Line of Credit Agreement
Bank One, Michigan (the "Bank"), whose address is 000 Xxxxxxxx Xxxxxx, Xxxxxxx,
Xxxxxxxx 00000-0000, has approved the credit facilities listed below
(collectively, the "Credit Facilities," and, individually, as designated below)
to Power Efficiency Corporation (the "Borrower"), whose address is 0000 Xxxxxxx
Xxxxx, Xxxxx X, Xxx Xxxxx, XX 00000 subject to the terms and conditions set
forth in this agreement.
1.0 Credit Facilities.
1.1 Facility A. The Bank has approved a credit facility to the Borrower
in the principal sum not to exceed $750,000.00 in the aggregate at any
one time outstanding ("Facility A"). Credit under Facility A shall be
in the form of disbursements evidenced by credits to the Borrower's
account and shall be repayable as set forth in a Revolving Business
Credit Note executed concurrently (referred to in this agreement both
singularly and together with any other promissory notes referenced in
this Section 1 as the "Notes"). The proceeds of Facility A shall be
used for the following purpose: Working Capital. Facility A shall
expire April 30, 2001 unless earlier withdrawn. $200,000.00 of Facility
A is enrolled in Michigan Strategic Fund Capital Access Program.
2.0 Conditions Precedent.
2.1 Conditions Precedent to Initial Extension of Credit. Before
the first extension of credit under this agreement, whether by
disbursement of a loan, issuance of a letter of credit, the
funding of a Lease or otherwise, the Borrower shall deliver to
the Bank, in form and substance satisfactory to the Bank:
A. Loan Documents. The Notes, and if applicable, the
Leases, the letter of credit applications, the
security agreement, financing statements, mortgage,
guaranties, subordination agreements and any other
loan documents which the Bank may reasonably require
to give effect to the transactions described by this
agreement;
B. Evidence of Due Organization and Good Standing.
Evidence satisfactory to the Bank of the due
organization and good standing of the Borrower and
every other business entity that is a party to this
agreement or any other loan document required by this
agreement;
C. Evidence of Authority to Enter into Loan Documents.
Evidence satisfactory to the Bank that (i) each party
to this agreement and any other loan document
required by this agreement is authorized to enter
into the transactions described by this agreement and
the other loan documents, and (ii) the person signing
on behalf of each party is authorized to do so; and
2.2 Conditions Precedent to Each Extension of Credit. Before any
extension of credit under this agreement, whether by
disbursement of a loan, issuance of a letter of credit, the
funding of a Lease or otherwise, the following conditions
shall have been satisfied:
A. Representations. The Representations contained in
this agreement shall be true on and as of the date of
the extension of credit;
B. No Event of Default. No event of default shall have
occurred and be continuing or would result from the
extension of credit;
C. Additional Approvals, Opinions, and Documents. The
Bank shall have received such other approvals,
opinions and documents as it may reasonably request.
3.0 Borrowing Base/Annual Pay Down.
3.1 Borrowing Base. Notwithstanding any other provision of this
agreement, the aggregate principal amount outstanding at any
one time under Facility A shall not exceed the lesser of the
Borrowing Base or $750,000.00. Borrowing Base means:
A. 80% of the Borrower's trade accounts receivable in
which the Bank has a perfected, first priority
security interest, excluding accounts more than 90
days past due from the date of invoice, accounts
subject to offset or defense, government, bonded,
affiliate and foreign accounts, accounts from trade
debtors of which more than -0-% of the aggregate
amount owing from the trade debtor to the Borrower is
more than 90 days past due, and accounts otherwise
unacceptable to the Bank, plus
B. Inventory of the Borrower in which the Bank has a
perfected first priority security interest, valued at
the lower of cost or market but not exceeding
$500,000.00, reducing to $450,000 at February 28,
2001, $400,000 at March 31, 2001, and $350,00.00 at
April 30, 2000 in the aggregate, as follows:
(1) 50% of raw material inventory; and
(2) 50% of finished goods inventory, plus
4.0 Fees and Expenses.
4.1 Fees. Upon execution of this agreement, or as set forth below,
the Borrower shall pay the Bank the following fees, all of
which the Borrower acknowledges have been earned by the Bank:
$5,000.00 plus 10,000 shares of Power Efficiency common stock
to be delivered upon Bank's request. Capital Access fee of 3%
of $200,000 ($6,000.00).
4.2 Out-of-Pocket Expenses. The Borrower shall reimburse the Bank
for its out-of-pocket expenses, and reasonable attorney's fees
(including the fees of in-house counsel) allocated to the
Credit Facilities.
