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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from______ to______
Commission file number 0-25974
----------------------
R-B RUBBER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0967413
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
904 E. 10TH AVENUE, McMINNVILLE, OREGON 97128
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 503-472-4691
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK WITHOUT PAR VALUE 2,239,167
(Class) (Outstanding at November 6, 1998)
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
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R-B RUBBER PRODUCTS, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
------------------------------ ----
<S> <C>
Item 1. Financial Statements
Report of Independent Accountants 2
Balance Sheets - September 30, 1998 and December 31, 1997 3
Statements of Operations - Three Month and Nine Month 4
Periods Ended September 30, 1998 and 1997
Statements of Cash Flows - Nine Month Periods Ended 5
September 30, 1998 and 1997
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
R-B Rubber Products, Inc.
We have made a review of the condensed balance sheets of R-B Rubber Products,
Inc. as of September 30, 1998 and December 31, 1997, the related condensed
statements of operations for the three month and nine month periods ended
September 30, 1998 and 1997, and the related condensed statements of cash flows
for the nine month periods ended September 30, 1998 and 1997, in accordance
with standards established by the American Institute of Certified Public
Accountants.
A review of the interim financial information consists principally of obtaining
an understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and
making inquiries of persons responsible for financial and accounting matters.
It is substantially less in scope than an audit in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
Morrison & Liebswager, P.C.
King City, Oregon
November 6, 1998
2
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R-B RUBBER PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 158,047 $ 291,990
Accounts receivable, net of allowances of $3,904 and $6,216 807,883 910,480
Income taxes receivable, net 20,779 -
Inventories, net 902,816 692,073
Prepaid expenses and other 96,527 37,738
Deferred tax benefit 30,753 -
------------- ------------
Total Current Assets 2,016,805 1,932,281
Property, Plant and Equipment, net of accumulated
depreciation and valuation allowance of $2,076,253
and $1,727,139 5,691,627 4,066,562
Other Assets 517,648 276,693
------------- ------------
Total Assets $8,226,080 $6,275,536
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable - bank $ 336,230 $ -
Notes payable - other 33,459 -
Accounts payable 825,997 404,210
Payroll and related benefits payable 88,180 68,747
Interest payable - 4,363
Income taxes payable - 19,180
Current portion of long-term debt 276,086 134,507
------------- ------------
Total Current Liabilities 1,559,952 631,007
Long-Term Debt, net of current portion 1,579,180 772,866
Deferred Income Taxes 280,889 238,034
Commitments and Contingencies
Shareholders' Equity:
Common stock, no par value, 20,000,000 shares authorized;
2,239,167 and 2,172,500 shares issued and outstanding 4,014,110 3,797,442
Additional paid-in capital 282,849 282,849
Retained earnings 509,100 553,338
------------- ------------
Total Shareholders' Equity 4,806,059 4,633,629
------------- ------------
Total Liabilities and Shareholders' Equity $8,226,080 $6,275,536
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
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R-B RUBBER PRODUCTS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $1,993,712 $1,896,997 $ 5,885,271 $5,249,377
Cost of sales 1,457,962 1,213,708 4,225,722 3,197,187
----------- ----------- ----------- -----------
Gross profit 535,750 683,289 1,659,549 2,052,190
----------- ----------- ----------- -----------
Operating expenses:
Selling 216,318 192,572 646,897 509,842
General and administrative 300,978 269,364 994,295 866,796
----------- ----------- ----------- -----------
517,296 461,936 1,641,192 1,376,638
----------- ----------- ----------- -----------
Income from operations 18,454 221,353 18,357 675,552
Other income (expense)
Interest income 851 760 5,769 760
Interest expense (55,848) (32,936) (108,129) (85,432)
Gain on sale of assets - - 13,100 555
Other income, net 9,972 4,379 17,988 8,009
----------- ----------- ----------- -----------
(45,025) (27,797) (71,272) (76,108)
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes (26,571) 193,556 (52,915) 599,444
Provision for (benefit from) income taxes 280 67,629 (8,677) 206,686
----------- ----------- ----------- -----------
Net income (loss) $ (26,851) $ 125,927 $ (44,238) $ 392,758
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic and diluted net income (loss) per share $ (0.01) $ 0.06 $ (0.02) $ 0.18
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
4
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R-B RUBBER PRODUCTS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (44,238) $ 392,758
Adjustments to reconcile net income (loss) to net cash
flows provided by operating activities:
Depreciation and amortization 389,620 376,599
Gain on sale of fixed assets (13,100) (555)
(Increase) decrease in:
Accounts receivable, net 102,597 (108,118)
Inventories, net (210,743) (299,012)
Income taxes receivable (20,779)
Prepaid expenses and other (58,789) (78,908)
Increase (decrease) in:
Income taxes payable (19,180) 112,970
Accounts payable 421,787 83,588
Payroll and related benefits payable 19,433 66,249
Interest payable (4,363) (7,611)
Other accrued liabilities - 24,117
Deferred income taxes 12,102 93,717
------------ ------------
Net cash provided by operating activities 574,347 655,794
Cash flows from investing activities:
Payments for purchase of property and equipment (1,414,685) (1,036,475)
Proceeds from sale of fixed assets 13,100 555
Cash paid for acquisition (600,000) -
Other assets, net (24,287) (41,807)
------------ ------------
Net cash used in investing activities (2,025,872) (1,077,727)
Cash flows from financing activities:
Proceeds from short-term debt, net 369,689 654,394
Payments on short-term debt - (112,770)
Proceeds from long-term debt 1,592,000 -
Payments on long-term debt (644,107) (89,642)
------------ ------------
Net cash provided by financing activities 1,317,582 451,982
------------ ------------
Increase (decrease) in cash and cash equivalents (133,943) 30,049
Cash and cash equivalents:
Beginning of period 291,990 26,547
------------ ------------
End of period $ 158,047 $ 56,596
------------ ------------
------------ ------------
Non-cash investing activity:
Common Stock issued in connection with acquisition $ 216,668 $ -
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
5
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R-B RUBBER PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The financial information included herein for the three month and nine month
periods ended September 30, 1998 and 1997 and the financial information as of
September 30, 1998 is unaudited; however, such information reflects all
adjustments consisting only of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. The
financial information as of December 31, 1997 is derived from R-B Products,
Inc.'s (the Company's) 1997 Annual Report on Form 10-KSB. The interim financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's 1997 Annual Report on Form 10-KSB. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
NOTE 2. INVENTORIES
Inventories are stated at lower of cost, using average costs, which approximates
the first-in, first-out (FIFO) method, or market, and include materials, labor
and manufacturing overhead. Unsalable or unusable items are carried at scrap
value and reprocessed.
