<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Quarterly Period Ended: JUNE 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
AND EXCHANGE ACT.
Commission File Number: 0-25602
TECH SQUARED INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1591872
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
5198 WEST 76TH STREET
EDINA, MINNESOTA 55439
(Address of principal executive offices)
(612) 832-5622
(Registrant's telephone number)
Indicate whether the registrant (1) has 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
--- ---
As of June 30, 1997, 10,374,870 shares of Common Stock, no par value, of
the Company were outstanding.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TECH SQUARED INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Operations (unaudited) for the three
months and six months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
TECH SQUARED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 310,677 $ 898,558
Available-for-sale securities 700,625 940,000
Accounts receivable, net of allowance
for doubtful receivables of $349,000
and $306,000 respectively 2,523,992 2,879,200
Inventories 1,506,505 1,906,546
Prepaids and other current assets 528,129 435,755
------------- ------------
TOTAL CURRENT ASSETS 5,569,928 7,060,059
Property and equipment, net 347,457 476,283
Receivable from officer/stockholder 201,512 201,512
Mining Assets 748,276 748,276
Patents and organization costs, net - 133,488
Investment in Digital River 1,014,558 -
------------- ------------
$7,881,731 $8,619,618
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit $ 506,133 $ 279,697
Current maturities of long term debt 80,000 1,108,750
Accounts payable 3,282,713 4,416,419
Accrued compensation and benefits 162,233 187,650
Accrued expenses 632,472 425,516
Dividends payable to officer/shareholder 364,621 491,977
------------- ------------
TOTAL CURRENT LIABILITIES 5,028,172 6,910,009
Dividends payable to officer/shareholder 284,588 200,000
Long term debt, less current maturities 55,000 97,970
Redeemable preferred stock, 12% cumulative
convertible, $1 par value; 1,000,000 shares
authorized; 160,000 shares issued and outstanding 197,500 197,500
STOCKHOLDERS' EQUITY:
Common stock: no par value; 25,000,000 shares
authorized 10,374,870 issued and outstanding - -
Additional paid-in capital 2,723,223 3,189,103
Retained earnings (deficit) (517,377) (2,114,964)
Unrealized gain on available-for-sale securities 110,625 140,000
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 2,316,471 1,214,139
------------- ------------
$7,881,731 $8,619,618
------------- ------------
------------- ------------
</TABLE>
Note: The consolidated statement of financial position at December 31, 1996
has been derived from the audited financial statements at that date.
See accompanying notes to financial statements.
3
<PAGE>
TECH SQUARED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- ---------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $8,484,181 $8,631,713 $18,448,039 $17,259,669
Cost of sales 7,422,079 7,743,412 16,295,646 15,358,521
---------- ---------- ----------- -----------
GROSS PROFIT 1,062,102 888,301 2,152,393 1,901,148
Selling and marketing expenses 466,898 581,080 943,390 1,214,086
General and administrative expenses 559,519 506,990 1,111,963 1,003,338
Research & development expenses - 46,948 - 87,548
---------- ---------- ----------- -----------
Total Operating Expenses 1,026,417 1,135,018 2,055,353 2,304,972
---------- ---------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 35,685 (246,717) 97,040 (403,824)
Interest expense, net (26,595) (1,124) (53,170) (4,084)
Investment income 34,638 5,400 34,638 5,400
Equity in losses of Digital River (295,335) - (581,130) -
---------- ---------- ----------- -----------
LOSS BEFORE MINORITY INTEREST IN (251,607) (242,441) (502,622) (402,508)
LOSSES OF DIGITAL RIVER
Minority interest in losses - 31,454 - 47,541
---------- ---------- ----------- -----------
NET LOSS $ (251,607) $ (210,987) $ (502,622) $ (354,967)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Net loss per common share ($0.02) ($0.02) ($0.05) ($0.03)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average shares outstanding 10,374,870 10,374,870 10,374,870 10,374,870
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TECH SQUARED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
June 30, June 30,
1997 1996
----------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(502,622) $(354,967)
Non-cash items included in loss:
Depreciation and amortization 109,289 98,142
Equity in losses of Digital River 581,130 -
Gain on sale of available-for-sale securities (26,438) -
Minority interest in Digital River - (47,541)
Changes In Operating Assets And Liabilities:
Accounts receivable, net 355,208 (325,331)
Inventories 400,041 1,538,062
Prepaid and other current assets 54,025 233,120
Accounts payable (991,262) (1,141,722)
Accrued compensation and benefits (25,417) -
Other accrued expenses 153,431 87,819
--------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 107,385 87,582
Cash Flows From Investing Activities:
Purchases of property and equipment (86,601) (75,255)
Decrease in cash due to deconsolidation of Digital
River (799,721) -
Change in officer/stockholder receivable - 8,983
--------- -----------
NET CASH USED IN INVESTING ACTIVITIES (886,322) (66,272)
Cash Flows From Financing Activities:
Dividends paid (35,380) (115,420)
Preferred stock redemption - (22,500)
Net change in revolving line of credit 226,436 (242,455)
Expenses incurred on issuance of common stock - (18,863)
--------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 191,056 (399,238)
--------- -----------
NET DECREASE IN CASH (587,881) (377,928)
Cash At Beginning Of Period 898,558 867,370
--------- -----------
CASH AT END OF PERIOD $ 310,677 $ 489,442
--------- -----------
--------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TECH SQUARED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six
month periods ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. The
accompanying consolidated financial statements and notes should be read in
conjunction with the audited financial statements and notes thereto included
in the Company's 1996 annual report on Form 10-KSB.
In periods prior to the quarter ended March 31, 1997 the Consolidated
financial statements include the accounts of Tech Squared Inc. and its wholly
owned subsidiaries (the "Company"), and Digital River, Inc. ("Digital
River"), which the Company controlled through its bargain purchase option.
In March 1997, Digital River converted all of its outstanding debentures, and
in the months of January 1997 through June 1997, issued additional common
stock pursuant to a private placement agreement which reduced Tech Squared's
ownership from 60% at December 31, 1996 to approximately 39% at June 30,
1997. As a result of the reduction in Tech Squared's ownership percentage,
the financial results of Digital River, are no longer consolidated with those
of the Company . The Company now accounts for its investment in Digital River
using the equity method of accounting (see Item 2. Management's Discussion
and Analysis of Financial Condition).
NOTE 2 - INVENTORIES
The Company's inventories consist primarily of goods held for resale and are
stated at the lower of cost or market. Cost is determined using the first-in,
first-out method.
NOTE 3 - REVOLVING LINE OF CREDIT
In June 1997, the Company entered into a two year Revolving Line of Credit
Agreement with First Bank National Association ("First Bank"). Borrowings under
the $2,500,000 agreement, are payable on demand, limited by eligible percentages
of accounts receivable and inventory and bear interest at the prime rate plus
1.75%. Borrowings under the agreement are secured by substantially all the
Company's assets, and are personally guaranteed up to $500,000 by the Company's
Chairman & CEO. As of June 30, 1997, the Company had availability under the
line of credit of approximately $1,400,000.
6
<PAGE>
NOTE 4 - DIGITAL RIVER
In December 1995 the Company obtained a bargain purchase option to acquire
600,000 shares of Digital River common stock from the Company's majority
stockholder and chief executive officer, representing at the time 60% ownership
of Digital River. The option is exerciseable at any time through December 31,
2000 for a total exercise price of $1.00. Digital River has developed and is
operating a proprietary system which allows the secure sale and delivery of
software, fonts and images on-line, via the internet. Digital River's first on-
line software sale and delivery occurred in August, 1996.
During the period from December 1996 through July 1997, Digital River completed
various private placements resulting in net proceeds of approximately
$4,300,000 and issuance of 607,000 new shares of its common stock at prices
between $6 and $9 per share. As a result of these equity financing transactions
the Company's ownership of Digital River was reduced to approximately 37% as of
July 1997, and, beginning in the quarter ended March 31, 1997 the Company
accounted for its investment in Digital River using the equity method of
accounting. For the three months ended March 31, 1997 and six months ended June
30, 1997, the Company recorded gain on sale of stock by the subsidiary of
approximately $1,033,000 and $562,000, respectively. The gain on sale of stock
by the subsidiary is recorded through the Company's stockholder's equity.
Summarized unaudited condensed financial information of Digital River is as
follows: (000's)
BALANCE SHEET INFORMATION
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
Current assets $2,619 $ 809
Total assets 3,173 1,202
Current liabilities 533 1,258
Stockholders' equity (deficit) 2,635 (58)
OPERATING INFORMATION
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------ ------ ----- -----
Net sales $282 $ - $ 461 $ -
Operating expenses 978 85 1,661 129
Net loss ($684) ($79) ($1,176) ($119)
NOTE 5 - SFAS 128
During March, 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share",
which requires the disclosure of basic earnings per share and diluted earnings
per share. The Company expects to adopt SFAS 128 at the end of fiscal 1997 and
anticipates it will not have a material impact on previously reported earnings
per share.
7
<PAGE>
TECH SQUARED INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements contained herein are forward-looking statements within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934
that involve a number of risks and uncertainties. Such forward-looking
information may be indicated by words such as will, may be, expects or
anticipates. In addition to the factors discussed herein, among the other
factors that could cause actual results to differ materially are the following:
business conditions and growth in the personal computer industry and the general
economy; competitive factors such as rival computer and peripheral product
sellers and price pressures; availability of vendor products at reasonable
prices; inventory risks due to shifts in market demand; and risks presented from
time to time in reports filed by the Company with the Securities and Exchange
Commission, including but not limited to the annual report on Form 10-KSB for
the year ended December 31, 1996.
The Company sells computer and peripheral products targeted at the graphic arts
market, which currently includes primarily Macintosh related products. The
Company markets through direct marketing channels, and to value added resellers.
The following is a summary of the operating results for Tech Squared Inc.,
excluding Digital River, and Tech Squared Inc. consolidated for the three and
six months ended June 30 1996 and 1997, respectively:
<TABLE>
<CAPTION>
Tech Squared Tech Squared Inc.,
excluding Digital River Consolidated
----------------------- -------------------------
1997 1996 1997 1996
-------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Net income/(loss) for the
three months ending June 30, $44,000 $(164,000) $(252,000) $(211,000)
Per Share $(0.02) $(0.02)
Net income/(loss) for the
six months ending June 30, $79,000 $(284,000) $(503,000) $(355,000)
Per Share $(0.05) $(0.03)
</TABLE>
RESULTS OF OPERATIONS
NET SALES
Net sales for the Company's second quarter ended June 30, 1997 totaled
$8,484,000 compared to $8,632,000 for the corresponding period of 1996. The
decrease in sales of 1.7% is due to an overall slowdown in the demand for
Macintosh related products and a decline in sales to the Company's distribution
customers. Net sales for the first six months of 1997 totaled $18,448,000
compared to $17,260,000 for the same period in 1996. The increase is due mainly
to an increase in the sales to the Company's direct mail catalog customers.
Fluctuations in the Company's net sales from period to period can be expected
due to a number of factors, including the timing of new product introductions by
the Company's major vendors and their competitors, seasonal cycles commonly
experienced in computer-related industries, and changes in product mix and
product pricing. As a result, the operating results for any particular period
are not necessarily indicative of the results of any future period.
GROSS PROFIT
Gross profit for the quarter ended June 30 was $1,062,000 or 12.5% of net sales
compared to $888,000 or 10.3 % of net sales for the comparable period of 1996.
Gross profit for the six month period ended June 30, 1997 was $2,152,000 or
11.7% of net sales compared to $1,901,000 or 11.0% of net sales for the same
period in 1996. The increase in gross profit percentages in both the three
month and six month period ended June 30, 1997 is due to the increase in DTP
Direct catalog sales as a percentage of overall sales, increased gross margin
percents in DTP Direct sales and a reduction in variable overhead expenses,
partially offset by a decline in gross margin percents for sales to the
Company's distribution customers. The Company expects ongoing competitive
pressure on gross margins in 1997.
8
<PAGE>
SELLING AND MARKETING EXPENSES
Selling and marketing expenses totaled $467,000 or 5.5% of sales during the
quarter ended June 30, 1997 compared to $581,000 or 6.7% of sales during the
corresponding period of 1996. For the six month period ending June 30, 1997
selling and marketing expenses were $943,000 compared to $1,214,000 for the same
period in 1996. As a percentage of sales, selling and marketing expenses for
the first six months of 1997 decreased to 5.1% of net sales from 7.0% of net
sales for the same period in 1996. This decrease was mainly attributable to the
reduction in net marketing costs related to the development, production and
distribution of catalogs, although catalogs mailed increased approximately 18%
in the same period.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the second quarter ended June 30, 1997
were $560,000 compared to $507,000 for the comparable period of 1996. For the
six month period ended June 30, 1997 general and administrative expenses were
$1,112,000 compared to $1,003,000 for the same period in 1996. The increase is
primarily due to an increase in payroll and related costs including the addition
of a new President and COO.
INVESTMENT INCOME
Investment income for the second quarter and six months ended June 30, 1997 was
approximately $35,000 compared to $5,000 for the same periods of 1996.
Investment income for the second quarter of 1997 included $8,000 of dividend
income compared to $5,000 for the same period of 1996 and approximately $26,000
of realized gain on the sale of a portion of the Company's available for sale
securities.
NET INTEREST EXPENSE
Net interest expense for the second quarter ended June 30, 1997 was $27,000
compared to $1,000 for the same period in 1996. Interest expense for the six
month period ended June 30, 1997 was $53,000 compared to $4,000 for the same
period in 1996. The increase is due to an increase in the average
outstanding balance on the Company's line of credit as well as an increase in
the interest rate.
INCOME TAXES
The Company recorded no income tax provision due to the Company's inability to
currently record net operating loss benefit carry forwards for financial
reporting purposes.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity at June 30, 1997, consisted of
liquid funds, a revolving line of credit agreement with First Bank, and vendor
trade credit lines.
In June 1997, the Company entered into a two year Revolving Line of Credit
Agreement with First Bank National Association ("First Bank"). Borrowings under
the $2,500,000 agreement, are payable on demand, limited by eligible percentages
of accounts receivable and inventory and bear interest at the prime rate plus
1.75%. Borrowings under the agreement are secured by substantially all the
Company's assets, and are personally guaranteed up to $500,000 by the Company's
Chairman & CEO. As of June 30, 1997, the Company had availability under the
line of credit of approximately $1,400,000 and outstanding borrowings of
$506,000.
As of June 30, 1997 the Company had working capital of $542,000. This has
been reduced by the current portion of the remaining balance of a dividend
declared in April 1995, but not yet paid in the amount of $365,000 of which
approximately $100,000 was paid in July 1997. The dividend payable is
subordinate to the Revolving Line of Credit and the aggregate payout of the
dividend cannot exceed $200,000 in any calendar year. Through July 1997,
approximately $135,000 has been paid in dividends for the current calendar year.
The Company's working capital includes $701,000 relating to its investment in
Cam Design, Inc. ("Cam Design"). All of the shares of Cam Design became freely
tradable in the second quarter of 1997 and, accordingly, all shares were valued
at the closing market price at June 30, 1997. In May, 1997, the Company reached
a settlement agreement with a former dissenting shareholder. As part of the
settlement agreement, the Company is required to hold 60,000 shares of Cam
Design stock with an escrow agent. These escrowed shares will be adjusted
downward and released from escrow as payments set forth in the agreement are
made to the former dissenting shareholder. The trading market for the Cam
Designs shares may be limited and there can be no assurance that the Company
will be able to realize a market value equal to or in excess of the value stated
herein. The Company may have to bear the economic risk of the entire investment
for an indefinite period.
Inventories decreased from $2,394,000, as of March 31, 1997 to $1,507,000 as of
June 30,1997. The reduction of inventories was primarily a result of improved
inventory management. Capital expenditures totaled $58,000 in the second
quarter of 1997 compared to $55,000 in the second quarter of 1996. For the six
month period ended June 30, 1997 capital expenditures were approximately $87,000
compared to $75,000 for the same period in 1996.
The Company believes that funds generated from management of receivable and
inventory levels, advances under its line of credit, further expansion of lines
with trade creditors, the cash on hand and proceeds from the sale of its
investments, will be sufficient to fund its operations through the end of 1997.
However, maintaining an adequate level of working capital through the end of
1997 and thereafter depends in part on the success of the Company's sales and
marketing efforts and the Company's ability to control operating expenses.
Furthermore, funding of the Company's operations in future periods may require
additional investments in the Company in the form of equity or debt. There can
be no assurance that the Company will achieve desired levels of sales or
profitability or that future capital infusions will be available.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
HANOVER GOLD LITIGATION
In March 1996, and as amended in April 1996, the Company entered into an
Asset Purchase Agreement for the sale of substantially all of its mining
properties and rights in the Alder Gulch area of the Virginia City Mining
District in southwest Montana (the "Property") in exchange for 525,000 shares of
Hanover Gold Company, Inc. ("Hanover") common stock (the "Hanover Shares").
Under Terms of the Agreement, the Property and 400,000 of the Hanover Shares
were to be held in escrow pending completion of a registration statement
covering the resale of the Hanover Shares and consent by the Company.
In October, 1996 Hanover filed a registration statement covering the
Hanover Shares and filed suit against the Company in the United States District
Court Eastern District of Washington. The complaint seeks to force the Company
to break escrow and release title to its Montana Gold mining properties in
exchange for 400,000 Hanover Shares held in escrow, along with certain other
damages. The Company has filed a counter-claim which included claims of fraud
and violation of Securities Laws.
In April, 1997 Hanover filed a Notice of Motion and Motion for Partial
Summary Judgment, which the Company answered on April 13, 1997.
The ultimate outcome of the lawsuit cannot be determined at this time,
however, it could significantly impact the carrying value and nature of the
mining assets currently recorded in the Company's Consolidated Statement of
Financial Position.
Reference is made to the Company's annual report on form 10-KSB for the
year ended December 31, 1996 and form 10-Q for the quarter ended March 31, 1997
which are on file with the Securities and Exchange Commission. During the
quarter ended June 30, 1997, the Company was not a party to any material newly
instituted legal proceedings and, except as described above, there were no
material developments to existing legal proceedings.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 5, 1997, the Company convened the annual meeting of
its shareholders. The shareholders elected to set the number of directors for
the Company's Board at four (8,135,088 votes in favor, 950 votes against and
1,500 votes abstaining) and for each of the directors to serve for a one year
term expiring at the annual meeting of shareholders in 1998 or until their
successors are otherwise duly elected and qualified. The following four
individuals were elected to the Company's Board of Directors; Joel Ronning
(8,136,143 votes in favor and 1,395 withhold authority), Charles Reese, Jr.
(8,136,188 votes in favor and 1,350 withhold authority), James Kramer (8,136,188
votes in favor and 1,350 withhold authority) and Richard Runbeck (8,136,188
votes in favor and 1,350 withhold authority). The shareholders ratified Arthur
Andersen LLP as the independent auditors of the Company for the fiscal year
ending December 31, 1997 (8,135,888 votes in favor, 150 votes against and 1,500
withholding authority).
ITEM 5. OTHER INFORMATION
On April 29, 1997 Richard J. Apple joined the Company as Senior Vice
President of Marketing. Mr. Apple assumed the main responsibility for the
development, production and mailing of the Company's DTP Direct catalog as well
as assisting in the management of the strategic direction of the Company. Mr.
Apple reports directly to Chuck Reese, the Company's President and Chief
Operating Officer.
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.44 Financing Agreement between Tech Squared Inc. and
First Bank NA dated June 27, 1997.
10.45 Security Agreement between Tech Squared Inc. and
First Bank NA dated June 27, 1997.
10.46 Guaranty between Joel A. Ronning and First Bank
NA dated June 27, 1997.
10.47 Subordination Agreement between Tech Squared Inc.,
Joel A. Ronning and First Bank NA dated June 27, 1997.
10.48 Letter agreement between Tech Squared Inc. and
Rick Apple, Senior VP of Marketing, dated April 29, 1997.
10.49 Settlement Agreement between Tech Squared
Inc., f/k/a Jaguar Group, Limited, successor in
interest through merger to MacUSA, Inc. and John P.