5.0 Security.
5.1 Payment of the borrowings and all other obligations under the
Credit Facilities shall be secured by a first security
interest and/or real estate mortgage, as the case may be,
covering the following property and all its additions,
substitutions, increments, proceeds and products, whether now
owned or later acquired ("Collateral"):
A. Accounts Receivable. All of the Borrower's accounts,
chattel paper, general intangibles, instruments, and
documents (as those terms are defined in the Michigan
Uniform Commercial Code), rights to refunds of taxes
paid at any time to any governmental entity, and any
letters of credit and drafts under them given in
support of the foregoing, wherever located. The
Borrower shall deliver to the Bank executed security
agreements and financing 9 statements in form and
substance satisfactory to the Bank.
B. Inventory. All of the Borrower's inventory, wherever
located. The Borrower shall deliver to the Bank
executed security agreements and financing statements
in form and substance satisfactory to the Bank.
C. Equipment. All of the Borrower's equipment, wherever
located. The Borrower shall deliver to the Bank
executed security agreements and financing statements
in form and substance satisfactory to the Bank.
5.2 No forbearance or extension of time granted any subsequent
owner of the Collateral shall release the Borrower from
liability.
5.3 Additional Collateral/Setoff. To further secure payment of the
borrowings and all other obligations under the Credit
Facilities and all of the Borrower's other liabilities to the
Bank, the Borrower grants to the Bank a continuing security
interest in: (i) all securities and other property of the
Borrower in the custody, possession or control of the Bank
(other than property held by the Bank solely in a fiduciary
capacity) and (ii) all balances of deposit accounts of the
Borrower with the Bank. The Bank shall have the right at any
time to apply its own debt or liability to the Borrower, or to
any other party liable for payment of the obligations under
the Credit Facilities, in whole or partial payment of such
obligations or other present or future liabilities, without
any requirement of mutual maturity.
5.4 Cross Lien. Any of the Borrower's other property in which the
Bank has a security interest to secure payment of any other
debt, whether absolute, contingent, direct or indirect,
including the Borrower's guaranties of the debts of others,
shall also secure payment of and be part of the Collateral for
the Credit Facilities.
6.0 Subordination. The Credit Facilities shall be supported by the
subordination of all debt owing from the Borrower to Xxxxx Xxxxxx,
including without limitation debt currently owing in the amount of
$100,000.00, in manner and by agreement satisfactory to the Bank.
7.0 Affirmative Covenants. So long as any debt or obligation remains
outstanding under the Credit Facilities, the Borrower, and each of its
subsidiaries, if any, shall:
7.1 Insurance. Maintain insurance with financially sound and
reputable insurers covering its properties and business
against those casualties and contingencies and in the types
and amounts as shall be in accordance with sound business and
industry practices.
7.2 Existence. Maintain its existence and business operations as
presently in effect in accordance with all applicable laws and
regulations, pay its debts and obligations when due under
normal terms, and pay on or before their due date, all taxes,
assessments, fees and other governmental monetary obligations,
except as they may be contested in good faith if they have
been properly reflected on its books and, at the Bank's
request, adequate funds or security has been pledged to insure
payment.
7.3 Financial Records. Maintain proper books and records of
account, in accordance with generally accepted accounting
principles where applicable, and consistent with financial
statements previously submitted to the Bank. The Bank retains
the right to inspect the Collateral and business records
related to it at such times and at such intervals as the Bank
may reasonably require.
7.4 Notice. Give prompt notice to the Bank of the occurrence of
(i) any Event of default, and (ii) any other development,
financial or otherwise, which would affect the Borrower's
business, properties or affairs in a materially adverse
manner.
7.5 Collateral Audits. Permit the Bank or its agents to perform
audits of the Collateral. The Borrower shall compensate the
Bank for such audits in accordance with the Bank's schedule of
fees as amended from time to time.
7.6 Financial Reports. Furnish to the Bank whatever information,
books, and records the Bank may reasonably request, including
at a minimum: (If the Borrower has subsidiaries, all financial
statements required will be provided on a consolidated and on
a separate basis.)
A. Within 30 days after each monthly period, a balance
sheet as of the end of that period and statements of
income retained earnings, and cash flows, from the
beginning of that fiscal year to the end of that
period, certified as correct by one of its authorized
agents.
B. Within 120 days after, and as of the end of, each of
its fiscal years, a detailed financial statement
including a balance sheet and statements of income,
cash flows, and retained earnings, audited by an
independent certified public accountant of recognized
standing.