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Raw materials $123,319 $ 97,325
Finished goods 715,753 575,435
Other 63,744 19,313
-------- --------
$902,816 $692,073
-------- --------
-------- --------
</TABLE>
NOTE 3. LINE OF CREDIT
In August 1998, the Company's line of credit was amended to increase the
available amount to $1.0 million, bearing interest at prime. At September 30,
1998, there was $336,000 outstanding under this line of credit and the interest
rate was 8.25 percent. The Company was in compliance with all covenants at
September 30, 1998.
NOTE 4. ACQUISITION
On April 1, 1998, the Company announced the acquisition of substantially all of
the assets of certain operations of Iowa Mat Company for $600,000 in cash and
66,667 shares of the Company's Common Stock with a value on the date of issuance
of $216,668. In addition, based upon achieving certain revenue goals from Iowa
Mat Company products, the Company is required to issue an additional $200,000 of
the Company's Common Stock to the sellers of Iowa Mat Company based upon the
then current market price of the Company's Common Stock. A majority of the
$600,000 cash payment was financed with the Company's existing bank facilities.
The acquisition was accounted for as a purchase. Pro forma results of
operations are not presented as they are not materially different from
historical results of operations.
6
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NOTE 5. EARNINGS PER SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS are
computed using the methods prescribed by Statement of Financial Accounting
Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is calculated using
the weighted average number of common shares outstanding for the period and
diluted EPS is computed using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Prior period amounts have been
restated to conform with the presentation requirements of SFAS 128.
Following is a reconciliation of basic EPS and diluted EPS:
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1998 1997
- --------------------------------- ------------------------------- -------------------------------
Per Per
Share Share
BASIC EPS Loss Shares Amount Income Shares Amount
--------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) available to
Common Shareholders $(26,851) 2,239,167 $(0.01) $125,927 2,172,500 $0.06
-------- --------
DILUTED EPS
-----------
Effect of dilutive stock options - - - 55,886
---------------------- ---------------------
Income (loss) available to
Common Shareholders $(26,851) 2,239,167 $(0.01) $125,927 2,228,386 $0.06
-------- --------
Nine Months Ended
September 30, 1998 1997
- --------------------------------- ------------------------------- -------------------------------
Per Per
Share Share
BASIC EPS Loss Shares Amount Income Shares Amount
--------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) available to
Common Shareholders $(44,238) 2,216,863 $(0.02) $392,758 2,172,500 $0.18
-------- --------
DILUTED EPS
-----------
Effect of dilutive stock options - - - 46,892
---------------------- ---------------------
Income (loss) available to
Common Shareholders $(44,238) 2,216,863 $(0.02) $392,758 2,219,392 $0.18
-------- --------
</TABLE>
For the three and nine month periods ended September 30, 1998, there were
204,500 shares of the Company's Common Stock subject to outstanding stock
options that were not included in the EPS calculations since they would be
antidilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB, including Management's Discussion and
Analysis or Plan of Operation, contains forward-looking statements that involve
a number of risks and uncertainties. Future market conditions are subject to
supply and demand conditions and decisions of other market participants over
which the Company has no control and which are inherently very difficult to
predict. Accordingly, there can be no assurance that the Company's revenues or
gross margins will improve. In addition, there are other factors that could
cause actual results to differ materially, including competitive pressures,
increased demand for, or diminished supply of, the Company's raw materials,
unanticipated difficulties in integrating acquired technologies or businesses
and the risk factors listed from time to time in the Company's Securities and
Exchange Commission reports, including, but not
7
<PAGE>
limited to, the report of Form 10-KSB for the year ended December 31, 1997.
The Company wishes to caution the reader that these forward looking statements,
such as the statements concerning new product introductions and future tire
chip processing capabilities, are only predictions and are not statements of
historical fact.
RESULTS OF OPERATIONS
Net sales increased to $2.0 million in the third quarter of 1998 compared to
$1.9 million in the third quarter of 1997 and increased to $5.9 million for the
first nine months of 1998 compared to $5.2 million for the first nine months of
1997. The increases were primarily attributable to the Company's continued
expansion in its primary markets. The three and nine month periods ended
September 30, 1998 include nominal amounts of sales from the Company's new
molded product division related to the Iowa Mat acquisition at the beginning of
the second quarter of 1998.
Gross profit decreased to $536,000 and $1.7 million, respectively (26.9
percent and 28.2 percent of net sales, respectively) for the three month and
nine month periods ended September 30, 1998 from $683,000 and $2.1 million,
respectively (36.0 percent and 39.1 percent of net sales, respectively) for
the comparable periods of 1997. The decrease in the gross margin as a percent
of net sales is primarily a result of higher raw materials costs and negative
margins related to molded product sales. Raw materials costs have increased
from the prior year due to an inadequate supply of truck tire chips, which
necessitate supplementing raw materials with buffings. The Company is
currently working to increase its supply of truck tire chips from its current
vendor, but anticipates that its raw material costs will continue to be
higher compared to prior periods until such increases are sufficient to meet
the Company's requirements. The negative margin generated by the molded
products division included several one-time costs associated with bringing
the production processes and quality of product up to Company standards. In
addition, the Company has increased maintenance costs of approximately
$35,000 on an annual basis due to the increased amount of manufacturing
equipment and had a $70,000 inventory write down in the second quarter
related to certain mats that will be re-ground and manufactured into new
products.
Selling expenses were $216,000 and $647,000, respectively (10.8 percent and 11.0
percent of net sales, respectively) for the three month and nine month periods
ended September 30, 1998 compared to $193,000 and $510,000, respectively (10.2
percent and 9.7 percent of net sales, respectively) for the comparable periods
of 1997. The increase is primarily a result of increased spending on product
promotion and advertising, including costs for the recently acquired molded
products division. In addition, the Company has increased sales personnel.
General and administrative expenses increased to $301,000 and $994,000,
respectively (15.1 percent and 16.9 percent of net sales, respectively) for the
three month and nine month periods ended September 30, 1998 compared to $269,000
and $867,000, respectively (14.2 percent and 16.5 percent of net sales,
respectively) for the comparable periods of 1997, primarily as a result of
one-time costs related to the Iowa Mat acquisition, partially offset by
efficiencies gained as the Company grows.
8
<PAGE>
Net loss was $27,000 and $44,000, respectively for the three month and nine
month periods ended September 30, 1998 compared to net income of $126,000 and
$393,000, respectively, for the comparable periods of 1997, as a result of the
individual line items changes discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998 working capital was $457,000, including $158,000 of cash
and cash equivalents. In the first nine months of 1998, working capital
decreased by $844,000 and the current ratio decreased to 1.3:1 from 3.1:1 at
December 31, 1997.
Cash and cash equivalents decreased $134,000 primarily due $1.4 million for the
purchase of property and equipment and $600,000 used for an acquisition, offset
by $574,000 provided by operations and $1.3 million provided from borrowings,
net of payments on borrowings.