Earling dated May 30, 1997.
10.50 Escrow Agreement between Tech Squared Inc.,
f/k/a Jaguar Group Limited, successor in interest
through merger to MacUSA, Inc. and John P. Earling, and
First Trust National Association, Minneapolis, MN dated
May 30, 1997.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECH SQUARED INC.
August 12, 1997 -----------------------------------------
Joel Ronning, Chief Executive Officer
and Chief Financial Officer (principal
executive officer and principal financial
officer)
13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Index Description
- ------------- -----------
<S> <C>
10.44 Financing Agreement between Tech Squared Inc. and First Bank
NA dated June 27, 1997.
10.45 Security Agreement between Tech Squared Inc. and First Bank NA
dated June 27, 1997.
10.46 Guaranty between Joel A. Ronning and First Bank NA dated
June 27, 1997.
10.47 Subordination Agreement between Tech Squared Inc., Joel A.
Ronning and First Bank NA dated June 27, 1997.
10.48 Letter agreement between Tech Squared Inc. and Richard J.
Apple, Senior VP of Marketing, dated April 29, 1997.
10.49 Settlement Agreement between Tech Squared Inc., f/k/a Jaguar
Group, Limited, successor in interest through merger to MacUSA,
Inc. and John P. Earling dated May 30, 1997.
10.50 Escrow Agreement between Tech Squared Inc., f/k/a Jaguar Group
Limited, successor in interest through merger to MacUSA, Inc.
and John P. Earling, and First Trust National Association,
Minneapolis, MN dated May 30, 1997.
27.1 Financial Data Schedule
</TABLE>
14
<PAGE>
FINANCING AGREEMENT
THIS FINANCING AGREEMENT, dated as of June 27, 1997 is by and between
TECH SQUARED INC., a Minnesota corporation (the "Borrower"), and FIRST BANK
NATIONAL ASSOCIATION, a National Banking Association (the "Lender").
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 DEFINED TERMS. As used in this Agreement the following
terms shall have the following respective meanings:
"ACCOUNTS": Each and every right to payment of Borrower, whether such
right to payment arises out of a sale or lease of goods by Borrower, or other
disposition of goods or other property of Borrower, out of a rendering of
services by Borrower, out of a loan by Borrower, out of damage to or loss of
goods in the possession of a railroad or other carrier or any other bailee, out
of overpayment of taxes or other liabilities of Borrower, or which otherwise
arises under any contract or agreement, or from any other cause, whether such
right to payment now exists or hereafter arises and whether such right to
payment is or is not yet earned by performance and howsoever such right to
payment may be evidenced, together with all other rights and interest (including
all liens and security interests) which Borrower may at any time have by law or
agreement against any account debtor (as defined in the Uniform Commercial Code
in effect in the State of Minnesota) or other obligor obligated to make any such
payment or against any of the property of such account debtor or other obligor;
specifically (but without limitation), the term includes all present and future
instruments, documents, chattel papers, accounts and contract rights of
Borrower.
"ACCOUNTS ADVANCE": As defined in Section 2.1(a).
"ADVANCE": An Accounts Advance, an Inventory Advance, an Existing
Equipment Advance and/or a New Equipment Advance, as the context may require.
"AFFILIATE": When used with reference to any Person, (a) each Person
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially owns or
holds, directly or indirectly, five percent or more of any class of voting stock
of the Person referred to (or if the Person referred to is not a corporation,
five percent or more of the equity interest), (c) each Person, five percent or
more of the voting stock (or if such Person is not a corporation, five percent
or more of the equity interest) of which is beneficially owned or held, directly
or indirectly, by the Person referred to, and (d) each of such Person's
officers, directors, joint venturers and partners. The term control (including
the terms "controlled by" and "under common control with") means the possession,
directly, of the power to direct or cause the direction of the management and
policies of the Person in question.
"BORROWING BASE CERTIFICATE": As defined in Section 2.2.
"BUSINESS DAY": Any day (other than a Saturday, Sunday or legal
holiday in the State of where the Lender is located).
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"CLOSING DATE": The date of this Agreement; PROVIDED that all the
conditions precedent to the making of the initial Advance, as set forth in
Article III, have been, or, on such Closing Date, will be, satisfied. The
Borrower shall give the Lender not less than one Business Day's prior notice of
the day selected as the Closing Date.
"ELIGIBLE ACCOUNTS": Accounts owned by the Borrower which the Lender,
in its sole and absolute discretion, deems eligible for Advances, but which, at
a minimum, are subject to a first priority perfected security interest in favor
of the Lender and not subject to any assignment, claim or Lien other than the
Lien in favor of the Lender and other Liens consented to by the Lender in
writing, but specifically excluding (a)Accounts which are not earned;
(b)Accounts which are unpaid more than ninety (90) days after the original
invoice date; (c)Accounts owed by debtors 10% or more of whose Accounts owed are
otherwise ineligible; (d)Accounts representing progress billings, or retainages,
or for work covered by any payment or performance bond; (e)Accounts owed by any
of the Borrower's employees or Affiliates; (f)Accounts owed by debtors not
located in the United States, unless supported by a letter of credit issued by a
U.S. bank in favor of the Borrower which has been delivered to the Lender;
(g)Accounts as to which any warranty or representation contained in any security
agreement or other agreement of the Borrower with or given to the Lender with
respect to any such Receivable is untrue in any material respect; (h)Accounts as
to which the account debtor has disputed liability, or made any claim with
respect to any other Receivable due from such account debtor to the Borrower;
(i)Accounts subject to setoff; (j)Accounts as to which the account debtor has
filed a petition for bankruptcy or any other petition for relief under the
Bankruptcy Code, assigned any assets for the benefit of creditors, or if any
petition or other application for relief under the Bankruptcy Code has been
filed against the account debtor, or if the account debtor has failed, suspended
business, become insolvent, or has had or suffered a receiver or a trustee to be
appointed for all or a significant portion of its assets or affairs; (k)Accounts
owed by any government or government agency; (l)Accounts evidenced by a
promissory note or other instrument; and (m)Accounts as to which the Lender
believes that collection of any such Receivable is insecure or that any such
Receivable may not be paid by reason of the account debtor's financial inability
to pay.
"ELIGIBLE INVENTORY": Finished goods inventory of the Borrower which
the Lender, in its sole and absolute discretion, deems eligible for Advances,
but which meets the following minimum requirements: (a) it is owned by the
Borrower, is subject to a first priority perfected security interest in favor of
the Lender, and is not subject to any assignment, claim or Lien other than (i)a
Lien in favor of the Lender and (ii)Liens consented to by the Lender in writing;
(b) it consists of finished product (not including work in process and
supplies); (c) if held for sale or lease or furnishing under contracts of
service, it is (except as the Lender may otherwise consent in writing) new and
unused; (d) except as the Lender may otherwise consent, it is not stored with a
bailee, warehouseman or similar party; if so stored with the Lender's consent,
such bailee, warehouseman or similar party has issued and delivered to the
Lender, in form and substance acceptable to the Lender, such documents and
agreements as the Lender may require, including, without limitation, warehouse
receipts therefor in the Lender's name; (e) the Lender has determined, in its
sole and absolute discretion, that it is not unacceptable due to age, type,
category, quality and/or quantity; (f) it is not held by the Borrower on
consignment and is not subject to any other repurchase or return agreement; (g)
it is not held by a customer of the Borrower or any other Person on consignment;
(h) it complies with all standards imposed by any governmental agency having
regulatory authority over such goods and/or their use, manufacture or sale; and
(i) the warranties, representations and covenants contained in any security
agreement or other agreement of the Borrower with or given to the Lender
relating directly or indirectly to the Borrower's Inventory are applicable to it
without exception.
"FACILITY FEE": As defined in Section 2.7.
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"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
"GUARANTOR": Joel A. Ronning.
"GUARANTY": That Guaranty to be executed by the Guarantor in form and
substance satisfactory to the Lender.
"INVENTORY": Any and all of the Borrower's goods, including, without
limitation, goods in transit, wherever located which are or may at any time be
leased by the Borrower to a lessee, held for sale or lease, furnished under any
contract of service or held as raw materials, work in process, or supplies or
materials used or consumed in the Borrower's business, or which are held for use
in connection with the manufacture, packing, shipping, advertising, selling or
finishing of such goods, and all goods, the sale or other disposition of which
has given rise to a Receivable, which are returned to and/or repossessed and/or
stopped in transit by the Borrower or the Lender, or at any time hereafter in
the possession or under the control of the Borrower or the Lender, or any agent
or bailee of either thereof, and all documents of title or other documents
representing the same.
"INVENTORY ADVANCE": As defined in Section 2.1(b).
"LOAN DOCUMENTS": This Agreement, the Security Agreement, the
Guaranty, and any documents described in Section 3.1(a).
"LIEN": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"NEGATIVE PLEDGE AGREEMENT": That Negative Pledge Agreement to be
executed by the Borrower in form and substance satisfactory to the Lender.
"PERSON": Any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.
"REFERENCE RATE": The rate of interest from time to time publicly
announced by First Bank National Association as its "reference rate"; First Bank
National Association may lend to its customers at rates that are at, above or
below the Reference Rate. For purposes of determining any interest rate
hereunder which is based on the Reference Rate, such interest rate shall change
as and when the Reference Rate changes.
"SECURITY AGREEMENT": That Security Agreement to be executed by the
Borrower in form and substance satisfactory to the Lender.
"SUBORDINATION AGREEMENT": That Subordination Agreement to be
executed by the Borrower, the Lender and Joel H. Ronning in form and substance
satisfactory to the Lender.
"SUBSIDIARIES": Means Tabor Resources Corporation, a Minnesota
corporation, MacUSA, INC., a Minnesota corporation and PLI Corporation, a Nevada
corporation.
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"TERMINATION FEE": As defined in Article VII.
Section 1.2 ACCOUNTING TERMS AND CALCULATIONS. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP.
Section 1.3 OTHER DEFINITIONAL TERMS,TERMS OF CONSTRUCTION. The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. References to Sections, Exhibits, Schedules and
the like references are to Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise expressly provided. The words "include", "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly
requires, "or" has the inclusive meaning represented by the phrase "and/or".
All incorporations by reference of covenants, terms, definitions or other
provisions from other agreements are incorporated into this Agreement as if such
provisions were fully set forth herein, and include all necessary definitions
and related provisions from such other agreements. All covenants, terms,
definitions and other provisions from other agreements incorporated into this
Agreement by reference shall survive any termination of such other agreements
until the obligations of the Borrower under this Agreement are irrevocably paid
in full.
ARTICLE II
TERMS OF LENDING
Section 2.1 THE ADVANCES. On the terms and subject to the conditions
hereof, at the Borrower's request, the Lender, in its absolute and sole
discretion and without any commitment to do so, may make the following Advances
available to the Borrower:
2.1(a) up to seventy-five percent (75%) of the net amount of
Eligible Accounts which are listed in the Borrower's most current Borrowing Base
Certificate and which are deemed eligible for advances by the Lender, or such
greater or lesser percentage at the Lender's sole and absolute discretion (the
"Accounts Advances") not to exceed however the maximum amount of Two Million
Five Hundred Thousand and no/100 Dollars ( $2,500,000.00);
2.1(b) up to thirty percent (30%) of the net amount of Eligible
Inventory of finished goods which is listed in the Borrower's most current
Borrowing Base Certificate and which is deemed eligible for advances by the
Lender, or such greater or lesser percentage at the Lender's sole and absolute
discretion, not to exceed a maximum amount of $500,000 (the "Inventory
Advances");
Loans for additional sums requested by the Borrower may be made at the Lender's
sole discretion based upon the Lender's valuation of the Borrower's collateral
or other factors. The Borrower acknowledges and agrees that the Lender may from
time to time, for the Lender's convenience, segregate or apportion the
Borrower's collateral for purposes of determining the amounts and maximum
amounts of Advances which may be made hereunder. Nevertheless, the Lender's
security interest in all such collateral, and any other collateral rights,
interests and properties which may now or hereafter be available to the Lender,
shall secure and may be applied to the payment of any and all Advances and other
indebtedness secured by the Lender's security interest, in any order or manner
of application and without regard to the method by which the Lender determines
to make Advances hereunder.
Section 2.2 PROCEDURE FOR ADVANCES; WIRE TRANSFER FEES. Any request
by the Borrower for an Advance shall be in writing and must be given so as to be
received by the Lender
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not later than 10:30 a.m. Central time on the requested Advance date, or such
later time as may be acceptable to the Lender in its sole discretion. Each
request for an Advance shall be irrevocable and shall be deemed a
representation by the Borrower that on the requested Advance date and after
giving effect to such Advance the applicable conditions specified in Article
III have been and will continue to be satisfied and the representations and
warranties set forth in Article IV will continue to be true. Each request
for an Advance shall specify the requested Advance date (which must be a
Business Day) and the amount of such Advance. Each request for an Advance
shall be accompanied by a Borrowing Base Certificate signed by a duly
authorized officer of the Borrower in form and substance satisfactory to the
Lender (the "Borrowing Base Certificate"). If the Lender determines, in its
absolute and sole discretion, to make the requested Advance, the Lender will
wire transfer to the Borrower's Account on the requested Advance date the
amount of the requested Advance. The Borrower will pay to the Lender a wire
transfer fee of $15.00 per wire transfer.
Section 2.3 INTEREST RATES AND INTEREST PAYMENTS. Interest shall
accrue on the unpaid balance of the Advances at a floating rate, on a blended
basis, per annum equal to the sum of the Reference Rate plus 1.75% (the
"Applicable Rate") and shall be due and payable monthly in arrears on the last
day of each calendar month; PROVIDED, HOWEVER, that upon the occurrence and
during the continuance of any failure by the Borrower to comply with any
agreement or covenant of the Borrower under any Loan Document, the unpaid
balance of the Advances shall thereafter bear interest at a floating rate equal
to the sum of (a) the Applicable Rate, plus (b) 2% and shall be due and payable
on demand; AND PROVIDED FURTHER that the minimum amount of interest due and
payable in any calendar quarter shall not be less than $10,000. If the actual
total interest charge for any quarter is less than the minimum amount, the
difference will be added to the next month's interest billing.
Section 2.4 INCENTIVE PRICING. After the initial period of 180 days
following the date of this Agreement, if the Lender determines, in its sole and
absolute discretion, based upon the Borrower's financial statements and tested
by Lender upon receipt of the Borrower's fiscal year end audited financial
statements, that the Borrower is within seventy-five percent of its stated goal
of increased equity through profitability, the Applicable Rate shall be reduced
by one quarter of one percent (.25%) equal to the sum of the Reference Rate plus
1.50%. If the Lender determines, in its sole and absolute discretion, based
upon the Borrower's financial statements and tested by Lender upon receipt of
the Borrower's fiscal year end audited financial statements, that the Borrower
is within seventy-five percent of its forecasted goal of increased equity
through profitability, the minimum quarterly interest requirement will be
eliminated.
Section 2.5 REPAYMENT AND PREPAYMENT.
ALL ADVANCES SHALL BE DUE AND PAYABLE ON DEMAND; NOTHING SET FORTH IN THIS
AGREEMENT, THE SECURITY AGREEMENT OR ANY OTHER AGREEMENT BETWEEN THE BORROWER
AND THE LENDER SHALL IN ANY WAY LIMIT THE LENDER'S RIGHT TO DEMAND PAYMENT OF
THE ADVANCES IN WHOLE OR IN PART.
Section 2.6 COMPUTATION. Interest on the Advances shall be computed
on the basis of actual days elapsed and a year of 360 days.
Section 2.7 FACILITY FEE. The Borrower shall pay to the Lender a fee
in an amount equal to one-half of one percent (.50%) percent of the maximum
aggregate amount of the Accounts and Inventory Advances ($12,500) (the "Facility
Fee"). The Facility Fee shall be payable in advance on the Closing Date.
Section 2.8 DEPOSITORY ACCOUNT. The Borrower will maintain its
depository account at First Bank National Association and shall be
responsible for all reasonable and
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customary charges associated with the lockbox service, the depository
accounts, and any other cash management services purchased from First Bank
National Association as further described in paragraph 5.12(a) of this
Agreement.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS PRECEDENT. No Advances shall be made
hereunder except upon the prior or simultaneous fulfillment of each of the
following conditions:
3.1(a) DOCUMENTS. The Lender shall have received the following:
(i) This Agreement executed by a duly authorized officer (or
officers) of the Borrower and dated the Closing Date.
(ii) A copy of the corporate resolutions of the Borrower
authorizing the execution, delivery and performance of this Agreement
and containing an incumbency certificate showing the names and titles,
and bearing the signatures of, the officers of the Borrower authorized
to execute this Agreement, certified as of the Closing Date by the
Secretary or an Assistant Secretary of the Borrower.
(iii) A copy of the Articles of Incorporation of the Borrower
with all amendments thereto, certified by the appropriate governmental
official of the jurisdiction of its incorporation as of a date not
more than 30 days prior to the Closing Date.
(iv) A certificate of good standing for the Borrower in the
jurisdiction of its incorporation, certified by the appropriate
governmental officials as of a date not more than 30 days prior to the
Closing Date.
(v) A copy of the bylaws of the Borrower, certified as of the
Closing Date by the Secretary or an Assistant Secretary of the
Borrower.
(vi) The Security Agreement, duly executed by the Borrower.
(vii) An initial Borrowing Base Certificate in the form of
Exhibit B hereto.
(viii) The Guaranty, duly executed by the Guarantor.
(ix) Evidence of insurance required to be maintained under
Section 5.3, naming the Lender as loss payee in form and substance
satisfactory to the Lender.
(x) The Subordination Agreement executed by the Borrower, the
Lender and Joel A. Ronning in form and substance satisfactory to the
Lender.
3.1(b) OTHER MATTERS. All organizational and legal proceedings
relating to the Borrower and all instruments and agreements in connection with
the transactions contemplated by this Agreement shall be satisfactory in scope,
form and substance to the Lender and its counsel, and the Lender shall have
received all information and copies of all documents, including records of
corporate proceedings, which it may reasonably have requested in connection
therewith, such documents where appropriate to be certified by proper Borrower
or governmental authorities.
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3.1(c) FEES AND EXPENSES. The Lender shall have received all
fees and other amounts due and payable by the Borrower on or prior to the
Closing Date, including the reasonable fees and expenses of counsel to the
Lender payable pursuant to Section 8.2.
3.1(d) PERFECTION. The Security Agreement and/or any and all
financing statements with respect thereto shall have been appropriately filed to
the satisfaction of the Lender; the Lender shall have received UCC searches
and/or other Lien searches satisfactory to the Lender; and the priority and
perfection of the Lien created thereby shall have been established to the
satisfaction of the Lender.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender:
Section 4.1 ORGANIZATION, STANDING, ETC. The Borrower is a
corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted, to
enter into this Agreement and to perform its obligations hereunder and
thereunder. This Agreement has been duly authorized by all necessary corporate
action and when executed and delivered will be the legal and binding obligations
of the Borrower. The execution and delivery of this Agreement will not violate
the Borrower's Articles of Incorporation or bylaws or any law applicable to the
Borrower. No governmental consent or exemption is required in connection with
the Borrower's execution and delivery of this Agreement.
Section 4.2 FINANCIAL STATEMENTS AND NO MATERIAL ADVERSE CHANGE. The
Borrower's audited financial statements as at December 31, 1996 and its
unaudited financial statements as at April 30, 1997, as heretofore furnished to
the Lender, have been prepared on a basis consistent with its year end financial
statement. The Borrower has no material obligation or liability not disclosed
in such financial statements, and there has been no material adverse change in
the condition of the Borrower since the dates of such financial statements.
Section 4.3 LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower which, if determined adversely to the Borrower, would have, a
material adverse effect on the condition of the Borrower other than as described
in Borrower filings with regulatory authorities including Forms 10Q and 10K for
the most recent reporting periods prior to this Agreement. The Borrower is not
in violation of any law or regulation (including environmental laws and
regulations and laws relating to employee benefit plans) where such violation
could reasonably be expected to impose a material liability on the Borrower.