C. Within 15 days after and as of the end of each
calendar month, the following lists, each certified
as correct by one of its authorized agents:
(1) a list of accounts receivable, aged
from date of invoice;
(2) a list of accounts payable, aged
from date of receipt;
(3) a list of inventory, valued at the
lower of cost or market.
8.0 Negative Covenants.
8.1 Definitions. As used in this agreement, the following terms
shall have the following respective meanings:
8.2 Unless otherwise noted, the financial requirements set forth
in this section shall be computed in accordance with generally
accepted accounting principles applied on a basis consistent
with financial statements previously submitted by the Borrower
to the Bank.
8.3 Without the written consent of the Bank, so long as any debt
or obligation remains outstanding under the Credit Facilities,
the Borrower shall not: (where appropriate, covenants apply on
a consolidated basis).
A. Dividends. Acquire or retire any of its shares of
capital stock, or declare or pay dividends or make
any other distributions upon any of its shares of
capital stock or percentage ownership interests,
except dividends payable in its capital stock and
dividends payable to "Subchapter S" corporation
shareholders and distributions payable to LLC members
in amounts sufficient to pay the shareholders' or
members' income tax obligations related to the
Borrower's taxable income.
B. Sale of Shares. Issue, sell or otherwise dispose of
any shares of its capital stock or other securities,
or rights, warrants or options to purchase or acquire
any such shares or securities.
C. Debt. Incur, or permit to remain outstanding, debt
for borrowed money or installment obligations, except
debt reflected in the latest financial statement of
the Borrower furnished to the Bank prior to execution
of this agreement and not to be paid with proceeds of
borrowings or leases under the Credit Facilities. For
purposes of this covenant, the sale of any accounts
receivable shall be deemed the incurring of debt for
borrowed money.
D. Guaranties. Guarantee or otherwise become or remain
secondarily liable on the undertaking of another,
except for endorsement of drafts for deposit and
collection in the ordinary course of business.
E. Liens. Create or permit to exist any lien on any of
its property, real or personal, except: existing
liens known to the Bank; liens to the Bank; liens
incurred in the ordinary course of business securing
current nondelinquent liabilities for taxes, worker's
compensation, unemployment insurance, social security
and pension liabilities; and liens for taxes being
contested in good faith.
F. Advances and Investments. Purchase or acquire any
securities of, or make any loans or advances to, or
investments in, any person, firm or corporation,
except obligations of the United States Government,
open market commercial paper rated one of the top two
ratings by a rating agency of recognized standing, or
certificates of deposit in insured financial
institutions.
G. Use of Proceeds. Use, or permit any proceeds of the
Credit Facilities to be used, directly or indirectly,
for the purpose of "purchasing or carrying any margin
stock" within the meaning of Federal Reserve Board
Regulation U. At the Bank's request, the Borrower
shall furnish to the Bank a completed Federal Reserve
Board Form U-1.
9.0 Representations by Xxxxxxxx. Each Borrower represents that: (a) the
execution and delivery of this agreement, the Notes, and the Leases and
the performance of the obligations they impose do not violate any law,
conflict with any agreement by which the Borrower is bound, or require
the consent or approval of any governmental authority or other third
party; (b) this agreement, the Notes, and the Leases are valid and
binding agreements, enforceable in accordance with their terms; and (c)
all balance sheets, profit and loss statements, and other financial
statements furnished to the Bank are accurate and fairly reflect the
financial condition of the organizations and persons to which they
apply on their effective dates, including contingent liabilities of
every type, which financial condition has not changed materially and
adversely since those dates. Each Borrower, if other than a natural
person, further represents that: (a) it is duly organized, existing and
in good standing under the laws of the jurisdiction under which it was
organized; and (b) the execution and delivery of this agreement, the
Notes, and the Leases and the performance of the obligations they
impose (i) are within its powers; (ii) have been duly authorized by all
necessary action of its governing body; and (iii) do not contravene the
terms of its articles of incorporation or organization, its bylaws, or
any partnership, operating or other agreement governing its affairs.
10.0 Default/Acceleration.
10.1 Events of Default/Acceleration. If any of the following events
occurs, the Credit Facilities shall terminate and all
borrowings and other obligations under them shall be due
immediately, without notice, at the Banks option whether or
not the Bank has made demand.