Accounts receivable decreased $103,000 to $808,000 at September 30, 1998
compared to $910,000 at December 31, 1997. Days sales outstanding increased to
49 days at September 30, 1998 compared to 37 days at December 31, 1997.
Inventories increased $211,000 to $903,000 at September 30, 1998 from $692,000
at December 31, 1997 due primarily to building of finished goods inventory in
order to help ensure adequate quantities are available to meet anticipated
demand. Inventory turned approximately six times on an annualized basis during
the third quarter of 1998 compared to nine times for all of 1997.
Accounts payable increased $422,000 to $826,000 at September 30, 1998 from
$404,000 at December 31, 1997 primarily as a result in the build-up of inventory
and amounts related to the Company's building expansion.
Capital expenditures of $1.4 million during the first nine months of 1998
primarily resulted from the addition of equipment to automate the production and
handling of the Company's mat products as well as continued expansion of the
Company's rubber processing facility. Total capital expenditures are expected
to be not more than $2.0 million during 1998 and will be incurred primarily to
purchase and/or refurbish existing rubber processing equipment in order to
further increase production capacity and to increase the capability to use
additional tire chips instead of buffings, to purchase production equipment to
diversify the Company's product offerings and to construct an addition to the
Company's production facility. The estimated $2.0 million of capital
expenditures will be financed primarily through the use of leases utilizing
existing tax credits available to the Company. The Company is currently
working on a $1.2 million tax credit lease that is scheduled to close by the end
of 1998.
On April 1, 1998, the Company announced the acquisition of substantially all of
the assets of certain divisions of Iowa Mat Company for $600,000 in cash and
66,667 shares of the Company's Common Stock. In addition, based upon achieving
certain revenue goals from Iowa Mat Company products, the Company is required to
issue an additional $217,000 of the Company's Common Stock to the sellers of
Iowa Mat Company based upon the then current market price of the Company's
Common Stock. The $600,000 cash payment was financed with the Company's existing
bank facilities.
9
<PAGE>
The Company is currently working on a building expansion to accommodate the
equipment related to the Iowa Mat acquisition and other additional production
equipment. The Company refinanced its existing building mortgage to include the
costs for the expansion.
At September 30, 1998, the Company had a $1,000,000 operating line of credit,
which bore interest at prime, 8.25 percent at September 30, 1998. The Company
had $336,000 outstanding under this line of credit at September 30, 1998 and was
in compliance with all covenants.
YEAR 2000
INTERNAL SYSTEMS
The Company is in the process of analyzing and updating its internal systems,
including its personal computer systems and phone systems. All personal
computers and network hardware and software has been recently updated and/or
replaced in order to be Year 2000 compliant. The Company will be receiving,
free of charge, an upgrade from its phone system vendor, which will make the
phone systems Year 2000 compliant.
Like all businesses, the Company will be at risk from external infrastructure
failures that could arise from Year 2000 failures. It is not clear that
electrical power, telephone and computer networks, for example, will be fully
functional across the nation in the year 2000. Investigation and assessment of
infrastructures, like the nation's power grid, is beyond the scope and resources
of the Company. Investors should use their own awareness of the issues in the
nation's infrastructure to make ongoing infrastructure risk assessments and
their potential impact to a company's performance.
MANUFACTURING EQUIPMENT
The Company has assessed its manufacturing equipment and has determined that it
is Year 2000 compliant.
THIRD PARTIES
The Company plans to begin a Year 2000 supplier and customer audit program. It
will contact all of its critical suppliers and customers to inform them of the
Company's Year 2000 expectations and will request compliance programs and/or
Year 2000 compliance assurance.
It should be noted that there have been predictions of failures of key
components in the transportation infrastructure due to the Year 2000 problem.
It is possible that there could be delays in rail, over-the-road and air
shipments due to failure in transportation control systems. Investigation and
validation of the nation's transportation infrastructure is beyond the scope and
the resources of the Company. Investors should use their own awareness of the
issues in the transportation infrastructure to make ongoing infrastructure risk
assessments and their potential impact to a company's performance.
COST
The Company expects to incur nominal incremental costs related to Year 2000.
All costs to upgrade systems would have been incurred regardless of Year 2000
issues.
10
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RISK
The failure to identify and correct a material Year 2000 problem could result in
an interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Company's efforts to help ensure Year 2000 preparedness
have, and will continue to, significantly reduce the Company's level of
uncertainty about the Year 2000 problem. The Company believes that, with
completion of the above mentioned plans, the possibility of significant
interruptions of normal operations should be reduced.
The Company is currently developing contingency plans in regard to its internal
systems and supplier issues, as well as for the more global infrastructure
issues.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The objective of SFAS
130 is to report a measure of all changes in equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. The Company adopted SFAS 130 during the first quarter
of 1998. Comprehensive income (loss) did not differ from currently reported net
income (loss) in the periods presented.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for all derivative
instruments. SFAS 133 is effective for fiscal years beginning after June 15,
1999. The Company does not have any derivative instruments and, accordingly,
the adoption of SFAS 133 will have no impact on the Company's financial position
or results of operations.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as a part of this report are listed below:
EXHIBIT NO. AND DESCRIPTION
2.1 Agreement for Sale and Purchase of Business Assets by and between
Iowa Mat Company and R-B Rubber Products, Inc., dated April 1,
1998, previously filed with the Company's Form 10-Q for the quarter
ended June 30, 1998, as filed with the Securities and Exchange
Commission on August 13, 1998 and is incorporated herein by
reference.
10.1 $285,000 Business Loan Agreement by and between Key Bank National
Association and R-B Rubber Products, Inc., dated April 1, 1998,
previously filed with the Company's Form 10-Q for the quarter ended
June 30, 1998, as filed with the Securities and Exchange Commission
on August 13, 1998 and is incorporated herein by reference.
10.2 $315,000 Business Loan Agreement by and between Key Bank National
Association and R-B Rubber Products, Inc., dated April 1, 1998,
previously filed with the Company's Form 10-Q for the quarter ended
June 30, 1998, as filed with the Securities and Exchange Commission
on August 13, 1998 and is incorporated herein by reference.
10.3 Schedule, dated June 4, 1998, to Master Lease Agreement dated
October 19, 1995, by and between U.S. Bancorp and R-B Rubber
Products, Inc, previously filed with the Company's Form 10-Q for
the quarter ended June 30, 1998, as filed with the Securities and
Exchange Commission on August 13, 1998 and is incorporated herein
by reference.
10.4 $992,000 Business Loan Agreement by and between KeyBank National
Association and R-B Rubber Products, Inc., dated August 3, 1998.
10.5 $1,000,000 Line of Credit Agreement by and between KeyBank National
Association and R-B Rubber Products, Inc. dated July 31, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any Reports on Form 8-K during the quarter ended
September 30, 1998.
12
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SIGNATURES
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.