Section 4.4 TAXES. The Borrower has filed all federal, state and
local tax returns required to be filed and has paid or made provision for the
payment of all taxes due and payable pursuant to such returns and pursuant to
any assessments made against it or any of its property (other than taxes, fees
or charges the amount or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of the Borrower).
Section 4.5 SUBSIDIARIES. The Borrower's subsidiaries include:
Tabor Resources Corporation, a Minnesota Corporation, MacUSA, Inc., a Minnesota
corporation, and PLI Corporation, a Nevada corporation.
ARTICLE V
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AFFIRMATIVE COVENANTS
Until this Agreement shall have expired or been terminated and all of
the Borrower's other obligations to the Lender under this Agreement shall have
been paid in full, unless the Lender shall otherwise consent in writing:
Section 5.1 FINANCIAL STATEMENTS AND REPORTS. The Borrower will
furnish to the Lender:
5.1(a) As soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, consolidated financial
statements of the Borrower consisting of at least statements of income, cash
flow and changes in stockholders' equity, and a balance sheet as at the end of
such year, setting forth in each case in comparative form corresponding figures
from the previous annual audit, certified without qualification by Arthur
Andersen & Co. or other independent certified public accountants selected by the
Borrower and acceptable to the Lender.
5.1(b) As soon as available and in any event within 30 days
after the end of each fiscal month, unaudited financial statements for the
Borrower for such month and for the period from the beginning of such fiscal
year to the end of such month, substantially similar to the annual audited
statements.
5.1(c) Concurrently with each request for an Advance, and in any
event not less than weekly, a Borrowing Base Certificate.
5.1(d) As soon as practicable and in any event within fifteen
days of the end of each month, (i) a listing of all accounts, together with an
aging of all accounts and a reconciliation of such accounts against the listing
submitted pursuant hereto for the immediately preceding month, (ii) a list of
all inventory, setting forth the cost of such inventory, and (iii) a listing of
all accounts payable, together with an aging of all accounts payable all in form
and substance satisfactory to the Lender.
5.1(e) As soon as filed, copies of all state and federal tax
returns filed by the Guarantor, together with an updated personal financial
statement of the Guarantor in form and substance satisfactory to the Lender.
5.1(f) Within five days after the due date, proof of payment or
deposit, when due, of all withholding and F.I.C.A. taxes owing by the Borrower
from time to time, in form and substance satisfactory to the Lender by a payroll
service satisfactory to the Lender and whose services the Borrower shall at all
times retain.
5.1(g) From time to time, such other information regarding the
business, operation and financial condition of the Borrower as the Lender may
reasonably request.
Section 5.2 CORPORATE EXISTENCE. The Borrower will maintain its
corporate existence in good standing under the laws of its jurisdiction of
incorporation and its qualification to transact business in each jurisdiction
where failure so to qualify would permanently preclude the Borrower from
enforcing its rights with respect to any material asset or would expose the
Borrower to any material liability.
Section 5.3 INSURANCE. The Borrower will maintain with
financially sound and reputable insurance companies such insurance as may be
required by law and such other insurance in such amounts and against such
hazards as is customary in the case of reputable corporations
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engaged in the same or similar business and similarly situated, including
without limitation such insurance as may be required under the Security
Agreement.
Section 5.4 PAYMENT OF TAXES AND CLAIMS. The Borrower will file all
tax returns and reports which are required by law to be filed by it and will pay
before they become delinquent, all taxes, assessments and governmental charges
and levies imposed upon it or its property and all claims or demands of any kind
(including those of suppliers, mechanics, carriers, warehousemen, landlords and
other like Persons) which, if unpaid, might result in the creation of a Lien
upon its property.
Section 5.5 INSPECTION. The Borrower will permit any Person
designated by the Lender to visit and inspect any of the properties, books and
financial records of the Borrower, to examine and to make copies of the books of
accounts and other financial records of the Borrower, and to discuss the
affairs, finances and accounts of the Borrower with its officers at such
reasonable times and intervals as the Lender may designate. The Borrower shall
also allow the Lender and its agents to conduct periodic collateral audits of
the Borrower's assets at such intervals as the Lender may choose, and the
Borrower shall pay to Lender a fee in the amount of $750 per day of the
collateral audit, plus out-of-pocket costs and expenses incurred in connection
with such collateral audits, (provided that so long as no Event of Default (as
that term is defined in the Security Agreement) has occurred under the Security
Agreement and is continuing, the Borrower shall not be require to pay for more
than two collateral audits in any calendar year).
Section 5.6 MAINTENANCE OF PROPERTIES. The Borrower will maintain
its properties in good condition, repair and working order, and supplied with
all necessary equipment, and make all necessary repairs, renewals, replacements,
betterments and improvements thereto, all as may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.
Section 5.7 BOOKS AND RECORDS. The Borrower will keep adequate and
proper records and books of account in which full and correct entries will be
made of its dealings, business and affairs.
Section 5.8 COMPLIANCE. The Borrower will comply in all material
respects with all laws, rules and regulations to which it may be subject.
Section 5.9 NOTICE OF LITIGATION. The Borrower will give prompt
written notice to the Lender of the commencement of any action, suit or
proceeding affecting the Borrower.
Section 5.10 PLANS. The Borrower will maintain any employee benefit
plans in compliance with all material requirements of applicable laws and
regulations.
Section 5.11 REAFFIRMATION OF GUARANTIES. When so requested by the
Lender from time to time, the Borrower will promptly cause the Guarantor or any
other Persons who have guaranteed the obligations of the Borrower hereunder or
any part thereof to execute and deliver to the Lender reaffirmations of their
respective guaranties in such form as the Lender may require.
Section 5.12 SPECIAL AGREEMENTS REGARDING ACCOUNTS.
5.12(a) Collection of Accounts and all other amounts due to
the Borrower shall be subject to the provisions of paragraphs 5 and 6 of the
Security Agreement concerning the Lockbox and Collateral Account (as those
terms are defined in the Security Agreement). The Borrower shall provide to
the Lender a daily collection report of all Accounts collected. All
collections received in the Collateral Account and reported to Republic
before 8:00 a.m. (Central
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time) on any Business Day that is a Monday through Thursday, or before
2:00 p.m. (Central time) on any Business Day that is a Friday, shall be applied
to the payment of the Advances (in such order of application as the Lender may
determine) on the day so received, or otherwise on the next business day;
PROVIDED HOWEVER, that for purposes of determining the interest due and payable
on the unpaid balance of the Advances under Section 2.3, all collections
received in the Collateral Account shall be applied to the unpaid balance of the
Advances when such collections become finally collected funds (except wire
transfers which shall be deemed to be immediately available funds) after
allowing not less than Two (2) Business Days for collection. At Lender's
request, the Borrower will deliver all customer billing statements to the Lender
for examination and for mailing in the Borrower's stamped and addressed
envelopes.
5.12(b) Subject to the rights granted to the Lender in paragraph
5 of the Security Agreement, all ledger sheets or cards, invoices, shipping
records, correspondence, and other writings relating to accounts shall, until
delivered to the Lender or removed by the Lender from the Borrower's premises,
be kept on the Borrower's premises without cost to the Lender in appropriate
containers in safe places.
5.12(c) Upon the Lender's demand for payment, the Lender may
remove from the Borrower's premises all books and records, correspondence,
documents and files relating to accounts; and the Lender may without cost or
expense to the Lender use such of the Borrower's personnel, supplies, space and
equipment at the Borrower's place of business as the Lender may desire for the
handling of collections. The Borrower will pay any and all out of pocket
expenses and cost of collection (including reasonable attorney fees) incurred by
the Lender in the Lender's handling of or effort to enforce collections.
5.12(d) The Borrower warrants that, except as may be disclosed
in the lists of Accounts furnished to the Lender: each customer billing
statement correctly states the subject matter and terms of sale; the merchandise
conforms thereto and is in all material respects acceptable to the customer; the
date of the billing statement is not prior to the date of shipment; the Account
is not subject to any dispute, defense, offset or counterclaim; the account
debtor is not a subsidiary or affiliated company; and the Borrower has no reason
to believe the Account will not be paid in the regular course of business. The
Borrower will notify the Lender promptly of any event, circumstance or
communication with respect to any Account that is inconsistent with the
foregoing representation.
ARTICLE VI
NEGATIVE COVENANTS
Until this Agreement shall have expired or been terminated and all of
the Borrower's other obligations to the Lender under this Agreement shall have
been paid in full, unless the Lender shall otherwise consent in writing:
Section 6.1 MERGER. The Borrower will not merge or consolidate or
enter into any analogous reorganization or transaction with any Person or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution).
Section 6.2 SALE OF ASSETS. The Borrower will not sell, transfer,
lease or otherwise convey all or any substantial part of its assets except for
sales and leases of inventory in the ordinary course of business.
Section 6.3 DIVIDENDS. The Borrower will not pay any dividends or
otherwise make any distributions on, or redemptions of, any of its outstanding
stock.
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Section 6.4 INVESTMENTS. The Borrower will not make any loans,
advances or extensions of credit to any other Person (except for trade and
customer accounts receivable for inventory sold or services rendered in the
ordinary course of business and payable in accordance with customary trade
terms) or purchase or acquire any stock or other debt or equity securities of or
any interest in any other Person or any integral part of any business or the
assets comprising such business or part thereof, except for:
6.4(a) Investments in readily marketable direct obligations
issued or unconditionally guaranteed by the United States government or any
agency thereof and supported by the full faith and credit of the United States.
6.4(b) Certificates of deposit or bankers' acceptances issued by
any commercial Bank organized under the laws of the United States or any State
thereof which has (i) combined capital and surplus of at least $100,000,000, and
(ii) a credit rating with respect to its unsecured indebtedness from a
nationally recognized rating service that is satisfactory to the Lender.
6.4(c) Commercial paper given the highest rating by a nationally
recognized rating service.
6.4(d) Repurchase agreements relating to securities of the kind
described in Section 6.4 (a).
6.4(e) Other readily marketable investments in debt securities
which are reasonably acceptable to the Lender.
6.4(f) Travel advances to officers and employees in the ordinary
course of business.
Any investments under clauses (a), (b), (c) or (d) above must mature within one
year of the acquisition thereof by the Borrower.
Section 6.5 INDEBTEDNESS. The Borrower will not borrow any money or
issue any bonds, debentures or other debt securities or otherwise become
obligated on any interest-bearing indebtedness except for the Advances under
this Agreement and except for existing indebtedness as disclosed on the most
recent financial statement of the Borrower referred to in Section 4.1.
Section 6.6 LIENS. The Borrower will not create, incur, assume or
suffer to exist any Lien, or enter into any arrangement for the acquisition of
any property through conditional sale, lease-purchase or other title retention
agreements except:
6.6(a) Liens granted to the Lender.
6.6(b) Liens existing on the date of this Agreement and
disclosed in those UCC or other Lien searches referred to in Section 3.1(d).
6.6(c) Deposits or pledges to secure payment of workers'
compensation, unemployment insurance, old age pensions or other social security
obligations arising in the ordinary course of business of the Borrower.
6.6(d) Liens for taxes, fees, assessments and governmental
charges not delinquent.
6.6(e) Liens of carriers, warehousemen, mechanics and
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materialmen, and other like Liens arising in the ordinary course of business,
for sums not due.
6.6(f) Liens incurred or deposits or pledges made or given in
connection with, or to secure payment of, indemnity, performance or other
similar bonds.
6.6(g) Encumbrances in the nature of zoning restrictions,
easements and rights or restrictions of record on the use of real property and
landlord's Liens under leases on the premises rented, which do not materially
detract from the value of such property or impair the use thereof in the
business of the Borrower.
Section 6.7 CONTINGENT OBLIGATIONS. The Borrower will not guarantee
or otherwise become liable on the indebtedness of any other Person.
Section 6.8. NEGATIVE PLEDGE. So long as any amounts remain
outstanding under this Agreement Borrower will not pledge, sell, assign or
encumber any option or share of securities owned of Hanover Gold Company, Inc.,
Cam Designs, Inc. or Digital River, Inc.
ARTICLE VII
TERMINATION BY BORROWER
This agreement shall continue in effect until terminated upon not less
than 30 days' prior written notice delivered by the Borrower certified mail to
Lender by certified mail.Termination shall not impair or affect the Lender's
rights existing as of the time notice of Termination is given. Borrowers
obligations with respect to payment of any Termination fee shall be fixed and
owing as of date such notice is given and not when such notice becomes
effective.
If the Borrower gives notice to Lender of its intention to prepay its
loan in full and terminate this Agreement by refinancing with another lender
during months 1-12 of the loan, the Borrower shall pay to the Lender a
termination fee equal to two percent (2%) of the maximum aggregate amount of the
Accounts and Inventory Advances (the "Termination Fee"). The Termination Fee
shall be reduced to one percent (1%) if the Borrower gives Lender notice of its
intent to terminate this Agreement by refinancing with another lender during
months 13-24 of the loan, HOWEVER, no prepayment charge will be incurred in the
event that this Agreement is refinanced by an affiliate of First Bank System and
all of Borrower's obligations to Lender are paid in full with the proceeds of
such refinancing.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 MODIFICATIONS. Notwithstanding any provisions to the
contrary herein, any term of this Agreement may be amended with the written
consent of the Borrower; PROVIDED that no amendment, modification or waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such amendment, modifications, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
Section 8.2 COSTS AND EXPENSES. Whether or not the transactions
contemplated hereby are consummated, the Borrower agrees to reimburse the
Lender upon demand for all reasonable out-of-pocket expenses paid or incurred
by the Lender (including filing and recording costs and fees and expenses of
Dorsey & Whitney LLP, counsel to the Lender) in connection with the
negotiation, preparation, approval, review, execution, delivery, amendment,
modification, interpretation, collection and enforcement of this Agreement
including all fees due Lender incurred
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pursuant to this Agreement. The obligations of the Borrower under this
Section shall survive any termination of this Agreement. In the event such
costs, fees or expenses are not promptly paid by Borrower on demand Lender
may set off the amount of any such costs, fees or expenses from funds
available to Borrower. If the Borrower elects, the Borrower may treat the
amount of any such costs, fees or expenses as an Advance hereunder.
Section 8.3 WAIVERS, ETC. No failure on the part of the Lender to
exercise and no delay in exercising any power or right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any power or
right preclude any other or further exercise thereof or the exercise of any
other power or right. The rights and remedies of the Lender hereunder are
cumulative and not exclusive of any right or remedy the Lender otherwise has.
Section 8.4 NOTICES. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; PROVIDED, HOWEVER, that
any notice to the Lender under Article II hereof shall be deemed to have been
given only when received by the Lender.
Section 8.5 SUCCESSORS AND ASSIGNS; DISPOSITION OF LOANS. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign its rights or delegate its obligations hereunder without the prior
written consent of the Lender. The Lender may at any time sell, assign,
transfer, grant participations in, or otherwise dispose of any portion of the
Advances to banks or other financial institutions. The Lender may disclose any
information regarding the Borrower in the Lender's possession to any prospective
buyer or participant.
Section 8.6 OFFSET. The Borrower hereby irrevocably authorizes the
Lender to set off all sums owing by the Borrower to the Lender against all
deposits and credits of the Borrower with, and any and all claims of the
Borrower against, the Lender. The Borrower further agrees that any bank
participating with the Lender in Advances hereunder may exercise any and all
rights of setoff with respect to such participation as fully as if such
participant had lent directly to the Borrower the amount of such participation.
SECTION 8.7 GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF
LAWS PRINCIPLES THEREOF.
SECTION 8.8 CONSENT TO JURISDICTION. AT THE OPTION OF THE LENDER,
THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT
SITTING IN HENNEPIN COUNTY, MINNESOTA; AND THE BORROWER CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE
IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY
ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
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AGREEMENT, THE LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF
SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
SECTION 8.9 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE
LENDER IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE ADVANCES AND ANY
OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
Section 8.10 INDEMNIFICATION. The Borrower hereby agrees to defend,
protect, indemnify and hold harmless the Lender and its affiliates and the
directors, officers, employees, attorneys and agents of the Lender and its
affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing
being collectively the "Indemnitees") from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including all
reasonable fees and disbursements of counsel which may be incurred in the
investigation or defense of any matter) imposed upon, incurred by or asserted
against any Indemnitee, whether direct, indirect or consequential and whether
based on any federal, state, local or foreign laws or regulations (including
securities laws, environmental laws, commercial laws and regulations), under
common law or on equitable cause, or on contract or otherwise: (a)
by reason of, relating to or in connection with the execution, delivery,
performance or enforcement of any Loan Document, any commitments relating
thereto, or any transaction contemplated by any Loan Document; or (b)
by reason of, relating to or in connection with any credit extended or used
under the Loan Documents or any act done or omitted by any Person, or the
exercise of any rights or remedies thereunder, including the acquisition of any
collateral by the Lender by way of foreclosure of the Lien thereon, deed or bill
of sale in lieu of such foreclosure or otherwise; provided, however, that the
Borrower shall not be liable to any Indemnitee for any portion of such claims,
damages, liabilities and expenses resulting from such Indemnitee's negligence or
willful misconduct. In the event this indemnity is unenforceable as a matter of
law as to a particular matter or consequence referred to herein, it shall be
enforceable to the full extent permitted by law.
Section 8.11 CAPTIONS. The captions or headings herein and any table
of contents hereto are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Agreement.
Section 8.12 ENTIRE AGREEMENT. This Agreement and the other Loan
Documents embody the entire agreement and understanding between the Borrower and
the Lender with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.
Section 8.13 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
TECH SQUARED INC. a Minnesota corporation
By
---------------------------------------
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Print Name
-----------------------------------
Title
-----------------------------------
Borrower's Address:
5198 West 76th Street
Edina, MN 55439
FIRST BANK NATIONAL ASSOCIATION
By
--------------------------------------
Print Name
--------------------------------------
Title
--------------------------------------
Lender's Address:
2338 Central Avenue NE
Minneapolis, MN 55418
Fax: (612) 782-1801
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[Suggested form of Certificate of
Resolutions and Incumbency Certificate]
CERTIFICATE OF SECRETARY OF
TECH SQUARED INC.
I, _________________________ , hereby certify to FIRST BANK NATIONAL ASSOCIATION
that I am the Secretary of Tech Squared Inc., a Minnesota corporation (the
"Company") and that the following resolutions have been duly adopted by the
Board of Directors of the Company in a manner authorized by the laws of the
State of Minnesota:
"WHEREAS, the Company wishes to borrow money from FIRST BANK NATIONAL
ASSOCIATION (the "Lender"), and for that purpose intends to enter into a
Financing Agreement with the Lender.
RESOLVED, the Company shall enter into a Financing Agreement with the
Lender under which the Company may obtain advances up to $2,500,000, or
such greater or lesser amount in the Lender's absolute and sole discretion
and the President, Vice President, Secretary or Treasurer of the Company is
hereby authorized at any time and from time to time to execute and deliver
to the Lender such Financing Agreement and any security agreements,
mortgages, subordination agreements, pledge agreements, assignments of life
insurance, reimbursement agreements, or amendments to any of the foregoing
as may be contemplated or required pursuant to such Financing Agreement or
otherwise, all in such form as such officer may determine and approve (such
determination and approval to be established conclusively by such officer's
execution and delivery of such Financing Agreement and any such related
documents and instruments).
FURTHER RESOLVED, that the President, Vice President, Secretary or
Treasurer of the Company is hereby authorized at any time and from time to
time to sell, assign, transfer, mortgage, create security interests in and
pledge to the Lender the real property, goods, instruments, documents,
securities, chattel paper, accounts, contract rights and other intangibles
and any other property now owned or hereafter acquired by the Company,
either absolutely for such consideration as such officer may determine to
be appropriate or as security for the payment or performance of any or all
debts, liabilities and obligations of every type and description now or at
any time hereafter owed to the Lender by the Company, on such terms as such
officer may approve, and to do such other acts or things in connection
therewith or pursuant thereto as such officer may determine to be
appropriate (such determination and approval to be established conclusively
by the instrument executed or action taken by such officer).