A. The Borrower or any guarantor of any of the Credit
Facilities, the Notes or the Leases ("Guarantor")
fails to pay when due any amount payable under the
Credit Facilities or under any agreement or
instrument evidencing debt to any creditor;
B. The Borrower or any Guarantor (a) fails to observe or
perform any other term of this agreement, the Notes,
or the Leases; (b) makes any materially incorrect or
misleading representation, warranty, or certificate
to the Bank; (c) makes any materially incorrect or
misleading representation in any financial statement
or other information delivered to the Bank; or (d)
defaults under the terms of any agreement or
instrument relating to any debt for borrowed money
(other than borrowings under the Credit Facilities)
such that the creditor declares the debt due before
its maturity;
C. There is a default under the terms of any loan
agreement, mortgage, security agreement or any other
document executed as part of the Credit Facilities,
or any guaranty of the obligations under the Credit
Facilities becomes unenforceable in whole or in part,
or any Guarantor fails to promptly perform under its
guaranty;
D. A "reportable event" (as defined in the Employee
Retirement Income Security Act of 1974 as amended)
occurs that would permit the Pension Benefit Guaranty
Corporation to terminate any employee benefit plan of
the Borrower or any affiliate of the Borrower;
E. The Borrower or any Guarantor becomes insolvent or
unable to pay its debts as they become due;
F. The Borrower or any Guarantor (a) makes an assignment
for the benefit of creditors; (b) consents to the
appointment of a custodian, receiver or trustee for
it or for a substantial part of its assets; or (c)
commences any proceeding under any bankruptcy,
reorganization, liquidation or similar laws of any
jurisdiction;
G. A custodian, receiver or trustee is appointed for the
Borrower or any Guarantor or for a substantial part
of its assets without its consent and is not removed
within 60 days after such appointment;
H. Proceedings are commenced against the Borrower or any
Guarantor under any bankruptcy, reorganization,
liquidation, or similar laws of any jurisdiction, and
such proceedings remain undismissed for 60 days after
commencement; or the Borrower or Guarantor consents
to the commencement of such proceedings;
I. Any judgment is entered against the Borrower or any
Guarantor, or any attachment, levy or garnishment is
issued against any property of the Borrower or any
Guarantor;
J. The Borrower or any Guarantor dies;
K. The Borrower or any Guarantor, without the Bank's
written consent, (a) is dissolved, (b) merges or
consolidates with any third party, (c) leases, sells
or otherwise conveys a material part of its assets or
business outside the ordinary course of business, (d)
leases, purchases, or otherwise acquires a material
part of the assets of any other corporation or
business entity, except in the ordinary course of
business, or (e) agrees to do any of the foregoing,
(notwithstanding the foregoing, any subsidiary may
merge, or consolidate with any other subsidiary, or
with the Borrower, so long as the Borrower is the
survivor);
L. The loan-to-value ratio of any pledged securities at
any time exceeds N/A%, and such excess continues for
five (5) days after notice from the Bank to the
Borrower;
M. There is a substantial change in the existing or
prospective I financial condition of the Borrower or
any Guarantor which the Bank in good faith determines
to be materially adverse; or
N. The Bank in good faith shall deem itself insecure.
10.2 Remedies. If the borrowings and all other obligations under
the Credit Facilities are not paid at maturity, whether by
acceleration or otherwise, the Bank shall have all of the
rights and remedies provided by any law or agreement. Any
requirement of reasonable notice shall be met if the Bank
sends the notice to the Borrower at least seven (7) days prior
to the date of sale, disposition or other event giving rise to
the required notice. The Bank is authorized to cause all or
any part of the Collateral to be transferred to or registered
in its name or in the name of any other person, firm or
corporation, with or without designation of the capacity of
such nominee. The Borrower shall be liable for any deficiency
remaining after disposition of any Collateral. The Borrower is
liable to the Bank for all reasonable costs and expenses of
every kind incurred in the making or collection of the Credit
Facilities, including, without limitation, reasonable
attorney's fees and court costs (whether attributable to the
Bank's in-house or outside counsel). These costs and expenses
shall include, without limitation, any costs or expenses
incurred by the Bank in any bankruptcy, reorganization,
insolvency or other similar proceeding.
11.0 Miscellaneous.
11.1 Notice from one party to another relating to this agreement
shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address,
telex number or fax number set forth under its name below by
any of the following means: (a) hand delivery, (b) registered
or certified mail, postage prepaid, with return receipt
requested, (c) first class or express mail, postage prepaid,
(d) Federal Express or like overnight courier service or (e)
fax, telex or other wire transmission with request for
assurance of receipt in a manner typical with respect to
communication of that type. Notice made in accordance with
this section shall be deemed delivered upon receipt if
delivered by hand or wire transmission, 3 business days after
mailing if mailed by first class, registered or certified
mail, or one business day after mailing or deposit with an
overnight courier service if delivered by express mail or
overnight courier.