Date: November 9, 1998 R-B RUBBER PRODUCTS, INC.
By: /s/ RONALD L. BOGH
-------------------------------------
Ronald L. Bogh
Chairman of the Board and President
(Principal Executive Officer and Principal
Financial and Accounting Officer)
13
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EXHIBIT 10.4
Principal Loan Date Maturity Loan No. Call
$992,000.00 08-03-1998 08-15-2008 9004
Collateral Account Officer Initials
802 E 121729 TLH12
Borrower: R-B Rubber Products, Inc. Lender: KeyBank National Association
904 East 10th Avenue Willamette Valley Commercial
McMinnville, OR 97128 Banking Center, Salem
416 State Street
PO Box 2246 OR-20-96-0158
Salem, OR 97308
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Amount: $992,000.00 Initial Rate: 7.970% Date of Note: August 3, 1998
PROMISE TO PAY. R-B RUBBER PRODUCTS, INC. ("BORROWER") PROMISES TO PAY TO
KEYBANK NATIONAL ASSOCIATION ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED
STATES OF AMERICA, THE PRINCIPAL AMOUNT OF NINE HUNDRED NINETY TWO THOUSAND &
00/100 DOLLARS ($992,000.00), TOGETHER WITH INTEREST ON THE UNPAID PRINCIPAL
BALANCE FROM AUGUST 3, 1998, UNTIL PAID IN FULL.
PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX,
BORROWER WILL PAY THIS LOAN IN 119 REGULAR PAYMENTS OF $8,373.20 EACH AND ONE
IRREGULAR LAST PAYMENT ESTIMATED AT $695,954.43. BORROWER'S FIRST PAYMENT IS
DUE SEPTEMBER 15, 1998, AND ALL SUBSEQUENT PAYMENTS ARE DUE ON THE SAME DAY OF
EACH MONTH AFTER THAT. BORROWER'S FINAL PAYMENT DUE AUGUST 15, 2008, WILL BE
FOR ALL PRINCIPAL AND ALL ACCRUED INTEREST NOT YET PAID. Interest on this Note
is computed on a 365/360 simple interest basis; that is by applying the ratio of
the annual interest rate over a year of 360 days, times the outstanding
principal balance, times the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the weekly
average on United States Treasury Securities adjusted to a constant maturity of
five (5) years as made available by the Federal Reserve Board (the "Index").
The Index is not necessarily the lowest rate charged by Lender on its loans. If
the Index becomes unavailable during the term of this loan, Lender may designate
a substitute index after notice to Borrower. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each five years after the first change. The interest rate
shall be fixed as of the Note date for the subsequent five (5) year period, and
shall
<PAGE>
adjusted as of the first day of the calendar month following the fifth
anniversary date of the Note and on the first day of every sixty-first (61st)
month thereafter ("Change Date") based on the Index published in the Wall Street
Journal or otherwise available to Lender forty-five (45) days prior to the
Change Date. THE INDEX CURRENTLY IS 5.470% PER ANNUM. THE INTEREST RATE TO BE
APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 2.500
PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 7.970% PER
ANNUM. Whenever increases occur in the interest rate, Lender, at its option,
may do one or more of the following: (a) increase Borrower's payments to ensure
Borrower's loan will pay off by its original final maturity date, (b) increase
Borrower's payments to cover accruing interest, (c) increase the number of
Borrower's payments, and (d) continue Borrower's payments at the same amount and
increase Borrower's final payment.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due and may result in
Borrower making fewer payments.
LATE CHARGE. If a payment is 16 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise to
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligation under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts either
Lender. (g) Any guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness in impaired.
<PAGE>
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 7.500
percentage points over the index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF OREGON. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF MULTNOMAH COUNTY, THE STATE OF OREGON. LENDER AND BORROWER HEREBY
WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OREGON.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the collateral;
and take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY US (LENDER)
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE
NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED
<PAGE>
SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION
AND BE SIGNED BY US TO BE ENFORCEABLE.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
R-B RUBBER PRODUCTS, INC.
By:
----------------------------------------
Ronald L. Bogh, President
<PAGE>
LOAN AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 07-31-1998 08-01-1999 9501 302 E121729 TLH12
- ------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
BORROWER: R-B RUBBER PRODUCTS, INC. LENDER: KEYBANK NATIONAL ASSOCIATION
904 EAST 10TH AVENUE WILLAMETTE VALLEY COMMERCIAL BANKING
MCMINNVILLE, OR 97128 CENTER, SALEM
416 STATE STREET
P.O. BOX 2246 OR-20-96-0158
SALEM, OR 97308
</TABLE>
- -------------------------------------------------------------------------------
THIS LOAN AGREEMENT BETWEEN R-B RUBBER PRODUCTS, INC. ("BORROWER") AND KEYBANK
NATIONAL ASSOCIATION ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND
CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS
APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL
ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR
SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT (a) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (b)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (c) ALL SUCH LOANS SHALL
BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.
TERM. This Agreement shall be effective as of JULY 31, 1998, and shall continue
thereafter until all indebtedness of Borrower to Lender has be performed in full
and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
ACCOUNT. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADVANCE. The word "Advance" means a disbursement of Loan funds under this
Agreement.
BORROWER. The word "Borrower" means R-B RUBBER PRODUCTS, INC.. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
BORROWING BASE. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $1,000,000.00; or (b) the sun of (i)
80.000% of the aggregate amount of Eligible Accounts, plus (ii) 50.000% of
the aggregate amount of Eligible Inventory (not to exceed in corresponding
Loan amount based on Eligible Inventory $300,000).
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. The
word "Collateral" includes without limitation all collateral described
below in the section filled "COLLATERAL."
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable
to Lender. The net amount of any Eligible Account against which Borrower
may borrow shall exclude all returns, discounts, credits, and offsets of
any nature. Unless otherwise agreed to by Lender in writing, Eligible
Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an officer,
an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary
of, or affiliated with or related to Borrower or its shareholders,
officers, or directors.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the
Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a
resident of the United States, except to the extent such Accounts are
supported by insurance, bonds or other assurances satisfactory to
Lender.
(e) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower.
(f) Accounts which are subject to dispute, counterclaim, or setoff.
(g) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account
Debtor.
(h) Accounts with respect to which Lender, in its sole discretion,
deems the creditworthiness or financial condition of the Account
Debtor to be unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief under
any provision of any state or federal bankruptcy, insolvency, or
debtor-in-relief acts; or who has had appointed a trustee, custodian,
or receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or
fails generally to pay its debts (including its payrolls) as such
debts become due.
(j) Accounts with respect to which the Account Debtor is the United
States government or any department or agency of the United States.
(k) Accounts which have not been paid in full within 60 DAYS from the
invoice date.