FURTHER RESOLVED, it is hereby acknowledged that each and every note,
guaranty, security agreement and other instrument made pursuant to the
foregoing resolutions is and will be made and given for the corporate
purposes of this Company.
FURTHER RESOLVED, the Secretary or 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 authorized to act under
the foregoing resolutions, and the Secretary or 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 immediately to certify to the Lender any change in any
fact certified, and the Lender shall be indemnified and saved harmless by
the Company from any and all claims, demands, expenses, costs and damages
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resulting from or growing out of honoring or relying on the signature or
other authority (whether or not properly used) of any officer whose name
and signature was so certified, or refusing to honor any signature or
authority not so certified."
I further certify that the foregoing resolutions have not been amended or
revoked and are in full force and effect on the date hereof.
I further certify that the Board of Directors of the Company 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 upon the officers designated, and that such officers have full power and
authority to exercise the same.
I further certify that attached here as Exhibit A is a true, complete and
correct copy of the Articles of Incorporation of the Company as certified by the
Minnesota Secretary of State on June 12, 1997. Said Articles of Incorporation
have not been amended since July 11, 1995, and are in full force and effect on
the date hereof.
I further certify that attached hereto as Exhibit B is a true, complete and
correct copy of the Bylaws of the Company. Said Bylaws are in full force and
effect on the date hereof.
I further certify that the officers whose names appear below have been duly
elected to and now hold the offices in the Company set forth opposite their
respective names and that the signature appearing opposite the name of each of
such officer is authentic and official:
Name Title Signature
- ---------------- ------------------- -------------------
- ---------------- ------------------- -------------------
- ---------------- ------------------- -------------------
I further certify that shareholder approval of the foregoing resolutions is not
required and said resolutions are effective and binding on the Company without
approval by its shareholders.
Dated
------------------------
--------------------------------
Secretary, Tech Squared Inc.
- ----------------------
Attest by a Director
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SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of June 27, 1997, is made and
given by TECH SQUARED INC., a Minnesota corporation (the "Grantor"), to
FIRST BANK NATIONAL ASSOCIATION, a National Banking Association (the
"Secured Party").
RECITALS
A. The Grantor and the Secured Party have entered into a Financing
Agreement dated as of June 27, 1997 (as the same may hereafter be amended,
supplemented, extended, restated, or otherwise modified from time to time,
the "Financing Agreement") pursuant to which the Secured Party has agreed to
extend to the Grantor certain credit accommodations on the terms and
conditions set forth in the Financing Agreement.
B. It is a condition precedent to the extension of any credit
accommodations pursuant to the terms of the Financing Agreement that this
Agreement be executed and delivered by the Grantor.
C. The Grantor finds it advantageous, desirable and in its best
interests to comply with the requirement that it execute and deliver this
Security Agreement to the Secured Party.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Secured Party to enter into the Financing Agreement and to extend
credit accommodations to the Grantor thereunder, the Grantor hereby agrees
with the Secured Party for the Secured Party's benefit as follows:
Section 1. DEFINED TERMS.
1(a) As used in this Agreement, the following terms shall have
the meanings indicated:
"ACCOUNTS" shall mean each and every right to payment of Grantor,
whether such right to payment arises out of a sale or lease of goods by
Grantor, or other disposition of goods or other property of Grantor, out of
a rendering of services by Grantor, out of a loan by Grantor, out of damage
to or loss of goods in the possession of a railroad or other carrier or any
other bailee, out of overpayment of taxes or other liabilities of Grantor,
or which otherwise arises under any contract or agreement, or from any
other cause, whether such right to payment now exists or hereafter arises
and whether such right to payment is or is not yet earned by performance
and howsoever such right to payment may be evidenced, together with all
other rights and interest (including all liens and security interests)
which Grantor may at any time have by law or agreement against any account
debtor (as defined in the Uniform Commercial Code in effect in the State of
Minnesota) or other obligor obligated to make any such payment or against
any of the property of such account debtor or other obligor; specifically
(but without limitation), the term includes all present and future
instruments, documents, chattel papers, accounts and contract rights of
Grantor.
"ACCOUNT DEBTOR" shall mean a Person who is obligated on or under any
Account, Chattel Paper, Instrument or General Intangible.
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"CHATTEL PAPER" shall mean a writing or writings which evidence both a
monetary obligation and a security interest in or lease of specific goods;
when a transaction is evidenced by both a security agreement or a lease and
by an Instrument or a series of Instruments, the group of writings taken
together constitutes Chattel Paper.
"COLLATERAl" shall mean all property and rights in property now owned
or hereafter at any time acquired by the Grantor in or upon which a
Security Interest is granted to the Secured Party by the Grantor under this
Agreement.
"DOCUMENT" shall mean any bill of lading, dock warrant, dock receipt,
warehouse receipt or order for the delivery of goods, together with any
other document or receipt which in the regular course of business or
financing is treated as adequately evidencing that the Person in possession
of it is entitled to receive, hold and dispose of the document and the
goods it covers.
"EQUIPMENT" shall mean all machinery, equipment, furniture,
furnishings and fixtures, including all accessions, accessories and
attachments thereto, and any guaranties, warranties, indemnities and other
agreements of manufacturers, vendors and others with respect to such
Equipment.
"EVENT OF DEFAULt" shall have the meaning given to such term in
Section 20 hereof.
"FINANCING STATEMENT" shall have the meaning given to such term in
Section 4 hereof.
"GENERAL INTANGIBLES" shall mean any personal property (other than
goods, Accounts, Chattel Paper, Documents, Instruments and money) including
choses in action, causes of action, contract rights, corporate and other
business records, inventions, designs, patents, patent applications,
service marks, trademarks, tradenames, trade secrets, engineering drawings,
good will, registrations, copyrights, licenses, franchises, customer lists,
tax refund claims, royalties, licensing and product rights, rights to the
retrieval from third parties of electronically processed and recorded data
and all rights to payment resulting from an order of any court, but shall
exclude all of Grantor's stock and investments.
"INSTRUMENT" shall mean a draft, check, certificate of deposit, note,
bill of exchange, security or any other writing which evidences a right to
the payment of money and is not itself a security agreement or lease and is
of a type which is transferred in the ordinary course of business by
delivery with any necessary endorsement or assignment.
"INVENTORY" shall mean any and all of the Grantor's goods, including,
without limitation, goods in transit, wherever located which are or may at
any time be leased by the Grantor to a lessee, held for sale or lease,
furnished under any contract of service or held as raw materials, work in
process, or supplies or materials used or consumed in the Grantor's
business, or which are held for use in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, and all
goods, the sale or other disposition of which has given rise to a
Receivable, which are returned to and/or repossessed and/or stopped in
transit by the Grantor or the Secured Party, or at any time hereafter in
the possession or under the control of the Grantor or the Secured Party, or
any agent or bailee of either thereof, and all documents of title or other
documents representing the same.
"LIEN" shall mean any security interest, mortgage, pledge, lien,
charge, encumbrance, title retention agreement or analogous instrument or
device (including the
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interest of the lessors under capitalized leases), in, of or on any assets
or properties of the Person referred to.
"OBLIGATIONS" shall mean (a) all indebtedness, liabilities and
obligations of the Grantor to the Secured Party of every kind, nature or
description under the Financing Agreement, including the Grantor's
obligation on any promissory note or notes under the Financing Agreement
and any note or notes hereafter issued in substitution or replacement
thereof, (b) all liabilities of the Grantor under this Agreement, and (c)
any and all other liabilities and obligations of the Grantor to the Secured
Party of every kind, nature and description, whether direct or indirect or
hereafter acquired by the Secured Party from any Person, absolute or
contingent, regardless of how such liabilities arise or by what agreement
or instrument they may be evidenced, and in all of the foregoing cases
whether due or to become due, and whether now existing or hereafter arising
or incurred.
"PERSON" shall mean any individual, corporation, partnership, limited
partnership, limited liability company, joint venture, firm, association,
trust, unincorporated organization, government or governmental agency or
political subdivision or any other entity, whether acting in an individual,
fiduciary or other capacity.
"SECURITY INTEREST" shall have the meaning given such term in Section
2 hereof.
1(b) All other terms used in this Agreement which are not
specifically defined herein shall have the meaning assigned to such terms
in the Uniform Commercial Code in effect in the State of Minnesota as of
the date of this Agreement to the extent such other terms are defined
therein.
1(c) Unless the context of this Agreement otherwise clearly
requires, references to the plural include the singular, the singular, the
plural and "or" has the inclusive meaning represented by the phrase
"and/or." The words "include", "includes" and "including" shall be deemed
to be followed by the phrase "without limitation." The words "hereof,"
"herein," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
References to Sections are references to Sections in this Security
Agreement unless otherwise provided.
Section 2. GRANT OF SECURITY INTERESt. As security for the
payment and performance of all of the Obligations, the Grantor hereby grants
to the Secured Party a security interest (the "Security Interest") in all of
the Grantor's right, title, and interest in and to the following, whether now
or hereafter owned, existing, arising or acquired and wherever located:
2(a) All Accounts.
2(b) All Chattel Paper.
2(c) All Documents.
2(d) All Equipment.
2(e) All General Intangibles.
2(f) All Instruments (other than instruments of Hanover Gold
Company, Inc., Digital River, Inc. and Cam Designs, Inc. in which no
security interest is granted hereunder.)
2(g) All Inventory.
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2(h) To the extent not otherwise included in the foregoing, (i)
all other rights to the payment of money, including rents and other sums
payable to the Grantor under leases, rental agreements and other Chattel
Paper and insurance proceeds; (ii) all books, correspondence, credit files,
records, invoices, bills of lading, and other documents relating to any of
the foregoing, including, without limitation, all tapes, cards, disks,
computer software, computer runs, and other papers and documents in the
possession or control of the Grantor or any computer bureau from time to
time acting for the Grantor; (iii) all rights in, to and under all policies
insuring the life of any officer, director, stockholder or employee of the
Grantor, the proceeds of which are payable to the Grantor; and (iv) all
accessions and additions to, parts and appurtenances of, substitutions for
and replacements of any of the foregoing.
2(i) To the extent not otherwise included, all proceeds and
products of any and all of the foregoing.
Section 3. GRANTOR REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
Accounts, Chattel Paper, General Intangibles and other items included in the
Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Secured Party of any of the rights
hereunder shall not release the Grantor from any of its duties or obligations
under any items included in the Collateral, and (c) the Secured Party shall
have no obligation or liability under Accounts, Chattel Paper, General
Intangibles and other items included in the Collateral by reason of this
Agreement, nor shall the Secured Party be obligated to perform any of the
obligations or duties of the Grantor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
Section 4. TITLE TO COLLATERAL. The Grantor has (or will have at
the time it acquires rights in Collateral hereafter acquired or arising) and
will maintain so long as the Security Interest may remain outstanding, title
to each item of Collateral (including the proceeds and products thereof),
free and clear of all Liens except the Security Interest and except Liens
permitted by the Financing Agreement. The Grantor will defend the Collateral
against all claims or demands of all Persons (other than the Secured Party)
claiming the Collateral or any interest therein. As of the date of execution
of this Security Agreement, no effective financing statement or other similar
document used to perfect and preserve a security interest under the laws of
any jurisdiction (a "Financing Statement") covering all or any part of the
Collateral is on file in any recording office, except such as may have been
filed (a) in favor of the Secured Party relating to this Agreement, or (b) to
perfect Liens permitted by the Financing Agreement.
Section 5. LOCK BOX, COLLATERAL ACCOUNT. The Grantor will direct
each of its Account Debtors or other obligors to make payments due under any
Collateral directly to a special lock box to be established and maintained by
Secured Party (the "Lockbox"). The Grantor hereby authorizes and directs
Secured Party to deposit into a special collateral account to be established
and maintained by Secured Party (the "Collateral Account") all checks, drafts
and cash payments received in said Lockbox. All deposits from the Lockbox to
the Collateral Account shall constitute proceeds of Collateral and shall not
constitute payment of any Obligation. The Grantor agrees that it will
promptly deliver to Secured Party, for deposit into said Collateral Account,
all payments on Accounts and Chattel Paper received by it. All such payments
shall be delivered to Secured Party in the form received (except for the
Grantor's endorsement where necessary). Until so delivered, all payments on
Accounts and Chattel Paper received by the Grantor shall be held in trust by
the Grantor for and as the property of Secured Party and shall not be
commingled with any funds or property of the Grantor.
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Section 6. COLLECTION RIGHTS OF SECURED PARTY. Notwithstanding
Secured Party's rights under Section 5 with respect to any and all
Instruments, Chattel Paper, Accounts and other rights to payment constituting
Collateral (including proceeds), Secured Party may, at any time (both before
and after the occurrence of an Event of Default) notify any Account Debtor,
or any other person obligated to pay any amount due, that such Chattel Paper,
Account, or other right to payment has been assigned or transferred to
Secured Party for security and shall be paid directly to Secured Party. If
Secured Party so requests at any time, the Grantor will so notify such
Account Debtors and other obligors in writing and will indicate on all
invoices to such Account Debtors or other obligors that the amount due is
payable directly to Secured Party. At any time after Secured Party or the
Grantor gives such notice to an account debtor or other obligor, Secured
Party may (but need not), in its own name or in the Grantor's name, demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such chattel paper, account, or
other right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, notify, amend or change the
obligations (including collateral obligations) of any such account debtor or
other obligor. The Borrower hereby irrevocably makes, constitutes and
appoints the Lender, or any person whom the Lender may designate, the
Borrower's true and lawful attorney with power to receive, open and dispose
of all mail addressed to the Borrower; to endorse the Borrower's name on any
notes, acceptances, checks, drafts, money orders or other means of payment
that may come into the Lender's possession as payment of or upon Accounts,
Chattel Paper or other Collateral; to endorse the Borrower's name on any
invoice, freight or express bill or bill of lading relating to any
Collateral; to sign the Borrower's name to drafts against Account Debtors, to
assignments and verification of accounts and notices thereof to Account
Debtors, and to documents of title covering any Collateral, and to do all
other things necessary or proper to carry out the intent of this Agreement.
Section 7. DISPOSITION OF COLLATERAL. The Grantor will not sell,
lease or otherwise dispose of, or discount or factor with or without
recourse, any Collateral, except sales of items of Inventory in the ordinary
course of business.
Section 8. NAMES, OFFICES, LOCATIONS. The Grantor does business
solely under its own name and the trade names and styles, if any, set forth
on Schedule II hereto. Except as noted on said Schedule, no such trade names
or styles and no trademarks or other similar marks owned by the Grantor are
registered with any governmental unit. The chief place of business and chief
executive office and the office where it keeps its books and records
concerning the Accounts and General Intangibles and the originals of all
Chattel Paper, Documents and Instruments are located at its address set forth
on the signature page hereof. All items of Equipment and Inventory existing
on the date of this Agreement are located at the places specified on Schedule
I hereto. The Grantor will immediately notify the Secured Party of any
additional state in which any item of Inventory or Equipment is hereafter
located. The Grantor will from time to time at the request of the Secured
Party provide the Secured Party with current lists as to the locations of the
Equipment and Inventory. The Grantor will not permit any Inventory,
Equipment, Chattel Paper or Documents or any records pertaining to Accounts
and General Intangibles 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 Grantor will not change its name or the location of
its chief place of business and chief executive office unless the Secured
Party has been given at least 30 days prior written notice thereof and the
Grantor has executed and delivered to the Secured Party such Financing
Statements and other instruments required or appropriate to continue the
perfection of the Security Interest.
Section 9. RIGHTS TO PAYMENT. Except as the Grantor may otherwise
advise the Secured Party in writing, each Account, Chattel Paper, Document,
General Intangible and Instrument constituting or evidencing Collateral is
(or, in the case of all future Collateral, will be when arising or issued)
the valid, genuine and legally enforceable obligation of the Account Debtor
or other obligor named therein or in the Grantor's records pertaining thereto
as being obligated to
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pay or perform such obligation. The Grantor will perform and comply in all
material respects with all its obligations under any items included in the
Collateral and exercise promptly and diligently its rights thereunder.
Section 10. FURTHER ASSURANCES.
10(a) The Grantor agrees that from time to time, at its expense,
it will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or that the Secured
Party may reasonably request, in order to perfect and protect the Security
Interest granted or purported to be granted hereby or to enable the Secured
Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral (but any failure to request or assure that the
Grantor execute and deliver such instrument or documents or to take such
action shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interest, regardless of
whether any such item was or was not executed and delivered or action taken
in a similar context or on a prior occasion). Without limiting the
generality of the foregoing, the Grantor will, promptly and from time to
time at the request of the Secured Party: (i) mark, or permit the Secured
Party to mark, conspicuously its books, records, and accounts showing or
dealing with the Collateral, and each item of Chattel Paper included in the
Collateral, with a legend, in form and substance satisfactory to the
Secured Party, indicating that each such item of Collateral and each such
item of Chattel Paper is subject to the Security Interest granted hereby;
(ii) deliver and pledge to the Secured Party, all Instruments and
Documents, duly indorsed or accompanied by duly executed instruments of
transfer or assignment, with full recourse to the Grantor, all in form and
substance satisfactory to the Secured Party; (iii) execute and file such
Financing Statements or continuation statements in respect thereof, or
amendments thereto, and such other instruments or notices (including
fixture filings with any necessary legal descriptions as to any goods
included in the Collateral which the Secured Party determines might be
deemed to be fixtures, and instruments and notices with respect to vehicle
titles), as may be necessary or desirable, or as the Secured Party may
request, in order to perfect, preserve, and enhance the Security Interest
granted or purported to be granted hereby; and (iv) obtain waivers, in form
satisfactory to the Secured Party, of any claim to any Collateral from any
landlords or mortgagees of any property where any Inventory or Equipment is
located.
10(b) The Grantor hereby authorizes the Secured Party to file
one or more Financing Statements or continuation statements in respect
thereof, and amendments thereto, relating to all or any part of the
Collateral without the signature of the Grantor where permitted by law. A
photocopy or other reproduction of this Agreement or any Financing
Statement covering the Collateral or any part thereof shall be sufficient
as a Financing Statement where permitted by law.
10(c) The Grantor will furnish to the Secured Party from time to
time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Secured Party may reasonably request, all in reasonable detail and in form
and substance reasonably satisfactory to the Secured Party.
Section 11. TAXES AND CLAIMS. The Grantor will promptly pay all
taxes and other governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or continuance of the
Security Interest, as well as all other claims of any kind (including claims
for labor, material and supplies) against or with respect to the Collateral,
except to the extent (a) such taxes, charges or claims are being contested in
good faith by appropriate proceedings, (b) such proceedings do not involve
any material danger of the sale, forfeiture or loss of any of the Collateral
or any interest therein and (c) such taxes, charges or claims are adequately
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reserved against on the Grantor's books in accordance with generally accepted
accounting principles.
Section 12. BOOKS AND RECORDS. The Grantor will keep and maintain
at its own cost and expense satisfactory and complete records of the
Collateral, including a record of all payments received and credits granted
with respect to all Accounts, Chattel Paper and other items included in the
Collateral.
Section 13. INSPECTION, REPORTS, VERIFICATIONS. The Grantor will
at all reasonable times permit the Secured Party or its representatives to
examine or inspect any Collateral, any evidence of Collateral and the
Grantor's books and records concerning the Collateral, wherever located. The
Grantor will from time to time when requested by the Secured Party furnish to
the Secured Party a report on its Accounts, Chattel Paper, General
Intangibles and Instruments, naming the Account Debtors or other obligors
thereon, the amount due and the aging thereof. The Secured Party or its
designee is authorized to contact Account Debtors and other Persons obligated
on any such Collateral from time to time to verify the existence, amount
and/or terms of such Collateral.
Section 14. NOTICE OF LOSS. The Grantor will promptly notify the
Secured Party of any loss of or material damage to any material item of
Collateral or of any substantial adverse change, known to Grantor, in any
material item of Collateral or the prospect of payment or performance thereof.
Section 15. INSURANCE. The Grantor will keep the Equipment and
Inventory insured against "all risks" for the full replacement cost thereof
subject to a deductible in an amount, and with an insurance company or
companies, satisfactory to the Secured Party, the policies to protect the
Secured Party as its interests may appear, with such policies or certificates
with respect thereto to be delivered to the Secured Party at its request.
