites, Inc.
Chief Executive Office/Principal Place of Business
--------------------------------------------------
395 West 1400 North
Logan, Utah 84341
Other Inventory and Equipment Locations
---------------------------------------
3445 West Jones Avenue
Garden City, Kansas 67846
812 West 17th Street
Ogden, Utah 84404
2395 Maggio Circle
Lodi, California 95240
<PAGE>
Schedule 5.4 to Credit and Security
Agreement
Subsidiaries
------------
None
<PAGE>
Schedule 7.1 to Credit and Security
Agreement
<TABLE>
<CAPTION>
Permitted Liens
---------------
Creditor Collateral Jurisdiction Filing Date Filing No.
-------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Yale Financial Services Equipment Kansas - SOS 02/21/97 2327631
Yale Financial Services Equipment Utah - SOS 02/21/97 97-555326
Colonial Pacific Leasing Equipment California - SOS 06/06/95 9515960914
Colonial Pacific Leasing Equipment Kansas - SOS 05/22/95 2140381
</TABLE>
<PAGE>
Schedule 7.2 to Credit and Security Agreement
Permitted Indebtedness and Guaranties
-------------------------------------
Indebtedness
------------
<TABLE>
<CAPTION>
Creditor Principal Maturity Monthly Collateral
-------- --------- -------- ------- ----------
Amount Date Payment
------ ---- -------
<S> <C> <C> <C> <C>
Western Forklift & Supply 8,552.13 03/18/2002 276.00 1 used Clark Forklift Model GCS 17 SN#
G127-0127-8203
GE Capital / Colonial Pacific 61,186.22 11/19/2003 1,561.74 1 Cannon 100-ton molding clamp
Leasing
GE Capital / Balboa Capital 63,993.61 12/12/2001 2,795.15 1 Used Battenfeld RIM Molding Machine
including press and urethane pumping
system
First Security Bank 9,586.74 04/01/2001 466.52 1 1996 Chev. C1500 Pickup SN
1GCEC14M6TZ156480
Zions Bank 15,182.15 01/17/2003 377.94 1 Used 1995 Chevrolet 4x4 2500 Pickup
SN# GCGK24K4SE277790
First Security Bank 2298.05 07/05/1999 472.03 94 GMC Safari Van SN
GKEL19W5RB554795
First Security Bank 2047.65 07/05/1999 418.29 94 GMC Model TC10953
1GTEC19KXRE549048 1/2 Pickup
First Security Bank 2293.60 12/29/1999 244.93 Used 92 Chev. SN 1GCFC24K3NE155830
Yale Financial Services, Inc. Operating 08/30/2001 341.00 New Yale Forklift GLP050
WebBank Corporation 1,100,000 04/22/2014 11,653.01 Equipment
(adj. int. rate)
</TABLE>
Guaranties
----------
Primary Obligor Amount and Description of Beneficiary of Guaranty
- --------------- ------------------------- -----------------------
Obligation Guaranteed
---------------------
USU Credit Union $240,000 Building Mortgage PVC Inc.
<PAGE>
FORM OF LEGAL OPINION
February ___, 1999
TO: Norwest Business Credit, Inc.
1740 Broadway
Denver, CO 80274-8625
Attention: Kim Carmichael
Re: Naco Industries, Inc. (the "Borrower")
Ladies and Gentlemen:
We are general counsel for and have represented the Borrower
in connection with the execution and delivery to you of the following documents,
each dated as of February ___, 1999 (the "Documents"):
(a) Credit and Security Agreement between you and the
Borrower.
(b) The other Loan Documents (as defined in said Credit and
Security Agreement).
Capitalized terms used in this letter but not defined herein shall have the
meanings given to them in the Credit and Security Agreement.
We have also acted as counsel for Verne Bray (the "Individual
Guarantor") in connection with the execution by the Individual Guarantor and
delivery to you of the Individual Guarantor's Guaranty dated as of February ___,
1999.
In so acting, we have examined copies of the Documents
executed by the Borrower and the Individual Guarantor's Guaranty, we have
reviewed the articles of incorporation and bylaws of the Borrower and pertinent
indentures and agreements, known to us, binding upon the Borrower and the
Individual Guarantor, we have supervised the necessary corporate action to
authorize the Documents, and we have reviewed such matters of law and made
inquiry into such matters of fact as we have considered appropriate for purposes
of rendering this opinion to you.
Based upon the foregoing, it is our opinion that:
<PAGE>
1. The Borrower is a business corporation, duly organized,
validly existing and in good standing under the laws of the State of Utah, and
is duly licensed or qualified to transact business in all jurisdictions where
the character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary. It has all
requisite power and authority, corporate or otherwise, to conduct its business
and to own its properties. The name of the Borrower set forth above is now, and
has been at all times since its incorporation, its correct corporate name.
2. The Borrower is duly authorized and empowered to execute,
deliver and perform the Documents and to borrow money from you.
3. The execution, delivery and performance of the Documents,
and the performance by the Borrower of its obligations thereunder, do not and
will not violate or conflict with any provision of law or the articles of
incorporation or bylaws of the Borrower and do not and will not violate or
conflict with, or cause any default or event of default to occur under, any
agreement presently binding upon the Borrower.
4. The execution and delivery of the Documents have been duly
approved by all necessary action of the directors and shareholders of the
Borrower; and the Documents have been duly executed and delivered by the
Borrower and constitute its lawful and binding obligations, legally enforceable
against it in accordance with their respective terms (subject to laws generally
affecting the enforcement of creditors' rights).
5. To the best of our knowledge, no litigation, tax claims or
governmental proceedings are pending or are threatened against the Borrower or
the Individual Guarantor and no judgment or order of any court or administrative
agency is outstanding against the Borrower or the Individual Guarantor.
6. The transaction evidenced by the Documents does not violate
any law pertaining to usury or the payment of interest on loans.
7. The authorization, execution, delivery and performance of
the Documents are not and will not be subject to the jurisdiction, approval or
consent of, or to any requirement of registration with or notification to, any
federal, state or local regulatory body or administrative agency.
8. The proper place to file financing statements to perfect
the security interests created by said Credit and Security Agreement is the
<PAGE>
office of the Secretary of State of the states of Utah, California and Kansas.
The financing statements signed by the Borrower are sufficient in form to
perfect, when so filed, the Security Interest to the extent such security
interests are capable of being perfected by filing.
9. The Individual Guarantor's guaranty has been duly and
validly executed and delivered by the Individual Guarantor and constitutes the
legal, valid and binding agreement of the Individual Guarantor, enforceable in
accordance with its terms, except to the extent that enforcement thereof may be
limited by any applicable bankruptcy, insolvency or similar laws now or
hereafter in effect affecting creditors' rights generally.
Very truly yours,
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
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