<PAGE>
07-31-1998 LOAN AGREEMENT PAGE 2
LOAN NO 9501 (CONTINUED)
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period specified above; Accounts which are subject to retainage.
ELIGIBLE INVENTORY. The words "Eligible Inventory" mean, at any time, all
of Borrower's Inventory as defined below except;
(a) Inventory which is not owned by Borrower free and clear of all
security interests, liens, encumbrances, and claims of third parties.
(b) Inventory which Lender, in its sole discretion, deems to be
obsolete, unsalable, damaged, defective, or unfit for further
processing.
(c) Work in progress.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
EXPIRATION DATE. The words "Expiration Date" mean the date of termination
of Lender's commitment to lend under this Agreement.
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entitles granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
INVENTORY. The word "Inventory" means all of Borrower's raw materials, work
in process, finished goods, merchandise, parts and supplies, of every kind
and description, and goods held for sale or lease or furnished under
contracts of service in which Borrower now has or hereafter acquires any
right, whether held by Borrower or others, and all documents of title,
warehouse receipts, bills of lading, and all other documents of every type
covering all or any part of the foregoing. Inventory includes inventory
temporarily out of Borrower's custody or possession and all returns on
Accounts.
LENDER. The word "Lender" means KEYBANK NATIONAL ASSOCIATION, its
successors and assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any properly acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
challel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, Instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered
by Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and shall
be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and be in
full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts. Inventory books records and
<PAGE>
07-31-1998 LOAN AGREEMENT PAGE 3
LOAN NO 9501 (CONTINUED)
- -------------------------------------------------------------------------------
operations, and Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due
and payable.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested
orally by authorized persons. Lender may, but need not, require that all
oral requests be confirmed in writing. Each Advance shall be conclusively
deemed to have been made at the request of and for the benefit of Borrower
(a) when credited to any deposit account of Borrower maintained with Lender
or (b) when advanced in accordance with the instructions of an authorized
person. Lender, at its option, may set a cutoff time, after which all
requests for Advances will be treated as having been requested on the next
succeeding Business Day.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay to
Lender an amount equal to the difference between the outstanding principal
balance of the Advances and the Borrowing Base. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid principal amount
of all Advances then outstanding and all accrued unpaid interest, together
with all other applicable fees, costs and charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility.
Lender shall provide Borrower with periodic statements of Borrower's
account, which statements shall be considered to be correct and
conclusively binding on Borrower unless Borrower notifies Lender to the
contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower (and others,
if required) shall grant to Lender Security interests in such property and
assets as Lender may require (the "Collateral"), including without limitation
Borrower's present and future Accounts, general Intangibles, and Inventory.
Lender's Security Interests in the Collateral shall be continuing liens and
shall include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and
any similar statements as may be required by applicable law, and will file
such financing statements and all such similar statement. In the
appropriate location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security interest. Lender may at
any time, and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing statement for
use as a financing statement. Borrower will reimburse Lender for all
expenses for the perfection, termination, and the continuation of the
perfection of Lender's security interest in the Collateral. Borrower
promptly will notify Lender of any change in Borrower's name including any
change to the assumed business names of Borrower. Borrower also promptly
will notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender in
writing prior to any change in address or location of Borrower's principal
governance office or should Borrower merge or consolidate with any other
entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings. With respect to the Inventory,
Borrower agrees to keep and maintain such records as Lender may require,
including without limitation information concerning Eligible inventory and
records itemizing and describing the kind, type, quality, and quantity of
Inventory, Borrower's inventory costs and selling prices, and the daily
withdrawals and additions to Inventory.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of
Accounts and Inventory and Eligible Accounts and Eligible Inventory, in
form and substance satisfactory to the Lender. Thereafter and at such
frequency as Lender shall require, Borrower shall execute and deliver to
Lender such supplemental schedules of Eligible Accounts and Eligible
Inventory and such other matters and information relating to the Accounts
and Inventory as Lender may request.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account Information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrower's records and to
confirm with Account Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES CONCERNING INVENTORY. With respect to the
Inventory, Borrower represents and warrants to Lender: (a) All Inventory
represented by Borrower to be Eligible Inventory for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Inventory; (b) All inventory values listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; (c) The value the
Inventory will be determined on a consistent accounting basis; (d) Except
as agreed to the contrary by Lender in writing, all Eligible Inventory is
now and at all times hereafter will be in Borrower's physical possession
and shall not be held by others on consignment, sale on approval, or sale
or return; (e) Except as reflected in the Inventory schedules delivered to
Lender, all Eligible Inventory is now and at all times hereafter will of
good and merchantable quality, free from defects; (f) Eligible Inventory is
not now and will not at any time hereafter be stored with a bailee,
warehouseman, or similar party without Lender's prior written consent, and,
in such event, Borrower will concurrently at the time of bailment cause any
such bailee, warehouseman, or similar party to issue and deliver to Lender,
in form acceptable to Lender, warehouse receipts in Lender's name
evidencing the storage of Inventory; and (g) Lender, its assigns, or agents
shall have the right at any time and at Borrower's expense to inspect and
examine the Inventory and to check and test the same as to quality,
quantity, value, and condition.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State Oregon and is
validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses of financial condition.
[Illegible]
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07-31-1998 LOAN AGREEMENT PAGE 4
LOAN NO 9501 (CONTINUED)
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any other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security interests, and
has not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing or intended to protect human
health or the environment ("Environmental Laws"). Except as disclosed to
and acknowledged by Lender in writing, Borrower represents and warrants
that: (a) During the period of Borrower's ownership of the properties,
there has been no use, generation, manufacture, storage, treatment,
disposal, release or threatened release of any hazardous waste or substance
by any person on, under, about or from any of the properties. (b) Borrower
has no knowledge of, or reason to believe that there has been (i) any use,
generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on, under, about or
from the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of any
kind by any person relating to such matters. (c) Neither Borrower nor any
tenant, contractor, agent or other authorized user of any of the properties
shall use, generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance with all
applicable federal, state, and local laws, regulations, and ordinances,
including without limitation Environmental Laws. Borrower authorizes Lender
and its agents to enter upon the properties to make such Inspections and
tests as Lender may deem appropriate to determine compliance of the
properties with this section of the Agreement. Any Inspections or tests
made by Lender shall be at Borrower's expens and for Lender's purposes only
and shall not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify and
hold harmless Lender against any and all claims, losses, liabilities,
damages, penalities, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement
or as a consequence of any use, generation, manufacture, storage, disposal,
release or threatened release of a hazardous waste or substance on the
properties, or as a result of a violation of any Environmental Laws. The
provisions of this section of the Agreement, including the obligation to
indemnify, shall survive the payment of the Indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filling or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 904 EAST 10TH AVENUE, MCMINNVILLE, OR 97128.