Each such policy or the certificate with respect thereto shall provide that
such policy shall not be canceled or allowed to lapse unless at least 30 days
prior written notice is given to the Secured Party.
Section 16. LAWFUL USE; FAIR LABOR STANDARDS ACT. The Grantor will
use and keep the Collateral, and will require that others use and keep the
Collateral, only for lawful purposes, without violation of any federal, state
or local law, statute or ordinance. All Inventory of the Grantor as of the
date of this Agreement that was produced by the Grantor or with respect to
which the Grantor performed any manufacturing or assembly process was
produced by the Grantor (or such manufacturing or assembly process was
conducted) in compliance in all material respects with all requirements of
the Fair Labor Standards Act, and all Inventory produced, manufactured or
assembled by the Grantor after the date of this Agreement will be so
produced, manufactured or assembled, as the case may be.
Section 17. ACTION BY THE SECURED PARTY. If the Grantor at any
time fails to perform or observe any of the foregoing agreements, the Secured
Party shall have (and the Grantor hereby grants to the Secured Party) the
right, power and authority (but not the duty) to perform or observe such
agreement on behalf and in the name, place and stead of the Grantor (or, at
the Secured Party's option, in the Secured Party's name) and to take any and
all other actions which the Secured Party may reasonably deem necessary to
cure or correct such failure (including, without limitation, the payment of
taxes, the satisfaction of Liens, the procurement and maintenance of
insurance, the execution of assignments, security agreements and Financing
Statements, and the indorsement of instruments); and the Grantor shall
thereupon pay to the Secured Party on demand the amount of all monies
expended and all costs and expenses (including reasonable attorneys' fees and
legal expenses) incurred by the Secured Party in connection with or as a
result of the performance or observance of such agreements or the taking of
such action by the Secured Party, together with interest thereon from the
date expended or incurred at the highest
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lawful rate then applicable to any of the Obligations, and all such monies
expended, costs and expenses and interest thereon shall be part of the
Obligations secured by the Security Interest.
Section 18. INSURANCE CLAIMS. As additional security for the
payment and performance of the Obligations, the Grantor hereby assigns to the
Secured Party any and all monies (including proceeds of insurance and refunds
of unearned premiums) due or to become due under, and all other rights of the
Grantor with respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto. At any time, whether before
or after the occurrence of any Event of Default, the Secured Party may (but
need not), in the Secured Party's name or in Grantor's name, execute and
deliver proofs of claim, receive all such monies, indorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Notwithstanding any of the foregoing, so long as no Event of Default exists
the Grantor shall be entitled to all insurance proceeds with respect to
Equipment or Inventory provided that such proceeds are applied to the cost of
replacement Equipment or Inventory.
Section 19. THE SECURED PARTY'S DUTIES. The powers conferred on
the Secured Party hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
The Secured Party shall be deemed to have exercised reasonable care in the
safekeeping of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to the safekeeping which the Secured
Party accords its own property of like kind. Except for the safekeeping of
any Collateral in its possession and the accounting for monies and for other
properties actually received by it hereunder, the Secured Party shall have no
duty, as to any Collateral, as to ascertaining or taking action with respect
to calls, conversions, exchanges, maturities, tenders or other matters
relative to any Collateral, whether or not the Secured Party has or is deemed
to have knowledge of such matters, or as to the taking of any necessary steps
to preserve rights against any Persons or any other rights pertaining to any
Collateral. The Secured Party will take action in the nature of exchanges,
conversions, redemptions, tenders and the like requested in writing by the
Grantor with respect to the Collateral in the Secured Party's possession if
the Secured Party in its reasonable judgment determines that such action will
not impair the Security Interest or the value of the Collateral, but a
failure of the Secured Party to comply with any such request shall not of
itself be deemed a failure to exercise reasonable care.
Section 20. EVENTS OF DEFAULT. The occurrence of any one or more
of the following events shall constitute an Event of Default under this
Agreement:
20(a) The Grantor shall fail to make payment when due, whether
upon demand, or at a scheduled due date, or otherwise, any principal of or
interest on its obligations under the Financing Agreement or any other
obligations of the Grantor to the Secured Party.
20(b) Any representation or warranty made by or on behalf of the
Grantor in this Agreement or the Financing Agreement or by or on behalf of
the Grantor in any certificate, statement, report or document herewith or
hereafter furnished to the Secured Party pursuant to this Agreement or the
Financing Agreement shall prove to have been false or misleading in any
material respect on the date as of which the facts set forth are stated or
certified.
20(c) The Grantor shall fail to comply with Sections 5.2 or 5.3
or any Section of Article VI of the Financing Agreement.
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20(d) The Grantor shall fail to comply with any other agreement,
covenant, condition, provision or term contained in this Agreement or the
Financing Agreement (other than those hereinabove set forth in this
Section20) and such failure to comply shall continue for 30 calendar days
after whichever of the following dates is the earliest: (i) the date the
Grantor gives notice of such failure to the Secured Party, or (ii) the date
the Secured Party gives notice of such failure to the Grantor.
20(e) The Grantor shall apply for or consent to, or shall
acquiesce in the appointment of a custodian, trustee or receiver of the
Grantor or for a substantial part of the property thereof or, in the
absence of such application, consent or acquiescence, a custodian, trustee
or receiver shall be appointed for the Grantor or for a substantial part of
the property thereof and shall not be discharged within 45 days, or the
Grantor shall make an assignment for the benefit of creditors.
20(f) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by
or against the Borrower and, if instituted against the Grantor, shall have
been consented to or acquiesced in by the Grantor or shall remain
undismissed for 60 days, or an order for relief shall have been entered
against the Grantor.
20(g) Any dissolution or liquidation proceeding shall be
instituted by or against the Grantor and, if instituted against the
Grantor, shall be consented to or acquiesced in by the Grantor or shall
remain for 45 days undismissed.
20(h) A judgment or judgments for the payment of money in excess
of the sum of $[ ] in the aggregate shall be rendered against the
Grantor and either (i) the judgment creditor executes on such judgment or
(ii) such judgment remains unpaid or undischarged for more than 60 days
from the date of entry thereof or such longer period during which execution
of such judgment shall be stayed during an appeal from such judgment.
20(i) Any execution or attachment shall be issued whereby any
substantial part of the property of the Grantor shall be taken or attempted
to be taken and the same shall not have been vacated or stayed within 30
days after the issuance thereof.
20(j) Any guarantor of any of the Obligations shall seek to
revoke its, his or her guaranty or any such guaranty shall become
unenforceable for any reason.
20(k) Any default or event of default (however denominated or
defined) shall occur with respect to any indebtedness of the Grantor (other
than the Obligations) permitted under the Financing Agreement.
THE FOREGOING EVENTS OF DEFAULT, AND THE REMEDIES UPON EVENT OF DEFAULT AS
SET FORTH BELOW IN SECTION 21, ARE IN ADDITION TO AND SUPPLEMENT THE RIGHTS
OF THE SECURED PARTY UNDER THE FINANCING AGREEMENT, INCLUDING WITHOUT
LIMITATION THE RIGHT OF THE SECURED PARTY TO DEMAND PAYMENT OF THE
OBLIGATIONS UNDER THE FINANCING AGREEMENT IN FULL AT ANY TIME IN ITS ABSOLUTE
DISCRETION. NOTHING SET FORTH IN THIS AGREEMENT (INCLUDING THE PROVISIONS OF
THIS SECTION 20 OR THE REMEDIES WITH RESPECT THERETO AS SET FORTH IN SECTION
21) SHALL IN ANY WAY LIMIT THE SECURED PARTY'S DISCRETION TO MAKE OR NOT MAKE
LOANS TO THE DEBTOR OR THE SECURED PARTY'S RIGHT TO DEMAND PAYMENT OF THE
OBLIGATIONS.
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Section 21. REMEDIES ON DEFAULT. Upon the occurrence of an Event
of Default and at any time thereafter:
21(a) The Secured Party may exercise and enforce any and all
rights and remedies available upon default to a secured party under the
Uniform Commercial Code.
21(b) The Secured Party shall have the right to enter upon and
into and take possession of all or such part or parts of the properties of
the Grantor, including lands, plants, buildings, Equipment, Inventory and
other property as may be necessary or appropriate in the judgment of the
Secured Party to permit or enable the Secured Party to manufacture,
produce, process, store or sell or complete the manufacture, production,
processing, storing or sale of all or any part of the Collateral, as the
Secured Party may elect, and to use and operate said properties for said
purposes and for such length of time as the Secured Party may deem
necessary or appropriate for said purposes without the payment of any
compensation to Grantor therefor. The Secured Party may require the
Grantor to, and the Grantor hereby agrees that it will, at its expense and
upon request of the Secured Party forthwith, assemble all or part of the
Collateral as directed by the Secured Party and make it available to the
Secured Party at a place or places to be designated by the Secured Party.
21(c) Any sale of Collateral may be in one or more parcels at
public or private sale, at any of the Secured Party's offices or elsewhere,
for cash, on credit, or for future delivery, and upon such other terms as
the Secured Party may reasonably believe are commercially reasonable. The
Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given, and the Secured Party may
adjourn any public or private sale from time to time by announcement made
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
21(d) The Secured Party is hereby granted a license or other
right to use, without charge, all of the Grantor's property, including,
without limitation, all of the Grantor's labels, trademarks, copyrights,
patents and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for
sale and selling any Collateral, and the Grantor's rights under all
licenses and all franchise agreements shall inure to the Secured Party's
benefit until the Obligations are paid in full.
21(e) If notice to the Grantor 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 for the giving of notice in Section 25 hereof at least
ten calendar days prior to the date of intended disposition or other
action, and the Secured Party may exercise or enforce any and all other
rights or remedies available by law or agreement against the Collateral,
against the Grantor, or against any other Person or property.
Section 22. APPLICATION OF PROCEEDS. All cash proceeds received
by the Secured Party in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion of
the Secured Party, be held by the Secured Party as collateral for, or then or
at any time thereafter be applied in whole or in part by the Secured Party
against, all or any part of the Obligations (including, without limitation,
any expenses of the Secured Party payable pursuant to Section 23 hereof).
Section 23. COSTS AND EXPENSES; INDEMNITY. The Grantor will pay
or reimburse the Secured Party on demand for all out-of-pocket expenses
(including in each case all filing and
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recording fees and taxes and all reasonable fees and expenses of counsel and
of any experts and agents) incurred by the Secured Party in connection with
the creation, perfection, protection, satisfaction, foreclosure or
enforcement of the Security Interest and the preparation, administration,
continuance, amendment or enforcement of this Agreement, and all such costs
and expenses shall be part of the Obligations secured by the Security
Interest. The Grantor shall indemnify and hold the Secured Party harmless
from and against any and all claims, losses and liabilities (including
reasonable attorneys' fees) growing out of or resulting from this Agreement
and the Security Interest hereby created (including enforcement of this
Agreement) or the Secured Party's actions pursuant hereto, except claims,
losses or liabilities resulting from the Secured Party's gross negligence or
willful misconduct as determined by a final judgment of a court of competent
jurisdiction. Any liability of the Grantor to indemnify and hold the Secured
Party harmless pursuant to the preceding sentence shall be part of the
Obligations secured by the Security Interest. The obligations of the Grantor
under this Section shall survive any termination of this Agreement.
Section 24. WAIVERS; REMEDIES; MARSHALLING. 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 so signed 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 rights and remedies available to
the Secured Party. All rights and remedies of the Secured Party shall be
cumulative and may be exercised singly in any order or sequence, or
concurrently, at the Secured Party's option, and the exercise or enforcement
of any such right or remedy shall neither be a condition to nor bar the
exercise or enforcement of any other. The Grantor hereby waives all
requirements of law, if any, relating to the marshalling of assets which
would be applicable in connection with the enforcement by the Secured Party
of its remedies hereunder, absent this waiver.
Section 25. NOTICES. Any notice or other communication to any
party in connection with this Agreement shall be in writing and shall be sent
by manual delivery, telegram, telex, facsimile transmission, overnight
courier or United States mail (postage prepaid) addressed to such party at
the address specified on the signature page hereof, or at such other address
as such party shall have specified to the other party hereto in writing. All
periods of notice shall be measured from the date of delivery thereof if
manually delivered, from the date of sending thereof if sent by telegram,
telex or facsimile transmission, from the first business day after the date
of sending if sent by overnight courier, or from four days after the date of
mailing if mailed.
Section 26. GRANTOR ACKNOWLEDGEMENTS. The Grantor hereby
acknowledges that (a) it has been advised by (or has had full opportunity to
avail itself of the advice of) counsel in the negotiation, execution and
delivery of this Agreement, (b) the Secured Party has no fiduciary
relationship to the Grantor, the relationship being solely that of debtor and
creditor, and (c) no joint venture exists between the Grantor and the Secured
Party.
Section 27. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER
FINANCING AGREEMENT. This Agreement shall (a) create a continuing security
interest in the Collateral and shall remain in full force and effect until
payment in full of the Obligations, (b) be binding upon the Grantor, its
successors and assigns, and (c) inure to the benefit of, and be enforceable
by, the Secured Party and its successors, transferees, and assigns. Without
limiting the generality of the foregoing clause (c), the Secured Party may
assign or otherwise transfer all or any portion of its rights and obligations
under the Financing Agreement to any other Persons to the extent and in the
manner provided in the Financing Agreement and may similarly transfer all or
any portion of its rights under this Security Agreement to such Persons.
Section 28. TERMINATION OF SECURITY INTEREST. Upon payment in
full of the Obligations, the Security Interest granted hereby shall
terminate. Upon any such termination, the Secured
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Party will return to the Grantor such of the Collateral then in the
possession of the Secured Party as shall not have been sold or otherwise
applied pursuant to the terms hereof and execute and deliver to the Grantor
such documents as the Grantor shall reasonably request to evidence such
termination. Any reversion or return of Collateral upon termination of this
Agreement and any instruments of transfer or termination shall be at the
expense of the Grantor and shall be without warranty by, or recourse on, the
Secured Party. As used in this Section, "Grantor" includes any assigns of
Grantor, any Person holding a subordinate security interest in any of the
Collateral or whoever else may be lawfully entitled to any part of the
Collateral.
SECTION 29. GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF MINNESOTA. Whenever possible, each provision of
this Agreement and any other statement, instrument or transaction
contemplated hereby or relating hereto shall be interpreted in such manner as
to be effective and valid under such applicable law, but, if any provision of
this Agreement or any other statement, instrument or transaction contemplated
hereby or relating hereto shall be held to be prohibited or invalid under
such applicable law, such provision shall be ineffective only to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement or any other
statement, instrument or transaction contemplated hereby or relating hereto.
SECTION 30. CONSENT TO JURISDICTION. AT THE OPTION OF THE SECURED
PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY; AND THE GRANTOR CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE
IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GRANTOR COMMENCES ANY
ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
AGREEMENT, THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF
SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
SECTION 31. WAIVER OF NOTICE AND HEARING. THE GRANTOR HEREBY
WAIVES ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY
THE SECURED PARTY OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT
JUDICIAL PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE
COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. THE GRANTOR ACKNOWLEDGES THAT IT
HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND
THIS AGREEMENT.
SECTION 32. WAIVER OF JURY TRIAL. EACH OF THE GRANTOR AND THE
SECURED PARTY, BY ITS ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVES ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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<PAGE>
Section 33. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but
one and the same instrument.
Section 34. GENERAL. All representations and warranties contained
in this Agreement or in any other agreement between the Grantor and the
Secured Party shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations. The Grantor
waives notice of the acceptance of this Agreement by the Secured Party.
Captions in this Agreement are for reference and convenience only and shall
not affect the interpretation or meaning of any provision of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Grantor has caused this Security Agreement
to be duly executed and delivered by its officer thereunto duly authorized as
of the date first above written.
TECH SQUARED INC.
By
-----------------------------
Title
-------------------------
Address for Grantor:
Tech Squared Inc.
5198 west 76th Street
Edina, MN 55439
Grantor's Tax ID # 41-1591872
Address for Secured Party :
First Bank National Association
2338 Central Avenue NE
Minneapolis, MN 55418
Fax: (612) 782-1801
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<PAGE>
SCHEDULE I
to
Security Agreement
Locations of Equipment and Inventory
as of Date of Security Agreement
5198 West 76th Street Edina, Hennepin County, Minnesota 55439
<PAGE>
SCHEDULE II
to
Security Agreement
Trade Names and Trade Styles
Nu Design
Nu DesignPro
DTP Direct
Mirror
Airbourne
CD Rom Direct
<PAGE>
GUARANTY
THIS GUARANTY, dated as of June 27, 1997, is made and given by JOEL
A. RONNING, an individual (the "Guarantor"), in favor of First Bank National
Association, a National Banking Association (" Bank").
RECITALS
A. Bank has extended and/or may from time to time hereafter extend
credit accommodations to TECH SQUARED INC., a Minnesota corporation (the
"Borrower").
B. In connection with those credit accommodations Bank has
required that this Guaranty be executed and delivered by the Guarantor.
C. The Guarantor expects to derive benefits from the extension of
credit accommodations to the Borrower by Bank and finds it advantageous,
desirable and in its best interests to execute and deliver this Guaranty to
Republic.
NOW, THEREFORE, In consideration of the credit accommodations to be
extended to the Borrower and for other good and valuable consideration, the
Guarantor hereby covenants and agrees with Bank as follows:
Section 1. DEFINED TERMS. As used in this Guaranty, the following
terms shall have the meaning indicated:
"BORROWER" shall have the meaning indicated in Recital A.
"GUARANTOR" shall have the meaning indicated in the opening
paragraph hereof.
"OBLIGATIONS" shall mean any and all liabilities and obligations of
the Borrower to Bank of every kind, nature and description, whether direct or
indirect or hereafter acquired by Bank from any Person, absolute or
contingent, regardless of how such liabilities arise or by what agreement or
instrument they may be evidenced, in all cases whether due or to become due,
and whether now existing or hereafter arising or incurred.
"PERSON" shall mean any individual, corporation, partnership,
limited partnership, limited liability company, joint venture, firm,
association, trust, unincorporated organization, government or governmental
agency or political subdivision or any other entity, whether acting in an
individual, fiduciary or other capacity.
"REPUBLIC" shall have the meaning indicated in the opening
paragraph hereof.
Section 2. THE GUARANTY. The Guarantor hereby absolutely and
unconditionally guarantees to Bank the payment, which shall be limited to the
principal amount of $500,000 plus interest and costs as set forth herein,
when due (whether by demand, at a scheduled due date, or otherwise) and
performance of the Obligations.
Section 3. CONTINUING GUARANTY. This Guaranty is an absolute,
unconditional and continuing guaranty of payment and performance of the
Obligations, and the obligations of the Guarantor hereunder, which shall be
limited to the principal amount of $500,000 plus interest and costs as set
forth herein, shall not be released, in whole or in part, by any action or
thing which
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<PAGE>
might, but for this provision of this Guaranty, be deemed a legal or
equitable discharge of a surety or guarantor, other than irrevocable payment
and performance in full of the Obligations. No notice of the Obligations to
which this Guaranty may apply, or of any renewal or extension thereof need be
given to the Guarantor and none of the foregoing acts shall release the
Guarantor from liability hereunder. The Guarantor hereby expressly waives
(a) demand of payment, presentment, protest, notice of dishonor, nonpayment
or nonperformance on any and all forms of the Obligations; (b) notice of
acceptance of this Guaranty and notice of any liability to which it may
apply; (c) all other notices and demands of any kind and description relating
to the Obligations now or hereafter provided for by any agreement, statute,
law, rule or regulation; and (d) any and all defenses of the Borrower
pertaining to the Obligations except for the defense of discharge by
payment. The Guarantor shall not be exonerated with respect to the
Guarantor's liabilities under this Guaranty by any act or thing except
irrevocable payment and performance of the Obligations, it being the purpose
and intent of this Guaranty that the Obligations constitute the direct and
primary obligations of the Guarantor and that the covenants, agreements and
all obligations of the Guarantor hereunder be absolute, unconditional and
irrevocable. The Guarantor shall be and remain liable up to a principal
amount of $500,000 plus interest and costs as set forth herein, for any
deficiency remaining after foreclosure of any mortgage, deed of trust or
security agreement securing all or any part of the Obligations, whether or
not the liability of the Borrower or any other Person for such deficiency is
discharged pursuant to statute, judicial decision or otherwise. The
acceptance of this Guaranty by Bank is not intended and does not release any
liability previously existing of any guarantor or surety of any indebtedness
of the Borrower to Republic.