Unless Borrower has designated otherwise in writing this location is also
the office or offices where Borrower keeps its records concerning the
Collateral.
YEAR 2000. Borrower warrants and represents that all software utilized in
the conduct of Borrower's business will have appropriate capabilities and
compatibility for operation to handle calendar dates failing on or after
January 1, 2000, and all information pertaining to such calendar dates, in
the same manner and with the same functionality as the software does
respecting calendar dates failing on or before December 31, 1999. Further,
Borrower warrants and represents that the data-related user interface
functions, data-fields, and data-related program instructions and functions
of the software include the indication of the century.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.
<PAGE>
07-31-1998 LOAN AGREEMENT PAGE 5
LOAN NO 9501 (CONTINUED)
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AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender, and, as
soon as available, but in no event later than forty five (45) days after
the end of each fiscal quarter, Borrower's balance sheet and profit and
loss statement for the period ended, prepared and certified as correct to
the best knowledge and belief by Borrower's chief financial officer or
other officer or person acceptable to Lender. All financial reports
required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually). Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intention or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
<PAGE>
07-31-1998 LOAN AGREEMENT PAGE 6
LOAN NO 9501 (CONTINUED)
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ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
ADDITIONAL DEFINITIONS.
ADJUSTED TANGIBLE CAPITAL means Tangible Capital less investments in, advances
to, promissory notes and any receivables from, any affiliate or other related
entity of Borrower.
CAPITAL EXPENDITURES means current period net fixed assets less prior period net
fixed assets, plus current period depreciation.
CASH FLOW means net income after taxes, and exclusive of extraordinary gains and
income, plus depreciation and amortization.
CURRENT ASSETS shall be as defined by GAAP, minus prepaid expenses.
CURRENT LIABILITIES shall be as defined by GAAP
DEBT means all of Borrower's liabilities excluding Subordinated Debt
EBITDA means, calculated for the period of the previous four fiscal quarters,
the net earnings of Borrower plus the aggregate amounts deducted in determining
such net income in respect of interest expenses, taxes, depreciation and
amortization; but not, however, giving effect to extraordinary losses or gains
in calculating net income.
FIXED CHARGES means interest expense plus lease expense, current maturities of
long-term debt and current maturities of capital leases.
FUNDED DEBT means all interest bearing term loan Debt or capital lease payments
of Borrower having a maturity of greater than one year.
LIQUID ASSETS means Borrower's cash on hand plus Borrower's readily marketable
securities.
OPERATING CASH FLOW means net income after taxes, and exclusive of extraordinary
gains, gains on asset sales, and other income, plus depreciation and
amortization, plus interest expense, plus lease expense, less dividends, and
distributions.
SUBORDINATED DEBT means indebtedness and liabilities of Borrower which have been
subordinated by written agreement to indebtedness owned by Borrower to Lender in
form and substance acceptable to Lender.
TANGIBLE CAPITAL means Tangible Net Worth plus Subordinated Debt
TANGIBLE NET WORTH means Borrower's total assets excluding all intangible assets
(i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and
similar intangible items, but including leaseholds and leasehold improvements)
less total Debt.
TOTAL FIXED CHARGES means interest expense, plus current maturities of long-term
debt and current maturities of capital leases, plus lease expenses, plus
preferred stock dividends, plus Capital Expenditures.
TOTAL LIQUID ASSETS means Borrower's cash on hand plus Borrower's readily
marketable securities, plus Borrower's net trade accounts receivable.
TOTAL SENIOR LIABILITIES means total liabilities less Subordinated Debt.
UNENCUMBERED LIQUIDITY means the sum of unpledged cash, stocks, bonds, and other
near cash investments held in a person's name and immediately available with
unimpaired value; but not including pledged assets, IRA, 401(k), annuity or
trust accounts.
WORKING CAPITAL means Borrower's current assets, excluding prepaid expenses,
less Borrower's current liabilities.
ADDITIONAL COVENANTS. Borrower covenants and agrees with Lender that, while this
Agreement is in effect, Borrower will:
TANGIBLE NET WORTH. Borrower shall maintain a Tangible Net Worth of not less
than $4,500,000.00; calculated at the end of each quarter.
CURRENT RATIO. Borrower shall maintain a ratio of current assets to current
liabilities in excess of 1.5 to 1.0; calculated at the end of each quarter.
OPERATING CASH FLOW TO TOTAL FIXED CHARGE RATIO. Borrower shall maintain a ratio
of Operating Cash Flow to Total Fixed Charges of not less than 1. 3 to 1.0;
calculated at the end of each fye for the preceding 12-month period.
BORROWING PLAN. An exhibit, titled "BORROWING PLAN," is attached to this
Agreement and by this reference is made a part of this Agreement just as if all
the provisions, terms and conditions of the Exhibit had been fully set forth in
this Agreement.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
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07-31-1998 LOAN AGREEMENT PAGE 7
LOAN NO 9501 (CONTINUED)
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DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the Insolvency of Borrower, the appointment of a receive
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies she be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire and final understanding and agreement of the parties
as to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in writing and
signed by the party or parties sought to be charged or bound by the
alteration or amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF OREGON. IF THERE IS A LAWSUIT, BORROWER AGREES UPON
LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF MULTNOMAH
COUNTY, THE STATE OF OREGON. LENDER ARE BORROWER HEREBY WAIVE THE RIGHT TO
ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER
LENDER OR BORROWER AGAINST THE OTHER. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OREGON.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives are and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that [Illegible]
under applicable law Lender's attorneys' fees and Lender's legal expenses,
whether or not there is
<PAGE>
07-31-1998 LOAN AGREEMENT PAGE 8
LOAN NO 9501 (CONTINUED)
- -------------------------------------------------------------------------------
any anticipated post-judgment collection services. Borrower also will pay
any court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
Informed at all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstances, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes if appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other Instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given In writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY US (LENDER)
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE
ENFORCEABLE.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JULY 31, 1998.
BORROWER:
R-B RUBBER PRODUCTS, INC.
BY: /s/ Ronald L. Bogh
--------------------------------
RONALD L. BOGH, PRESIDENT
LENDER:
KEYBANK NATIONAL ASSOCIATION
BY: /s/ [Illegible]
------------------------------
AUTHORIZED OFFICER
- -------------------------------------------------------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.25a(c) 1998 CFI ProServices, Inc.
All rights reserved. [OR-C40 E3.25 F3.25 P3.25 RBRUBRK 1.LN C30.OVL]
<PAGE>
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 07-31-1998 08-01-1999 9501 302 E121729 TLH12
- -------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- -----------------------------------------------------------------------------
<TABLE>
<S> <C>
BORROWER: R-B RUBBER PRODUCTS, INC. LENDER: KEYBANK NATIONAL ASSOCIATION
904 EAST 10TH AVENUE WILLAMETTE VALLEY COMMERCIAL BANKING
MCMINNVILLE, OR 97128 CENTER, SALEM
416 STATE STREET
P.O. BOX 2246 OR-20-96-0158
SALEM, OR 97308
</TABLE>
- -------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN R-B RUBBER PRODUCTS,
INC. (REFERRED TO BELOW AS "GRANTOR"); AND KEYBANK NATIONAL ASSOCIATION
(REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO
LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND
AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT
TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS AND GENERAL INTANGIBLES
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means R-B RUBBER PRODUCTS, INC., its successors
and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to Lender, as
well as all claims by Lender against Grantor, or any one or more of them,
whether existing now or later; whether they are voluntary or involuntary,
due or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means KEYBANK NATIONAL ASSOCIATION, its
successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated July 31,
1998, in the principal amount of $1,000,000.00 from R-B RUBBER PRODUCTS,
INC. to Lender, together with all renewals of, extensions of, modifications
of, refinancings of, consolidations of and substitutions for the note or
credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE [Illigible]
<PAGE>
07-31-1998 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO 9501 (CONTINUED)
- -------------------------------------------------------------------------------
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real properly being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other filled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Oregon, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory, Grantor shall
deliver to Lender, as often as Lender shall require, such lists,
descriptions, and designations of such Collateral as Lender may require to
identify the nature, extent, and location of such Collateral. Such
information shall be submitted for Grantor and each of its subsidiaries or
related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surely bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy and final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surely bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing or intended to protect human
health or the environment ("Environmental Laws"). The terms "hazardous
waste" and "hazardous substance" shall also include, without limitation,
petroleum and petroleum by-products or any fraction thereof and asbestos.
The representations and warranties contained herein are based on Grantor's
due diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for Indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any Environmental Laws, and (b)
agrees to indemnify and hold harmless Lender against any and all claims and
losses resulting from a breach of this provision of this Agreement, or as a
result of a violation of any Environmental Laws. This obligation to
indemnify shall survive the payment of the indebtedness and the
satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
<PAGE>
07-31-1998 COMMERCIAL SECURITY AGREEMENT PAGE 3
LOAN NO 9501 (CONTINUED).
- -------------------------------------------------------------------------------
coverage together with such other Insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be Impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security Interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-Interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts and above in the paragraph
titled "Transactions Involving Collateral", Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. Until
otherwise notified by Lender, Grantor may collect any of the Collateral
consisting of accounts. At any time and even though no Event of Default exists,
Lender may exercise its rights to collect the accounts and to notify account
debtors to make payments directly to Lender for application to the indebtedness.
If Lender at any time has possession of any Collateral, whether before or after
an Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, not to protect, preserve or
maintain any security interest given to secure the indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on
the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond [Illegible]
<PAGE>
07-31-1998 COMMERCIAL SECURITY AGREEMENT PAGE 4
LOAN NO 9501 (CONTINUED)
- -------------------------------------------------------------------------------
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
RIGHT TO CURE. If any default, other than a Default on indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) If Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (15) days; or
(b), if the cure requires more than fifteen (15) days, immediately
Initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Oregon Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made unless Grantor
has signed, after an Event of Default occurs, a statement renouncing or
modifying Grantor's right to notification of sale. The requirements of
reasonable notice shall be met if such notice is given at least ten (10)
days before the time of the sale or disposition. All expenses relating to
the disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, preparing for sale and selling the
Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire and final understanding and agreement of the parties
as to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in writing and
signed by the party or parties sought to be charged or bound by the
alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Oregon. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Multnomah
County, the State of Oregon. Lender and Grantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Grantor against the other. This Agreement shall be governed by
and construed in accordance with the laws of the State of Oregon.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement,
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the
<PAGE>
07-31-1998 COMMERCIAL SECURITY AGREEMENT PAGE 5
LOAN NO 9501 (CONTINUED)
- -------------------------------------------------------------------------------
United States mail, first class, postage prepaid, addressed to the party to
whom the notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of the
notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor, notice to any Grantor
will constitute notice to all Grantors. For notice purposes, Grantor will
keep Lender Informed at all times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for the
Indebtedness, Borrower irrevocably waives, disclaims and relinquishs all
claims against such other person which Borrower has or would otherwise have
by virtue of payment of the Indebtedness or any part thereof, specifically
including but not limited to all rights of Indemnity, contribution or
exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 31,
1998.
GRANTOR:
R-B RUBBER PRODUCTS, INC.
By: /s/ Ronald L. Bogh
-----------------------------
RONALD L. BOGH, PRESIDENT
- --------------------------------------------------------------------------------
LASER PRO. Reg. U.S. Pat. & T.M. Off., Ver. 3.25a(c) 1998 CFI ProServices, Inc.
All rights reserved, [OR-E40 E3.25 F3.25 P3.25 RBRUBRK1.LN C30.OVL]
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000,00 07-31-1998 08-01-1999 9501 302 E121729 TLH12
- --------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
BORROWER: R-B RUBBER PRODUCTS, INC. LENDER: KEYBANK NATIONAL ASSOCIATION
904 EAST 10TH AVENUE WILLAMETTE VALLEY COMMERCIAL BANKING
MCMINNVILLE, OR 97128 CENTER, SALEM
416 STATE STREET
P.O. BOX 2246 OR-20-96-0158
SALEM, OR 97308
</TABLE>
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $1,000,000.00 INITIAL RATE: 8.500% DATE OF NOTE:
JULY 31, 1991
PROMISE TO PAY. R-B RUBBER PRODUCTS, INC. ("Borrower") promises to pay to
KEYBANK NATIONAL ASSOCIATION ("Lender"), or order, in lawful money of the United
States of America, the principal amount of One Million & 00/100 Dollars
($1,000,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON AUGUST
1, 1999. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED
UNPAID INTEREST BEGINNING AUGUST 31, 1998, AND ALL SUBSEQUENT INTEREST PAYMENTS
ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. Interest on this Note is
computed on a 365/360 simple interest basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, times the outstanding
principal balance, times the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, the re to principal, and any remaining amount to any unpaid collection
costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the Prime Rate announced by
Lender (the "Index"). The interest rate will change automatically and
correspondingly on the date of each announced change of the Index by Lender. The
Index is not necessarily the lowest rate charged by Lender on its loans and is
set by Lender in its sole discretion. If the Index becomes unavailable during
the term of this loan, the Lender may designate a substitute index after
notifying Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each day that the Index changes. THE INDEX CURRENTLY IS 8.500% PER ANNUM. THE
INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE
AT A RATE EQUAL TO THE INDEX, RESULTING IN AN INITIAL RATE OF 8.500% PER ANNUM.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieving Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 16 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in an material respect either now or at
the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with
Lender. (g) Any guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the Indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes a reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, permitted under
applicable law, increase the variable interest rate on this Note to 5.000
percentage points over the Index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF OREGON. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF MULTNOMAH COUNTY THE STATE OF OREGON. LENDER AND BORROWER HEREBY WAIVE
THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT
BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OREGON.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. All
communications, instructions, or directions by telephone otherwise to Lender are
to be directed to Lender's office shown above. The following party or parties
are authorized to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority: RONALD L. BOGH, PRESIDENT; PAUL GILSON, SVP AND
CHIEF OPERATING OFFICER; AND BRIAN ALLEN, CHIEF FINANCIAL OFFICER. Borrower
agrees to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender, regardless of the fact that persons other than those
authorized to borrow have authority to draw against the accounts. The unpaid
principal [Illegible]
<PAGE>
07-31-1998 PROMISSORY NOTE PAGE 2
LOAN NO 9501 (CONTINUED)
- -------------------------------------------------------------------------------
or any agreement that Borrower or any guarantor has with Lender, including any
agreement made in connection with the signing of this Note; (b) Borrower or any
guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims
or otherwise attempts to limit, modify or revoke such guarantor's guarantee of
this Note or any other loan with Lender; or (d) Borrower has applied funds
provided pursuant to this Note for purposes other than those authorized by
Lender.