Section 4. OTHER TRANSACTIONS. Bank is expressly authorized (a) to
exchange, surrender or release with or without consideration any or all
collateral and security which may at any time be placed with it by the
Borrower or by any other Person, or to forward or deliver any or all such
collateral and security directly to the Borrower for collection and
remittance or for credit, or to collect the same in any other manner without
notice to the Guarantor; and (b) to amend, modify, extend or supplement any
note or other instrument evidencing the Obligations or any part thereof and
any other agreement with respect to the Obligations, waive compliance by the
Borrower or any other Person with the respective terms thereof and settle or
compromise any of the Obligations without notice to the Guarantor and without
in any manner affecting the absolute liabilities of the Guarantor hereunder.
No invalidity, irregularity or unenforceability of all or any part of the
Obligations or of any security therefor or other recourse with respect
thereto shall affect, impair or be a defense to this Guaranty. The
liabilities of the Guarantor hereunder shall not be affected or impaired by
any failure, delay, neglect or omission on the part of Bank to realize upon
any of the Obligations of the Borrower to Republic, or upon any collateral or
security for any or all of the Obligations, nor by the taking by Bank of (or
the failure to take) any other guaranty or guaranties to secure the
Obligations, nor by the taking by Bank of (or the failure to take or the
failure to perfect its security interest in or other lien on) collateral or
security of any kind. No act or omission of Republic, whether or not such
action or failure to act varies or increases the risk of, or affects the
rights or remedies of the Guarantor, shall affect or impair the obligations
of the Guarantor hereunder. The Guarantor acknowledges that this Guaranty is
in effect and binding without reference to whether this Guaranty is signed by
any other Person or Persons, that possession of this Guaranty by Bank shall
be conclusive evidence of due delivery hereof by the Guarantor and that this
Guaranty shall continue in full force and effect, both as to the Obligations
then existing and/or thereafter created, notwithstanding the release of or
extension of time to any other guarantor of the Obligations or any part
thereof.
Section 5. ACTIONS NOT REQUIRED. The Guarantor hereby waives any
and all right to cause a marshalling of the assets of the Borrower or any
other action by any court or other governmental body with respect thereto or
to cause Bank to proceed against any security for the Obligations or any
other recourse which Bank may have with respect thereto and further waives
any and all requirements that Bank institute any action or proceeding at law
or in equity, or obtain any judgment, against the Borrower or any other
Person, or with respect to any collateral security
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<PAGE>
for the Obligations, as a condition precedent to making demand on or
bringing an action or obtaining and/or enforcing a judgment against, the
Guarantor upon this Guaranty. The Guarantor further acknowledges that time
is of the essence with respect to the Guarantor's obligations under this
Guaranty. Any remedy or right hereby granted which shall be found to be
unenforceable as to any Person or under any circumstance, for any reason,
shall in no way limit or prevent the enforcement of such remedy or right as
to any other Person or circumstance, nor shall such unenforceability limit or
prevent enforcement of any other remedy or right hereby granted.
Section 6. NO SUBROGATION. Notwithstanding any payment or
payments made by the Guarantor hereunder, the Guarantor waives all rights of
subrogation to any of the rights of Bank against the Borrower or any other
Person liable for payment of any of the Obligations or any collateral
security or guaranty or right of offset held by Bank for the payment of the
Obligations, and the Guarantor waives all rights to seek any recourse to or
contribution or reimbursement from the Borrower or any other Person liable
for payment of any of the Obligations in respect of payments made by the
Guarantor hereunder, until such time that the Obligations are irrevocably
paid in full.
Section 7. APPLICATION OF PAYMENTS. Any and all payments upon the
Obligations made by the Guarantor or by any other Person, and/or the proceeds
of any or all collateral or security for any of the Obligations, may be
applied by Bank on such items of the Obligations as Bank may elect.
Section 8. RECOVERY OF PAYMENT. If any payment received by Bank
and applied to the Obligations is subsequently set aside, recovered,
rescinded or required to be returned for any reason (including, without
limitation, the bankruptcy, insolvency or reorganization of the Borrower or
any other obligor), the Obligations to which such payment was applied shall
for the purposes of this Guaranty be deemed to have continued in existence,
notwithstanding such application, and this Guaranty shall be enforceable as
to such Obligations as fully as if such application had never been made.
References in this Guaranty to amounts "irrevocably paid" or to "irrevocable
payment" refer to payments that cannot be set aside, recovered, rescinded or
required to be returned for any reason.
Section 9. BORROWER'S FINANCIAL CONDITION. The Guarantor is
familiar with the financial condition of the Borrower, and the Guarantor has
executed and delivered this Guaranty based on the Guarantor's own judgment
and not in reliance upon any statement or representation of Republic. Bank
shall have no obligation to provide the Guarantor with any advice whatsoever
or to inform the Guarantor at any time of Republic's actions, evaluations or
conclusions on the financial condition or any other matter concerning the
Borrower.
Section 10. REMEDIES. All remedies afforded to Bank by reason of
this Guaranty are separate and cumulative remedies and it is agreed that no
one of such remedies, whether or not exercised by Republic, shall be deemed
to be in exclusion of any of the other remedies available to Bank and no one
of such remedies shall in any way limit or prejudice any other legal or
equitable remedy which Bank may have hereunder and with respect to the
Obligations. Mere delay or failure to act shall not preclude the exercise or
enforcement of any rights and remedies available to Republic.
Section 11. BANKRUPTCY OF THE BORROWER. The Guarantor expressly
agrees that the liabilities and obligations of the Guarantor under this
Guaranty shall not in any way be impaired or otherwise affected by the
institution by or against the Borrower or any other Person of any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or any
other similar proceedings for relief under any bankruptcy law or similar law
for the relief of debtors and that any discharge of any of the Obligations
pursuant to any such bankruptcy or similar law or other law shall not
diminish, discharge or otherwise affect in any way the obligations of the
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<PAGE>
Guarantor under this Guaranty, and that upon the institution of any of the
above actions, such obligations shall be enforceable against the Guarantor.
Section 12. COSTS AND EXPENSES. The Guarantor will pay or
reimburse Bank on demand for all out-of-pocket expenses (including in each
case all reasonable fees and expenses of counsel) incurred by Bank arising
out of or in connection with the enforcement of this Guaranty against the
Guarantor or arising out of or in connection with any failure of the
Guarantor to fully and timely perform the obligations of the Guarantor
hereunder.
Section 13. WAIVERS AND AMENDMENTS. This Guaranty can be waived,
modified, amended, terminated or discharged only explicitly in a writing
signed by Republic. A waiver so signed shall be effective only in the
specific instance and for the specific purpose given.
Section 14. NOTICES. Any notice or other communication to any
party in connection with this Guaranty shall be in writing and shall be sent
by manual delivery, telegram, telex, facsimile transmission, overnight
courier or United States mail (postage prepaid) addressed to such party at
the address specified on the signature page hereof, or at such other address
as such party shall have specified to the other party hereto in writing. All
periods of notice shall be measured from the date of delivery thereof if
manually delivered, from the date of sending thereof if sent by telegram,
telex or facsimile transmission, from the first business day after the date
of sending if sent by overnight courier, or from four days after the date of
mailing if mailed.
Section 15. GUARANTOR ACKNOWLEDGEMENTS. The Guarantor hereby
acknowledges that (a) counsel has advised the Guarantor in the negotiation,
execution and delivery of this Guaranty, (b)Bank has no fiduciary
relationship to the Guarantor, the relationship being solely that of debtor
and creditor, and (c) no joint venture exists between the Guarantor and
Republic.
Section 16. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby
represents and warrants to Bank that:
16(a) It has the power and authority and the legal right to execute
and deliver, and to perform its obligations under, this Guaranty and has
taken all necessary action to authorize such execution, delivery and
performance.
16(b) This Guaranty constitutes its legal, valid and binding
obligation enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
16(c) The execution, delivery and performance of this Guaranty will
not (i) violate any provision of any law, statute, rule or regulation or
any order, writ, judgment, injunction, decree, determination or award of
any court, governmental agency or arbitrator presently in effect having
applicability to it, or (ii) result in a breach of or constitute a default
under any indenture, loan or credit agreement or any other agreement, lease
or instrument to which it is a party or by which it or any of its
properties may be bound or result in the creation of any lien thereunder.
It is not in default under or in violation of any such law, statute, rule
or regulation, order, writ, judgment, injunction, decree, determination or
award or any such indenture, loan or credit agreement or other agreement,
lease or instrument in any case in which the consequences of such default
or violation could have a material adverse effect on its business,
operations, properties, assets or condition (financial or otherwise).
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<PAGE>
16(d) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption by,
any governmental or public body or authority is required on its part to
authorize, or is required in connection with the execution, delivery and
performance of, or the legality, validity, binding effect or enforceability
of, this Guaranty.
16(e) There are no actions, suits or proceedings pending or, to its
knowledge, threatened against or affecting it or any of its properties
before any court or arbitrator, or any governmental department, board,
agency or other instrumentality which, if determined adversely to it, would
have a material adverse effect on its business, operations, property or
condition (financial or otherwise) or on its ability to perform its
obligations hereunder.
16(f) It expects to derive benefits from the transactions resulting
in the creation of the Obligations. Bank may rely conclusively on the
continuing warranty, hereby made, that the Guarantor continues to be
benefitted by Republic's extension of credit accommodations to the Borrower
and Bank shall have no duty to inquire into or confirm the receipt of any
such benefits, and this Guaranty shall be effective and enforceable by Bank
without regard to the receipt, nature or value of any such benefits.
Section 17. CONTINUING GUARANTY. This Guaranty shall (a) remain
in full force and effect until irrevocable payment in full of the Obligations
and the expiration of the obligations, if any, of Bank to extend credit
accommodations to the Borrower, (b) be binding upon the Guarantor, its
successors and assigns and (c) inure to the benefit of, and be enforceable
by,Bank and its successors, transferees, and assigns.
Section 18. REAFFIRMATION. The Guarantor agrees that when so
requested by Bank from time to time it will promptly execute and deliver to
Bank a written reaffirmation of this Guaranty in such form as Bank may
require.
Section 19. FINANCIAL STATEMENTS, TAX RETURNS. The Guarantor
agrees that it will deliver to Bank copies of all state and federal tax
returns filed by the Guarantor, together with an updated personal financial
statement of the Guarantor in form and substance satisfactory to the Lender,
as may be required of the Borrower by Bank or as may otherwise be requested
of the Guarantor by Republic.
Section 20. REVOCATION. Notwithstanding any other provision
hereof, the Guarantor may revoke this Guaranty prospectively as to future
transactions by written notice to that effect actually received by Republic.
No such revocation shall release, impair or affect in any manner any
liability hereunder with respect to Obligations created, contracted, assumed
or incurred prior to receipt by Bank of written notice of revocation, or
Obligations created, contracted, assumed or incurred after receipt of such
notice pursuant to any contract entered into by Bank prior to receipt of such
notice, or any renewals or extensions thereof, theretofore or thereafter
made, or all other costs, expenses and attorneys' fees arising from such
Obligations.
Section 21. GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS GUARANTY SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF. Whenever possible, each provision of this Guaranty and
any other statement, instrument or transaction contemplated hereby or
relating hereto shall be interpreted in such manner as to be effective and
valid under such applicable law, but, if any provision of this Guaranty or
any other statement, instrument or transaction contemplated hereby or
relating hereto shall be held to be prohibited or invalid under such
applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining
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<PAGE>
provisions of this Guaranty or any other statement, instrument or
transaction contemplated hereby or relating hereto.
Section 22. CONSENT TO JURISDICTION. AT THE OPTION OF REPUBLIC,
THIS GUARANTY MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT
SITTING IN HENNEPIN COUNTY, MINNESOTA, MINNESOTA; AND THE GUARANTOR CONSENTS
TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT
VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GUARANTOR COMMENCES
ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
GUARANTY,BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO
ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED
WITHOUT PREJUDICE.
Section 23. WAIVER OF JURY TRIAL. EACH OF THE GUARANTOR AND
REPUBLIC, BY ITS ACCEPTANCE OF THIS GUARANTY, IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 24. COUNTERPARTS. This Guaranty may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but
one and the same instrument.
Section 25. GENERAL. All representations and warranties contained
in this Guaranty or in any other agreement between the Guarantor and Bank
shall survive the execution, delivery and performance of this Guaranty and
the creation and payment of the Obligations. Captions in this Guaranty are
for reference and convenience only and shall not affect the interpretation or
meaning of any provision of this Guaranty.
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<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of
the date first above written.
GUARANTOR:
By
----------------------------
Joel A. Ronning
Address for Guarantor:
6300 Smithtown Road
Victoria, Minnesota 55331
Address for Bank:
FIRST BANK NATIONAL ASSOCIATION
2338 Central Avenue NE,
Minneapolis, MN 55418
Fax: (612) 782-1801
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<PAGE>
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT, dated as of June 27, 1997, by and between
FIRST BANK NATIONAL ASSOCIATION, a National Banking Association, (the "Senior
Lender"), JOEL A. RONNING, individually (the "Subordinated Lender"), and TECH
SQUARED INC., a Minnesota Corporation (the "Company").
A. The Company and the Senior Lender have entered into a Financing
Agreement dated as of June 27,1997 (as the same may hereafter be amended,
supplemented, extended, restated or otherwise modified from time to time, the
"Credit Agreement").
B. Pursuant to the terms of the Credit Agreement, the Lender has
agreed to extend credit accommodations to the Company (the "Senior Debt").
C. The Senior Debt is secured by a Security Agreement dated June
27,1997, pursuant to which the Company granted to the Senior Lender a
security interest in and to all personal property of the Company.
D. The Company is obligated and indebted to the Subordinated Lender,
INTER ALIA, for credit extended by the Subordinated Lender to the Company
pursuant to the terms of a Promissory Note dated January 3, 1996 in the
original principal amount of $ 882,096.00, as amended by agreement dated as
of March 3, 1997 (the "Subordinated Debt").
E. It is a condition precedent to the obligation of the Senior Lender
to extend credit accommodations to the Company pursuant to the Credit
Agreement that the Subordinated Lender and the Company execute and deliver
this Subordination Agreement to the Senior Lender.
F. The Subordinated Lender and the Company each find it advantageous,
desirable and in their respective best interests to comply with the
requirement that it execute and deliver this Subordination Agreement to the
Senior Lender.
NOW THEREFORE, in consideration of the premises and the mutual promises
contained herein, the Senior Lender, Subordinated Lender and the Company
agree as follows:
1. SUBORDINATION OF DEBT.
(a) The Subordinated Lender and the Company covenant and agree
that the obligations of the Company with respect to any payment of principal,
interest or other amounts payable with respect to the Subordinated Debt are
and shall be subordinate, to the extent and in the manner hereinafter set
forth, for right of payment and subject to the prior payment or provision for
payment in full of all principal, interest or other amounts payable with
respect to the Senior Debt, and all amendments, renewals, extensions and
refundings of the Senior Debt; PROVIDED HOWEVER that as long as none of the
events described in Sections 1(b) or 1(c) have occurred, the Subordinated
Lender shall be entitled to receive and retain all regularly scheduled
payments of principal of and interest on the Subordinated Debt not to exceed
the sum of Two Hundred Thousand Dollars ( $200,000.00) in the aggregate in
any one calendar year and further provided that before and after each
payment to Subordinate Creditor the Company is within all applicable margins
required under the Financing Agreement (but the Subordinated Lender shall not
accept, nor shall the Company make, any prepayment on the Subordinated Debt,
nor amend the payment schedule under the Subordinated Debt, without the prior
written consent of the Senior Lender).
<PAGE>
(b) Upon the maturity of the Senior Debt by demand for payment of
the Senior Debt, termination of the Credit Agreement or otherwise (including
without limitation upon any assignment, transfer or sale of all or
substantially all of the Company's business), all principal thereof and
interest due thereon shall first be paid in full, or such payment duly
provided for in cash or in a manner satisfactory to the holder of the Senior
Debt, before any payment is made on account of the principal of or interest
on the Subordinated Debt.
(c) Upon the happening of an event of default with respect to the
Senior Debt, as such event of default is defined in the Credit Agreement,
permitting the holder of the Senior Debt to accelerate the maturity thereof,
then, unless and until such event of default shall have been cured or waived
or shall have ceased to exist, no payment shall be made by the Subordinated
Lender with respect to the principal of or interest on the Subordinated Debt.
(d) In the event that, contrary to the provisions of Sections 1(b)
or 1(c) hereof, any payment or distribution of assets of the Company of any
character, whether in cash, securities or other property, is received by the
Subordinated Lender before the Senior Debt is paid in full, such payment or
distribution will be held in trust for the benefit of, and will be paid over
or delivered to, the holder of the Senior Debt (or its duly authorized
representative) until the Senior Debt has been paid in full, after giving
effect to the concurrent payment or distribution (or provision therefor) to
the holder of the Senior Debt. Under no circumstances, however, shall the
Subordinated Lender be obligated to turn over any scheduled interest payment
on the Subordinated Debt that is received by the Subordinated Lender pursuant
to Section 1(a) and prior to the occurrence of the earliest event specified
in Sections 1(b) or 1(c) to occur.
(e) Subject to the payment in full of the Senior Debt, the
Subordinated Lender shall be subrogated to the rights of the holder of the
Senior Debt to receive payments or distribution of cash, property or
securities of the Company applicable to the Senior Debt until all amounts
owing on the Subordinated Debt shall be paid in full, and, as between the
Company, its creditors other than the holder of the Senior Debt, and the
Subordinated Lender, it being understood that the provisions of this Section
1 are and are intended solely for the purpose of defining the relative rights
of the Subordinated Lender, on the one hand, and the holder of the Senior
Debt, on the other hand.
(f) No right of any present or future holder of the Senior Debt to
enforce the provisions of this Subordination Agreement will at any time in
any way be prejudiced or impaired by any act or failure to act, in good
faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Subordination Agreement, regardless
of any knowledge thereof which any such holder may have or be otherwise
charged with.
2. NO SECURITY INTEREST. The Company and the Subordinated Lender
represent and warrant that the Subordinated Debt is unsecured, and the
Company and the Subordinated Lender agree that the Company will not grant,
and the Subordinated Lender will not accept from the Company or from any
person liable for all or any part of the Senior Debt, any lien or other
security therefor. The Subordinated Lender further agrees that in the event
that the Subordinated Lender does obtain any such lien or security for the
Subordinated Debt, at the request of the Senior Lender, the subordinated
Lender shall execute and deliver to the Senior Lender such termination
statements or releases as the Senior Lender shall reasonably request to
release the security interest or lien of the Subordinated Lender against such
property.
3. BANKRUPTCY ISSUES.
(a) In the event of any insolvency, bankruptcy or similar
proceeding relating to the Company or its property, any voluntary
liquidation, dissolution or other winding up of the Company, or any
assignment for the benefit of its creditors or any other marshalling of its
assets,
<PAGE>
the Senior Debt shall first be paid in full before any payment or
distribution is made on account of the Subordinated Debt, and to that end the
holder of the Senior Debt shall be entitled to receive for application and
payment thereof any payment or distribution of any kind or character, whether
in cash or property or securities, which may be payable or deliverable in any
such proceeding in respect of the Subordinated Debt, including any such
payment or distribution which may be payable or deliverable by virtue of the
provisions of any indebtedness which is subordinate and junior in right of
payment to the Subordinated Debt. In order to enable the Senior Lender to
enforce the foregoing rights in any bankruptcy, insolvency or similar action
or proceedings, the Senior Lender is hereby irrevocably authorized and
empowered in its discretion to make and present for or on behalf of the
Subordinated Lender such proof of claims or claims against the Company on
account of the Subordinated Debt as the Senior Lender may deem expedient and
proper, and to vote such claims in any such proceedings and to receive and
collect any and all dividends or other payments or disbursements made thereon
in whatever form the same may be paid or issued and to apply the same on
account of the Senior Debt. The Subordinated Lender agrees to and does
hereby assign all such claims to the Senior Lender, and the Subordinated
Lender further agrees to execute such instruments as may be required by the
Senior Lender to enable the Senior Lender to enforce any and all such claims
and collect any and all dividends or other payments or disbursements which
may be made on account of the Subordinated Debt.
(b) If Company becomes the subject of proceedings under the
Bankruptcy Code and if the Senior Lender desires to permit the use of cash
collateral or to provide financing to Company under either Section 363 or
Section 364 of Title 11 of the United States Code (the "Bankruptcy Code") the
Subordinated Lender agrees that adequate notice of such financing to the
Subordinated Lender shall have been provided if the undersigned receives
notice two (2) Business Days prior to the entry of any order approving such
cash collateral usage or financing. Notice of a proposed financing or use of
cash collateral shall be deemed given upon the sending of such notice by
telegraph, telecopy or hand delivery to the undersigned at the address
indicated on the signature page hereof. All allocations of payments between
the Senior Lender and the Subordinated Lender shall continue to be made after
the filing of a petition under the Bankruptcy Code on the same basis that the
payments were to be allocated prior to the date of such filing. The
Subordinated Lender agrees not to assert any right it may have to "adequate
protection" of its interest in any security for the Subordinated Debt in any
bankruptcy proceeding, or to seek to have its claims in such bankruptcy
proceeding treated as "secured claims" under Section 506(a) of the Bankruptcy
Code, without the prior written consent of the Senior Lender. To the extent
that the Senior Lender receives payments on, or proceeds of any collateral
for, the Senior Debt which are subsequently avoided, invalidated, declared to
be fraudulent or preferential, set aside and/or required to be prepaid to a
trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then, to the extent of such
payment or proceeds received, the Senior Debt, or part thereof, intended to
be satisfied shall be revived and continue in full force and effect as if
such payments or proceeds had not been received by the Senior Lender.
4. INSTRUMENT LEGEND. Any agreement or instrument evidencing the
Subordinated Debt, or any portion thereof, which has been or is hereafter
executed by the Company will, on the date hereof or the date of execution, be
inscribed with a legend conspicuously indicating that payment thereof is
subordinated to the claims of the Senior Lender pursuant to the terms of this
Agreement. A copy of any such agreement or instrument will be delivered to
the Senior Lender within five (5) Business Days after the date hereof or the
date of its execution, and the original thereof will be immediately delivered
to the Senior Lender upon request therefor by the Senior Lender after the
occurrence of an Event of Default.
5. TRANSFER OF THE SUBORDINATED DEBT. The Subordinated Lender
warrants and represents that it has not previously assigned any interest in
the Subordinated Debt, and that no other party owns an interest in the
Subordinated Debt. The Subordinated Lender further covenants and agrees that
it will not assign or transfer the Subordinated Debt to any other person
without the
<PAGE>
prior written consent of the Senior Lender. Such consent will be conditioned
upon satisfactory proof that any purchaser or transferee of, or successor to,
the Subordinated Debt has been given detailed written notice of the
subordination accomplished hereby, prior to the time of purchase, transfer or
succession, and agrees to be bound by the same on terms satisfactory to the
Senior Lender.
6. RIGHTS UNIMPAIRED. Nothing contained in this Agreement is
intended to or shall impair, as between the Company, its creditors other than
the holder of the Senior Debt, and the Subordinated Lender, the obligation of
the Company, which is absolute and unconditional, to pay to the Subordinated
Lender the principal of and interest on the Subordinated Debt as and when the
same shall become due and payable in accordance with its terms, or affect the
relative rights of the Subordinated Lender and creditors of the Company other
than the holder of the Senior Debt, nor shall anything herein prevent the
Subordinated Lender from exercising all remedies otherwise permitted by
applicable law upon default under the Subordinated Debt, subject to the
rights, if any, under this Agreement of the holder of the Senior Debt in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
7. TERMINATION OF AGREEMENT. Upon irrevocable payment in full of the
Senior Debt, this Agreement shall terminate, PROVIDED that if any payment
received by the Senior Lender and applied to the Senior Debt is subsequently
set aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization
of the Company or any other obligor), the Senior Debt to which such payment
was applied shall for the purposes of this Agreement be deemed to have
continued in existence, notwithstanding such application, and this Agreement
shall be enforceable as to such Senior Debt as fully as if such application
had never been made. References in this Agreement to amounts "irrevocably
paid" or to "irrevocable payment" refer to payments that cannot be set aside,
recovered, rescinded or required to be returned for any reason.
8. INFORMATION CONCERNING FINANCIAL CONDITION OF COMPANY. The
Subordinated Lender warrants and agrees that it is the responsibility of the
Subordinated Lender to keep informed of the financial condition of the
Company, any and all endorsers and any and all guarantors of the Subordinated
Debt and of all other circumstances bearing upon the risk of nonpayment of
the Senior Debt and/or the Subordinated Debt that diligent inquiry would
reveal. The Subordinated Lender hereby agrees that the Senior Lender shall
have no duty to advise the Subordinated Lender of information known to the
Senior Lender regarding such condition or any such circumstances. In the
event the Senior Lender, in its sole discretion, undertakes, at any time or
from time to time, to provide any such information to the Subordinated
Lender, the Senior Lender shall be under no obligation to (i) to provide any
such information to the undersigned on any subsequent occasion, (ii) to
undertake any investigation not a part of its regular business routine, or
(iii) to disclose any information which, pursuant to its usual practices, the
Senior Lender wishes to maintain confidential. The undersigned hereby agrees
that all payments received by the Senior Lender may be applied, reversed, and
reapplied, in whole or in part, to any of the Senior Debt, as the Senior
Lender, in its sole discretion, deems appropriate and assents to any
extension or postponement of the time of payment of the Senior Debt or to any
other indulgence with respect thereto, to any substitution, exchange or
release of collateral which may at any time secure the Senior Debt and to the
addition or release of any Person primarily or secondarily liable therefor.
9. WAIVER OF JURY TRIAL; JURISDICTION. (a) THE SUBORDINATED LENDER
BY THE EXECUTION AND DELIVERY HEREOF BY THE SUBORDINATED LENDER, AND THE
SENIOR LENDER, BY ITS ACCEPTANCE HEREOF, HEREBY EXPRESSLY WAIVES ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS
UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR
<PAGE>
DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR ARISING FROM ANY CREDIT RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
(b) THE SUBORDINATED LENDER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY MINNESOTA STATE OR FEDERAL COURT SITTING IN HENNEPIN OR
RAMSEY COUNTY, MINNESOTA OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT. THE SUBORDINATED LENDER HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT THE SUBORDINATED LENDER MAY EFFECTIVELY DO SO,
THE DEFENSE OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING.
10. MISCELLANEOUS. This Agreement is made under the laws of the State
of Minnesota. It cannot be waived or changed, except by a writing signed by
the party to be bound thereby. The headings of the sections of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement. All notices and other communications
required or permitted under this Agreement shall be in writing and shall be
delivered, sent by telefacsimile or mailed first class postage prepaid,
registered or certified mail, to the parties at the addresses appearing under
their signatures, or such other address as any party may specify by written
notice to the other parties. All such notices and other communications shall
for all purposes of this Agreement be treated as being effective or having
been given if delivered upon receipt or, if sent by mail as provided above,
upon the earlier of receipt or the fifth (5th) day following the date of
deposit in the United States Mail.
IN WITNESS WHEREOF, the Company, the Subordinated Lender and the Senior
Lender have caused this Agreement to be signed on the date first dated above.
TECH SQUARED INC.
By
------------------------------
Its
------------------------
Address: 5198 West 76th Street
Edina, Minnesota 55439
JOEL A. RONNING
By
------------------------------
Its
------------------------
Address: 6300 Smithtown Road
Victoria, Mn 55331
FIRST BANK NATIONAL ASSOCIATION
By
------------------------------
Its
------------------------
Address: 2338 Central Avenue N.E.
Minneapolis, Minnesota 55418
<PAGE>
[LETTERHEAD]
April 29, 1997
Rick Apple
Dear Rick:
We are pleased to offer you the position of Senior VP of Marketing with Tech
Squared. We're sure you will find working with Tech Squared both challenging and
rewarding. Your responsibilities will be to:
1) Manage the creation, production, and mailing of our DTP Direct catalog.
2) Assist management in setting strategic marketing direction.
3) Manage all mailing lists.
4) Work with Product Management to optimize our product offering.
5) Work with Sales to ensure marketing initiatives are implemented properly.
6) Research and report to management on all relevant catalog performance
criteria.
7) Negotiate favorable terms for catalog printing, mailing, and list
acquisition.
8) Oversee the implementation of a commercial web site.
9) Create and execute weekly DTP and T2 Fax Blasts.
10) Other responsibilities which may be assigned from time to time.
Compensation for the responsibilities outlined above will be:
1.) Salary - From your start date through October 15, your salary will be paid
twice a month at the rate of $90,000 per year. On October 15th, we will review
your performance. If your employment is continued, your salary will be increased
to $120,000 per year. Your performance goals for this period are to:
- Increase the average number of daily inbound calls (DTP client calls +
prospect calls) by 15% over current (cycle 23) levels.
- Maintain a minimum DTP Direct gross sales margin of 18% or higher (our
goal is 20%).
- Achieve a monthly operating profit of $20,000 or more.
2.) Purchase of InfiNet mailing lists - Upon your joining the company, Tech
Squared will purchase InfiNet's mailing lists for $25,000. The purchase price
will be paid in twelve equal monthly installments beginning May 1, 1997. Any
and all InfiNet liabilities will remain the responsibility of Rick Apple.
3.) Bonus - You will be eligible to earn bonuses in addition to your base
salary. The bonus plan will be based on the company's growth and operating
profits, per Attachment "A".
<PAGE>
4.) Stock Options - upon joining the company, subject to acceptance by the board
of directors, you will receive an option to purchase 1,000,000 shares of common
stock at $0.75 per share under the company's existing Stock Incentive Program.
Your options will vest as follows:
Upon joining the company - 100,000 shares
On your 1st employment anniversary - 125,000 shares
On your 2nd employment anniversary - 125,000 shares
On your 3rd employment anniversary - 125,000 shares
On your 4th employment anniversary - 125,000 shares
On your 5th employment anniversary - 400,000 shares
5.) Acceleration of Options - When the company achieves the annual run rate of
$1,000,000 net profit, your option to purchase the final 400,000 above may be
accelerated into the current year. This will be deemed to have occurred when the
company shows a quarterly net profit on regular Tech Squared operations
(exclusive of Digital River results) of $250,000 as reported on the form 10-Q.
6.) You will be eligible for the Company's standard benefits package (vacation,
health, dental and life insurance). The effective date of the coverage will be
the first of the month following 30 days of employment.
7.) At the end of one year employment, you may be eligible for the company 401K
plan. The plan in force at the time of your eligibility will determine the
amount and vesting timetable that applies to you.
All employment is at will, and subject to 90 day and 6 month probationary
reviews. Your employment is contingent upon you signing our Non-Compete, Non-
Disclosure and our Privacy Policy.
Your start date will be April 29, 1997.
Congratulations! We are looking forward to the contribution we know you can
make.
Accepted:
/s/ Rick Apple
- -------------------------------------
Rick Apple
/s/ Chuck Reese
- -------------------------------------
Chuck Reese
President, Tech Squared, Inc.
<PAGE>
ATTACHMENT "A"
BONUS PLAN
This bonus plan will be in effect through October 15. Assuming your continued
employment, the plan will be adjusted at that time to yield a total potential
payout of $6,000 per month.
CRITERIA "FAIR" "GOOD" "GREAT"
- -------- ------ ------ -------
Monthly Profit* $20K $50K $85K
Call Volume +10% +15% +25%
Gross margin 18% 19% 20%
Monthly Growth 15% 25% 40%
Payout (per item) $250 $1,000 $1,800
If all 4 criteria are met $250 $1,000 $1,800
Total potential bonus $1,250 $5,000 $9,000
*Monthly profit goal must be met in order to qualify for any bonus amount.
Provided monthly profit goal is achieved, other criteria pay as achieved.
Performance falling between the shown amounts will be pro-rated.
"Call Volume" is defined as DTP Direct prospect calls + client calls, per the HB
report.
"Gross Margin" is defined as DTP Direct Gross Margin, per the monthly financial
statement.
"Monthly Growth" is defined as Tech Squared Net Sales per the monthly financial
statement over the previous year's Net Sales.
<PAGE>
[LETTERHEAD]
April 29, 1997
Rick Apple
Re: Clarification of Offer Letter
Dear Rick:
Welcome aboard! As we discussed earlier today, I wish to make sure we are all
clear about the triggering of your acceleration clause. Specifically, I am
referring to section 5 of your employment offer letter dated April 29, 1997,
which reads:
5.) Acceleration of Options - When the company achieves the annual run
rate of $1,000,000 net profit, your option to purchase the final
400,000 above may be accelerated into the current year. This will be
deemed to have occurred when the company shows a quarterly net profit
on regular Tech Squared operations (exclusive of Digital River
results) of $250,000 as reported on the form 10-Q.
A key phrase is "net profit on regular Tech Squared operations". This is meant
to describe our core operations as they are today, and would exclude
extraordinary or one time events such as adjustments to inventory, receivables,
bad debt, etc. It would also exclude results stemming from mergers or
acquisitions, or from sales of stock or other assets.
The intent is to reward you for making a material contribution toward growing
and improving the current DTP Direct and Tech Squared operations through your
impact on our current business as VP of Marketing.
I am looking forward to the day we achieve this goal!
Sincerely,
/s/ Chuck Reese
- -------------------------------------
Chuck Reese
Received:
/s/ Rick Apple
- -------------------------------------
Rick Apple
<PAGE>
SETTLEMENT AGREEMENT
THIS AGREEMENT is made and entered into this day of May, 1997,
between Tech Squared Inc., f/k/a Jaguar Group, Limited, successor in interest
through merger to MacUSA, Inc. ("Petitioner") and John P. Earling
("Respondent").
WHEREAS, Petitioner brought a Petition For Determination Of Value Under
Minnesota Statute Section 302A.473, subd. 7 (Petition) against Respondent in
Hennepin County District Court, captioned MACUSA, INC. V. JOHN P. EARLING, Court
File No. CT95-018953, requesting the court determine the fair value of
Respondent's shares in MacUSA immediately prior to merger with Jaguar Group,
Limited;
WHEREAS, Respondent answered the Petition and counterclaimed against
Petitioner for dividend payments, appointment of a receiver, and failure to
provide tax information;
WHEREAS, Petitioner and Respondent have agreed to fully compromise and
settle all claims between them without litigation, on the terms and conditions
stated herein;
NOW, THEREFORE, Petitioner and Respondent hereby agree:
1. Petitioner agrees to pay Respondent the principal sum of $207,500,
with interest thereon, as follows:
a. $52,500, payable with certified funds upon execution of this
Agreement, the receipt of which is hereby acknowledged by
Respondent; and
b. quarterly principal payments according to the following schedule,
together with a quarterly payment of interest at the
<PAGE>
rate of 7-1/2% per annum on the unpaid principal balance from the
date of this Agreement:
On or before May 31, 1997 $ 20,000
On or before August 31, 1997 $ 20,000
On or before November 30, 1997 $ 20,000
On or before February 28, 1998 $ 20,000
On or before May 31, 1998 $ 20,000
On or before August 31, 1998 $ 20,000
On or before November 30, 1998 $ 20,000
On or before February 28, 1999 $ 15,000
There shall be no income limitation on such payments.
2. Contemporaneously with execution of this Agreement, Petitioner shall
execute a confession of judgment in the form attached hereto and incorporated
herein as Exhibit A, in the amount of $155,000, less any payments made by
Petitioner prior to the time of default, plus interest at the rate of 7-1/2% per
annum from the date of default.
3. On the date this Agreement is executed by all parties, Petitioner
shall tender to First Trust National Association (the "Escrow Agent"), a
certificate for two hundred thousand (200,000) shares of capital stock in CAM
Designs, Inc. The Escrow Agent shall cause the Transfer Agent of CAM Designs,
Inc. to issue to issue certificates representing 60,000 shares and 140,000
shares, respectively, of capital stock in CAM Designs, Inc., in exchange for the
certificate representing 200,000 shares of capital stock in CAM Designs, Inc.
The Escrow Agent shall retain the certificate representing 60,000 shares of
capital stock in CAM Designs, Inc., which shares shall constitute the "Escrowed
Shares," which shall be held in an escrow account pursuant to the Escrow
Agreement described in subparagraph (g) hereof until the
<PAGE>
payments set forth in Paragraph 1 of this Agreement have been made to
Respondent, except as provided in this Paragraph 3.
(a) In the event Respondent files with the Hennepin County District Court
(the "Court") a confession of judgment executed pursuant to Paragraph 2 of this
Agreement, pursuant to paragraphs 3 and 4 of said confession of judgment, and
the Court enters judgment against Petitioner pursuant to said confession of
judgment, the Escrow Agent shall, upon request of Respondent, following 10 days'
prior written notice to Petitioner, and upon presentation of an order of the
Court entering judgment against Petitioner pursuant to said confession of
judgment, sell on the open market a sufficient number of the Escrowed Shares to
satisfy the judgment entered by the Court, and shall promptly pay the amount of
the judgment to John P. Earling. The open market sales shall be conducted in a
prudent manner, and no more than 15,000 shares may be sold by the Escrow Agent
per week.
(b) Upon the request of Petitioner, following 10 days' prior notice to
Respondent, the Escrow Agent shall promptly tender to Petitioner such number of
the Escrowed Shares, endorsed to Tech Squared Inc., as requested by Petitioner,
which number shall not exceed the number of Excess Escrowed Shares in existence
as of the date of Petitioner's request. Excess Escrowed Shares shall be
calculated by (1) dividing 2.5 into the total dollars, including interest,
payable to Respondent pursuant to paragraph 1 of this Agreement that have not
been paid as of the date of Petitioner's request pursuant to this subparagraph
3(b); (2) subtracting the resulting number from the total number of Escrowed
Shares remaining in the escrow account as of the date of Petitioner's request;
and (3) rounding the resulting number to the nearest whole share.
(c) Should Respondent finally be adjudged, after exhaustion of any
appeals taken, by a court of competent jurisdiction to have breached this
Agreement, the Escrow Agent shall, within 10 business days after written
notice to Respondent and
<PAGE>
presentation of such judgment to the Escrow Agent, cause all of the Escrowed
Shares held in escrow as of the date of such adjudication to be endorsed to
Petitioner and tendered to Petitioner.
(d) Except as otherwise specifically provided in this Paragraph 3,
Petitioner shall have all indicia of ownership of the Escrowed Shares while they
are held in escrow, including, without limitation, the right to vote the
Escrowed Shares and receive distributions thereon and the obligations to pay all
taxes, assessments and charges with respect thereto, but excluding the right to
sell any Escrowed Shares.
(e) Any distributions, other than cash and taxable stock dividends (which
dividends shall be paid to Petitioner), on or with respect to the Escrowed
Shares and any other shares or securities into which such Escrowed Shares may be
changed or for which they may be exchanged pursuant to corporate action of CAM
Designs, Inc. affecting holders of CAM Designs, Inc. Common Stock generally (a
"Distribution") shall be delivered to and held by the Escrow Agent in escrow.
The 15,000 share weekly maximum on open market sales in subparagraph (a) of this
Paragraph 3 shall be adjusted to reflect and in direct proportion to any
Distribution occurring prior to the date of any sale pursuant to said
subparagraph (a). In addition, the divisor (2.5) in subparagraph 3(b), which
reflects 150,000 divided by the number of original Escrowed Shares, shall be
adjusted to reflect and in direct proportion to any Distribution occurring prior
to the date of any request made by Petitioner pursuant to subparagraph 3(b).