ADDITIONAL PROVISION. Any advance that Lender in its sole discretion may permit
after the final payment date provided in this Note will be due on demand and
otherwise subject to the terms of this Note.
PRIOR NOTE. This Note is a renewal of that Promissory Note from Borrower to
Lender dated 09/01/95.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY US (LENDER)
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE
ENFORCEABLE.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
R-B RUBBER PRODUCTS, INC.
By: /s/Ronald L. Bogh
--------------------------
RONALD L. BOGH, PRESIDENT
- -------------------------------------------------------------------------------
Variable Rate. Line of Credit. LASER PRO. Reg. U.S. Pal. & T.M. Off., Ver.
3.25a (c) 1998 CFI ProServices, Inc.
All rights reserved. (OR-D20 E3.25 F3.25
P3.25 RBRUBRK 1.LN C30.OVL)
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 07-31-1998 08-01-1999 9501 302 E121729 TLH12
- --------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BORROWER: R-B RUBBER PRODUCTS, INC. LENDER: KEYBANK NATIONAL ASSOCIATION
904 EAST 10TH AVENUE WILLAMETTE VALLEY COMMERCIAL BANKING
MCMINNVILLE, OR 97128 CENTER, SALEM
416 STATE STREET
P.O. BOX 2246 OR-20-96-0158
SALEM, OR 97308
</TABLE>
- --------------------------------------------------------------------------------
INSURANCE REQUIREMENTS. R-B RUBBER PRODUCTS, INC. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Lender. These
requirements are set forth in the security documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
COLLATERAL: ALL INVENTORY.
TYPE. All risks, including fire, theft and liability.
AMOUNT. Full insurable value.
BASIS. Actual cash value.
ENDORSEMENTS. Lender's loss payable clause with stipulation that
coverage will not be cancelled or diminished without a minimum of ten
(10) days' prior written notice to Lender.
DEDUCTIBLES. $500.00.
INSURANCE COMPANY. Grantor may obtain Insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender.
INSURANCE MAILING ADDRESS. All documents and other materials relating to
insurance for this loan should be mailed, delivered or directed to the following
address:
KEYBANK NATIONAL ASSOCIATION
COMMERCIAL LOAN SERVICES
P.O. BOX 5278
BOISE, ID 83705-5278
(800) 539-2191
PROVISION OF INSURANCE. Grantor agrees to deliver to Lender, thirty (30) days
from the date of this Agreement, evidence of the required insurance as provided
above, with an effective date of July 31, 1998, or earlier.
WARNING
-----------------------------------------------------------------------------
Unless Grantor provides Lender with evidence of the insurance coverage as
required by Grantor's security documents, Lender may purchase insurance at
Grantor's expense to protect Lender's interest. This insurance may, but
need not, also protect Grantor's interest. If the collateral becomes
damaged, the coverage Lender purchases may not pay any claim Grantor makes
or any claim made against Grantor. Grantor may later cancel this coverage
by providing evidence that Grantor has obtained property coverage
elsewhere. Grantor will be responsible for the cost of any insurance
purchased by Lender. The cost of this insurance may be added to Grantor's
Indebtedness. If the cost is added to Grantor's Indebtedness, the interest
rate on the underlying Indebtedness will apply to this added amount. The
effective date of coverage may be the date Grantor's prior coverage lapsed
or the date Grantor failed to provide proof of coverage. The coverage
Lender purchases may be considerably more expensive than insurance Grantor
can obtain on Grantor's own and may not satisfy any need for property
damage coverage or any mandatory liability insurance requirements imposed
by applicable law.
-----------------------------------------------------------------------------
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all Information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 31, 1998.
GRANTOR:
R-B RUBBER PRODUCTS, INC.
By: /s/ Ronald L. Bogh
-----------------------------
RONALD L. BOGH, PRESIDENT
-------------------------------------------------------------------------------
FOR LENDER USE ONLY
INSURANCE VERIFICATION
DATE: 8/7/98 PHONE: 503 472 2165
--------------- -----------------
AGENT'S NAME: HAGAN HAMILTON INS (DALE MOORE)
-----------------------------------------------------
INSURANCE COMPANY: TRAVELERS INS
----------------------------
POLICY NUMBER: Y J630 348K 2576
-------------------------------
EFFECTIVE DATES: 10-10-97 to 10-10-98
------------------------------
COMMENTS: Current Property Limits Blanket Bldgs & Equip 7,789,300 Business
---------------------------------------------------------------------
Interruption 3,000,000
--------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver.3.25a(c) 1998 CFI ProServices, Inc.
All rights reserved. [OR-110 E3.25 F3.25 P3.25 RBRUBRK1.LN C30.OVL]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 158,047
<SECURITIES> 0
<RECEIVABLES> 807,883
<ALLOWANCES> 3,904
<INVENTORY> 902,816
<CURRENT-ASSETS> 2,016,805
<PP&E> 7,767,880
<DEPRECIATION> 2,076,253
<TOTAL-ASSETS> 8,226,080
<CURRENT-LIABILITIES> 1,559,952
<BONDS> 2,224,955
0
0
<COMMON> 4,014,110
<OTHER-SE> 791,949
<TOTAL-LIABILITY-AND-EQUITY> 8,226,080
<SALES> 5,885,271
<TOTAL-REVENUES> 5,885,271
<CGS> 4,225,722
<TOTAL-COSTS> 4,225,722
<OTHER-EXPENSES> 1,641,192
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (108,129)
<INCOME-PRETAX> (52,915)
<INCOME-TAX> (8,677)
<INCOME-CONTINUING> (44,238)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,238)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