(f) Any Escrowed Shares and Distributions held by the Escrow Agent after
all payments set forth in Paragraph 1 have been paid to Respondent by Petitioner
shall be endorsed to Tech Squared Inc. and tendered to Petitioner within 10
business days of the final payment made pursuant to Paragraph 1. Petitioner
shall provide the Escrow Agent with notice of such final payment.
<PAGE>
(g) Petitioner and Respondent further agree to execute an Escrow Agreement
with the Escrow Agent in substantially the form attached hereto and incorporated
herein as Exhibit B.
4. In consideration of the foregoing, Petitioner and Respondent for
themselves and for their heirs, successors, assigns, agents, representatives,
officers and directors hereby dismiss with prejudice and unconditionally release
one another, their heirs, successors, assigns, agents, representatives, officers
and directors from any and all manner of action or actions, suits, claims,
damages, demands, judgments, levies and executions, whether known or unknown,
liquidated or unliquidated, fixed or contingent, direct or indirect, that
Petitioner and Respondent and/or their heirs, successors, assigns, agents,
representatives, officers, directors and all subsidiaries, parents and related
entities ever had, has or ever can, shall or may have or claim to have against
the other party and its or his heirs, successors, assigns, agents,
representatives, officers, directors and all subsidiaries, parents and related
entities from any act or thing occurring prior to the date of the execution of
this Agreement, including, without limiting the generality of the foregoing, any
and all claims which were or could have been asserted in a certain action
pending in Hennepin County District Court, captioned MACUSA, INC. V. JOHN P.
EARLING, Court File No. CT95-018953.
5. Petitioner and Respondent understand and agree that this Agreement is
a compromise of doubtful and disputed claims and that the execution of this
Agreement is not to be construed as an admission of liability on the part of
either party hereto and that said parties expressly deny liability and intend
merely to avoid further litigation with respect to such claims.
6. This Agreement may be pleaded as a full and complete defense to any
action, suit or other proceeding which may be instituted, prosecuted, or
attempted by either of the signing parties in breach of this Agreement.
<PAGE>
7. Petitioner and Respondent further agree that a party who materially
breaches this Agreement shall pay reasonable attorneys' fees and other expenses
incurred by the other party as a result of any and all claims asserted by such
party in violation of this Agreement or any other material breach of this
Agreement caused by such party.
8. This Agreement shall inure to and bind the parties hereto and their
respective legal representatives, successors and assigns. This Agreement shall
be governed in all respects by the laws of the state of Minnesota.
9. Petitioner and Respondent hereby certify that they have read and
understand this Agreement, that they have been fully advised by counsel with
respect to all of the terms of this Agreement, that they have entered into this
Agreement of their own free will and deed, and that they agree to be bound by
the terms set forth herein.
10. This Agreement contains the entire agreement between the parties and
the terms of this Agreement are contractual and not a mere recital. There are no
promises, terms, conditions or obligations other than those contained herein.
This Agreement supersedes all previous communications, representations or
agreements, whether verbal or written, between or among the parties hereto, and
can only be modified in writing and only when agreed to by both Petitioner and
Respondent.
11. Where any one or more of the provisions of this Agreement shall be for
any reason invalid or illegal or unenforceable in respect to any matter, such
provision shall be deemed a separate and several part of this Agreement, hence
shall not in anyway effect any of the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had not been contained herein.
<PAGE>
12. Nothing contained in this Agreement shall be construed to release any
party hereto or any other person with respect to the covenants, undertakings and
agreements of such party contained in this document.
13. The parties agree to cooperate in effecting the purposes of this
Agreement and agree to sign any documents reasonably required toward that end.
14. Petitioner and Respondent further agree to direct their respective
counsel to sign and file a Stipulation of Dismissal with Prejudice in the form
attached hereto and incorporated herein as Exhibit C, which directs the Court to
dismiss the above captioned action with prejudice, but without costs or
disbursements to any of the parties.
15. In the event Respondent brings any action which is finally determined,
after exhaustion of any appeals taken, by a court of competent jurisdiction to
be in violation of Paragraph 4 of this Agreement, Petitioner shall be entitled
to recover its reasonable attorneys fees and its costs of defending any action
brought by Respondent in violation of Paragraph 4 of this Agreement, in addition
to all other remedies available to Petitioner.
<PAGE>
Dated: , 1997 Tech Squared Inc.
By
-------------------------------
Its
------------------------------
Dated: , 1997
------------------------------
John P. Earling
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement"), made as of this ___ th day of
May, 1997, is by and between Tech Squared Inc., f/k/a Jaguar Group, Limited,
successor in interest through merger to MacUSA, Inc. ("Tech Squared"), John P.
Earling ("Earling"), and First Trust National Association, Minneapolis,
Minnesota ("Escrow Agent").
WHEREAS, Tech Squared and Earling have entered into that certain
Settlement Agreement ("Settlement Agreement") dated May 23, 1997, pursuant to
which Tech Squared has agreed to pay $205,000, plus interest, to Earling in
settlement of disputed claims; and
WHEREAS, in accordance with the terms of paragraph 3 of the Settlement
Agreement, and as a condition precedent thereof, the parties have agreed to
enter into this Agreement, pursuant to which certificates for 60,000 shares of
capital stock in CAM Designs, Inc. is to be placed in escrow to secure the
payment obligations of Tech Squared under the Settlement Agreement; and
WHEREAS, the Escrow Agent is willing to act as escrow agent on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and in the Settlement Agreement, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
APPOINTMENT OF ESCROW AGENT. The Escrow Agent is hereby
appointed escrow agent to hold and dispose of the Escrow Shares (as hereinafter
defined) in accordance with the terms and conditions set forth in this
Agreement, and the Escrow Agent accepts such designation and agrees to hold and
dispose of the Escrow Shares in accordance with the terms and conditions set
forth in this Agreement.
DELIVERY OF THE ESCROW SHARES.
(a) Simultaneously with the execution of this Agreement, Tech
Squared has caused to be deposited with the Escrow Agent a certificate
representing 200,000 shares of capital stock in CAM Designs, Inc. The Escrow
Agent shall, within 20 business days of the date of this Agreement, cause the
Transfer Agent of CAM Designs, Inc. to issue certificates representing 60,000
shares and 140,000 shares, respectively, of capital stock in CAM Designs, Inc.,
in exchange for the certificate representing 200,000 shares of capital stock in
CAM Designs, Inc. The Escrow Agent shall promptly tender to Tech Squared the
certificate representing
<PAGE>
140,000 shares of capital stock in CAM Designs, Inc., and retain the
certificate representing 60,000 shares of capital stock in CAM Designs, Inc.,
which shares shall constitute the Escrow Shares.
(b) Together with the certificate representing 200,000 shares of
capital stock in CAM Designs, Inc., Tech Squared has delivered to the Escrow
Agent three duly executed stock powers (endorsed in blank) with respect thereto,
with a Medallion signature guarantee.
(c) The Escrow Shares shall be held and used only for the
purposes of securing the payment obligations of Tech Squared as set forth in
paragraph 3 of the Settlement Agreement.
3. DISTRIBUTION AND LIQUIDATION OF ESCROW SHARES.
(a) Upon the request of Earling, following 10 days' prior
written notice to Tech Squared, and the presentation by Earling of an order of
the Hennepin County District Court (the "Court") entering judgment against Tech
Squared pursuant to a confession of judgment executed pursuant to Paragraph 2 of
the Settlement Agreement and pursuant to paragraphs 3 and 4 of said confession
of judgment,the Escrow Agent shall sell on the open market a sufficient number
of the Escrow Shares to satisfy the judgment entered by the Court, and shall
promptly pay the amount of the judgment to Earling. The open market sales shall
be conducted in a prudent manner, and no more than 15,000 shares may be sold by
the Escrow Agent per week.
(b) Upon the request of Tech Squared, following 10 days' prior
written notice to Earling, the Escrow Agent shall promptly caused to be tendered
to Tech Squared such number of the Escrow Shares, endorsed to Tech Squared Inc.,
as requested by Tech Squared, which number shall not exceed the number of Excess
Escrow Shares in existence as of the date of Tech Squared's request. Excess
Escrow Shares shall be calculated by (1) dividing 2.5 into the total dollars,
including interest, payable to Earling pursuant to paragraph 1 of the Settlement
Agreement that have not been paid as of the date of Tech Squared's request
pursuant to this subparagraph 3(b); (2) subtracting the resulting number from
the total number of Escrow Shares remaining in the escrow account as of the date
of Tech Squared's request; and (3) rounding the resulting number to the nearest
whole share.
(c) Should Earling finally be adjudged, after exhaustion of any
appeals taken, by a court of competent jurisdiction to have breached the
Settlement Agreement, the Escrow Agent shall, within 10 business days after
written notice to Earling and presentation of such judgment to the Escrow Agent,
cause all of the Escrow Shares held in escrow as of the date of such
adjudication to be endorsed to Tech Squared Inc. and tendered to Tech Squared.
(d) Except as otherwise specifically provided in this paragraph
3, Tech Squared shall have all indicia of ownership of the Escrow Shares while
they
<PAGE>
are held in escrow, including, without limitation, the right to vote the
Escrow Shares and receive distributions thereon and the obligations to pay all
taxes, assessments and charges with respect thereto, but excluding the right to
sell any Escrow Shares.
(e) Any distributions, other than cash and taxable stock
dividends (which dividends shall be paid to Tech Squared), on or with respect to
the Escrow Shares and any other shares or securities into which such Escrow
Shares may be changed or for which they may be exchanged pursuant to corporate
action of CAM Designs, Inc. affecting holders of CAM Designs, Inc. capital stock
generally (a "Distribution") shall be delivered to and held by the Escrow Agent
in escrow. The 15,000 share weekly maximum on open market sales in subparagraph
(a) of this Paragraph 3 shall be adjusted to reflect and in direct proportion to
any Distribution occurring prior to the date of any sale pursuant to said
subparagraph (a). In addition, the divisor (2.5) in subparagraph 3(b), which
reflects 150,000 divided by the number of original Escrow Shares, shall be
adjusted to reflect and in direct proportion to any Distribution occurring prior
to the date of any request made by Tech Squared pursuant to subparagraph 3(b).
If any Distribution consists of cash, the Escrow Agent shall invest such cash in
the fund(s) identified in Exhibit A attached hereto.
(f) Any Escrow Shares and Distributions held by the Escrow Agent
after all payments set forth in Paragraph 1 of the Settlement Agreement have
been paid to Earling by Tech Squared shall be endorsed to Tech Squared Inc. and
tendered to Tech Squared within 10 business days of notice of the final payment
made pursuant to Paragraph 1 of the Settlement Agreement. Tech Squared shall
concurrently provide the Escrow Agent and Earling with notice of such final
payment. In any event, Tech Squared shall provide the Escrow Agent with such
notice no later than May 31, 1999, after which the obligations of the Escrow
Agent hereunder shall cease.
4. ESCROW AGENT; RIGHTS AND OBLIGATIONS.
(a) FEES AND EXPENSES. The Escrow Agent shall be paid fees for
its services hereunder determined pursuant to Exhibit B attached hereto, and
shall be reimbursed for all reasonable expenses, disbursements, and advances
incurred or made by the Escrow Agent in performance of its duties hereunder
including, without limitation, those set forth on Exhibit B. All such fees and
expenses shall be paid one-half by Earling and one-half by Tech Squared.
(b) RESIGNATION. The Escrow Agent may resign and be discharged
from its duties hereunder at any time by giving notice of such resignation to
Tech Squared and Earling specifying a date (not less than thirty (30) days after
the date of such notice) when such resignation shall take effect. Upon such
notice, a successor Escrow Agent shall be appointed with the mutual consent of
Tech Squared and Earling, with such successor escrow agent to become Escrow
Agent hereunder upon the resignation date specified in such notice. If Tech
Squared and Earling are unable to agree upon a successor escrow agent within
thirty
<PAGE>
(30) days after such notice, the Escrow Agent shall be entitled to
appoint its successor or to petition any court of competent jurisdiction to name
a successor. The Escrow Agent shall continue to serve until its successor
accepts the escrow and receives the Escrow Shares. Tech Squared and Earling
shall have the right at any time upon their mutual consent to substitute a new
escrow agent by giving notice thereof to the Escrow Agent then acting.
(c) LIMITATION ON DUTIES. The Escrow Agent undertakes to
perform only such duties as are expressly set forth herein and no other
obligations shall be read into this Agreement against the Escrow Agent.
(d) RELIANCE. The Escrow Agent may act in reliance upon any
writing or instrument or signature which it, in good faith, believes to be
genuine, may assume the validity and accuracy of any statement or assertion
contained in such writing or instrument and may assume that any person
purporting to give any writing, or notice, advice or instructions in connection
with the provisions hereof has been duly authorized to do so. The Escrow Agent
shall not be liable in any manner for the sufficiency or correctness as to form,
manner and execution, or validity of any instrument deposited in the Escrow Fund
(which shall be comprised of all Escrow Shares and Distributions held by the
Escrow Agent), nor as to the identity, authority or right of any person
executing the same, absent its own gross negligence or wilful misconduct or
malfeasance; and its duties hereunder shall be limited to the safekeeping of
such funds, moneys, certificates, instruments or other documents received by it
as such escrow holder, and for the investment and disposition of the same in
accordance with the terms of this Agreement.
(e) INDEMNIFICATION. The Escrow Agent acts hereunder as a
depository only and is not responsible for or liable in any manner whatsoever
for the sufficiency, correctness, genuineness or validity of any Escrow Shares
deposited with it. Tech Squared and Earling hereby agree to indemnify and hold
harmless the Escrow Agent from and against all claims, liabilities, losses,
actions, suits or proceedings at law or in equity, or any other expenses, fees
or charges of any character or nature, which the Escrow Agent may incur or with
which the Escrow Agent may be threatened by reason of its acting as Escrow Agent
under this Agreement and in connection therewith to indemnify the Escrow Agent
against any and all expenses, including reasonable attorneys' fees and the cost
of defending any action, suit or proceeding or resisting any claim.
Notwithstanding the foregoing, it is specifically understood and agreed that in
the event the Escrow Agent is found guilty of gross negligence or willful
misconduct or malfeasance in the exercise of its responsibilities hereunder, the
indemnification provisions of this Agreement shall not apply.
(f) INTERPLEADER. If any two parties shall be in disagreement
about the interpretation of this Agreement, or rights or obligations hereunder
or the propriety of any action contemplated by the Escrow Agent hereunder, the
Escrow Agent may file an action in interpleader to resolve said disagreement.
The Escrow
<PAGE>
Agent shall be indemnified for all costs, including reasonable
attorney's fees, in connection with such interpleader action, and shall be fully
protected in suspending all or a part of its activities under this Agreement
until a final judgment in the interpleader action is received.
(g) COUNSEL. The Escrow Agent may consult with counsel of its
own choice, and shall have full and complete authorization and protection for
any action taken or suffered by it hereunder in good faith in accordance with
the opinion of such counsel. The Escrow Agent shall otherwise not be liable for
any mistakes of fact or error of judgment or for any acts or omissions of any
kind unless caused by its gross negligence or willful misconduct or malfeasance.
(h) BOOKS AND RECORDS. The Escrow Agent shall maintain books
and records regarding its administration of the Escrow Shares, and the deposit,
investment, collections and disbursements or transfer thereof, shall retain
copies of all written notices and directions sent or received by it in the
performance of its duties hereunder and shall afford each party reasonable
access during regular business hours, to review and make photocopies (at such
party's cost) of the same. The Escrow Agent shall provide each of the parties
with accounting statements on a quarterly basis, and shall be responsible for
all income tax reporting acquired in connection with the Escrow Shares.
5. MISCELLANEOUS.
(a) AMENDMENT AND WAIVER. This Agreement may not be amended or
waived except in a writing executed by the party against which such amendment or
waiver is sought to be enforced. No course of dealing between or among any
persons having any interest in this Agreement will be deemed effective to modify
or amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
<PAGE>
(b) NOTICES. All notices, demands and other communications to
be given or delivered under or by reason of the provisions of this Agreement
will be in writing and will be deemed to have been given when personally
delivered (by messenger, courier or other similar means), or, if mailed by first
class mail, return receipt requested, on the fifth day after the date of such
mailing, or when receipt is acknowledged, if sent by facsimile, telecopy or
other electronic transmission device. Notices, demands and communications to
Tech Squared, Earling and/or the Escrow Agent will, unless another address is
specified in writing, be sent to the address indicated below:
Notices to Tech Squared: Tech Squared, Inc.
Attn: Stan Tenenbaum
5198 West 76th Street
Edina, Minnesota 55439
Telecopy No. (612) 832-5709
Telephone No. (612) 832-5622
- with a copy to -
Dorsey & Whitney LLP
Attn: Creighton R. Magid, Esq.
220 South Sixth Street
Minneapolis, MN 55402
Telecopy No.: (612) 340-8856
Telephone No.: (612) 340-5661
Notices to the Escrow Agent: First Trust National Association
Attn: Thomas M. Gronlund
180 E. 5th Street
St. Paul, MN 55101
Telecopy No.: (612) 244-0712
Telephone No.: (612) 244-0733
Notices to Earling: John P. Earling
2165 Colin Drive
Long Lake, MN 55356
Telephone No.: (612) 473-0385
- with a copy to -
Allen D. Barnard, Esq.
Best & Flanagan
4000 First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4331
Telecopy No. (612) 339-5897
Telephone No.: (612) 341-9715
<PAGE>
(c) ASSIGNMENT. This Agreement and all of the provisions hereof
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by
either party hereto without the prior written consent of the other party hereto.
(d) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
(e) COMPLETE AGREEMENT. This Agreement and the Settlement
Agreement (including the exhibits hereto and thereto) contain the complete
agreement between the parties and supersede any prior understandings, agreements
or representations by or between the parties, written or oral, which may have
related to the subject matter hereof in any way.
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
(g) GOVERNING LAW. The internal law, without regard to
conflicts of laws principles, of the State of Minnesota will govern all
questions concerning the construction, validity and interpretation of this
Agreement and the performance of the obligations imposed by this Agreement.
(h) JURISDICTION. All parties consent to the jurisdiction of
the courts of the State of Minnesota with respect to any controversy or claim
arising between the parties in connection with this Agreement.
(i) INTERPRETATION. The article and section headings contained
in this Agreement are for reference purposes only and shall not affect the
interpretation of this Agreement. All references to Article or Section numbers
refer to the Articles or Sections of this Agreement, unless otherwise indicated.
The parties hereto acknowledge and agree that this Agreement was drafted jointly
by the parties and its provisions shall be given their fair meaning.
(j) TAX REPORTING. For federal and state income tax purposes,
all interest earned on the Escrow Funds shall be considered the currently
reportable income of the party who receives the distribution with respect
thereto. The Escrow Agent annually shall file all information returns with the
Internal Revenue Service and other governmental authorities documenting such
interest income. The tax identification numbers of the parties are as follows:
<PAGE>
Tech Squared: 41-1591872
John Earling: ###-##-####
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TECH SQUARED, INC.
- -------------------
By Stan Tenenbaum
Its Chief Financial Officer
- ------------------- John P. Earling
- ------------------- FIRST TRUST NATIONAL ASSOCIATION
By
-----------------------------
Its
-----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 311
<SECURITIES> 701
<RECEIVABLES> 2,524<F1>
<ALLOWANCES> 0
<INVENTORY> 1,507
<CURRENT-ASSETS> 528
<PP&E> 347<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,882
<CURRENT-LIABILITIES> 5,028
<BONDS> 0
198
0
<COMMON> 0
<OTHER-SE> 2,316
<TOTAL-LIABILITY-AND-EQUITY> 7,882
<SALES> 18,448
<TOTAL-REVENUES> 18,448
<CGS> 16,296
<TOTAL-COSTS> 16,296
<OTHER-EXPENSES> 2,055
<LOSS-PROVISION> 113
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> (503)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (503)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
<FN>
<F1> Amounts Reported For Accounts Receivable and Property,
Plant & Equipment are Net Amounts.
</TABLE>