11.2 No delay on the part of the Bank in the exercise of any right
or remedy shall operate as a waiver. No single or partial
exercise by the Bank of any right or remedy shall preclude any
other future exercise of it or the exercise of any other right
or remedy. No waiver or indulgence by the Bank of any default
shall be effective unless in writing and signed by the Bank,
nor shall a waiver on one occasion be construed as a bar to or
waiver of that right on any future occasion.
11.3 This agreement, the Notes, the Leases and any related loan
documents embody the entire agreement and understanding
between the Borrower and the Bank and supersede all prior
agreements and understandings relating to their subject
matter. If any one or more of the obligations of the Borrower
under this agreement, the Notes or the Leases shall be
invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining
obligations of the Borrower shall not in any way be affected
or impaired, and such invalidity, illegality or
unenforceability in one jurisdiction shall not affect the
validity, legality or enforceability of the obligations of the
Borrower under this agreement, the Notes or the Leases in any
other jurisdiction.
11.4 The Borrower, if more than one, shall be jointly and severally
liable.
11.5 This agreement is delivered in the State of Michigan and
governed by Michigan law. This agreement is binding on the
Borrower and its successors, and shall inure to the benefit of
the Bank, its successors and assigns.
11.6 Section headings are for convenience of reference only and
shall not affect the interpretation of this agreement.
12.0 Information Sharing. The Bank may provide, without any limitation
whatsoever, any information or knowledge the Bank may have about the
undersigned or any matter relating to this agreement and any related
documents to BANK ONE CORPORATION, or any of its subsidiaries or
affiliates or their successors, or to any one or more purchasers or
potential purchasers of this agreement or any related documents, and
the undersigned waives any right to privacy the undersigned may have
with respect to such matters. The Borrower agrees that the Bank may at
any time sell, assign or transfer one or more interests or
participations in all or any part of its rights or obligations in this
agreement to one or more purchasers whether or not related to the Bank.
13.0 Waiver of Jury Trial. The Bank and the Borrower knowingly and
voluntarily waive any right either of them have to a trial by jury in
any proceeding (whether sounding in contract or tort) which is in any
way connected with this or any related agreement, or the relationship
established under them. This provision may only be modified in a
written instrument executed by the Bank and the Borrower.
Executed by the parties on: December 6 , 2000.
Bank One, Michigan Borrower
POWER EFFICIENCY CORPORATION
By: /s/ X. Xxxx Xxxxxxx
----------------------------
X. Xxxx Xxxxxxx
By:/s/ Xxxxxx X. Xxxxx
-----------------------------------
Its: First Vice
President Its:
-------------------------------
Treasurer
---------------------------
Address for Notices Address for Notices
00 X. Xxxx, Xxxxx 000 0000 Xxxxxxx Xxxxx, Xxxxx X
Xx. Xxxxxxxx, MI 48043 Ann Arbor, MI 48108
Revolving Business Credit Note
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Due April 30, 2001 $750,000.00
No. Date: December 6, 2000
--------------------
Promise to Pay. On or before April 30, 2001, for value received, Power
Efficiency Corporation (the "Borrower") promises to pay to Bank One, Michigan
(the "Bank"), or order, at any office of the Bank in the State of Michigan, the
sum of Seven Hundred Fifty Thousand DOLLARS ($750,000.00), or such lesser sum as
is indicated on Bank records, plus interest computed on the basis of the actual
number of days elapsed in a year of 360 days at the rate of:
2.0% per annum above the Prime Rate (the "Note Rate") until maturity
whether by acceleration or otherwise and at the rate of 3% per annum
above the Note Rate on overdue principal from the date when due until
paid. "Prime Rate" means a rate per annum equal to the prime rate of
interest announced from time to time by the Bank or its parent (which
is not necessarily the lowest rate charged to any customer), changing
when and as said prime rate changes.
In no event shall the interest rate exceed the maximum rate allowed by law; any
interest payment which would for any reason be deemed unlawful under applicable
law shall be applied to principal.
Interest will be computed on the unpaid principal balance from the date of each
borrowing.
Until maturity, the Borrower will pay consecutive monthly installments of
interest only commencing January 10 , 2001.
Late Fee. If any payment is not received by the Bank within fifteen days after
its due date, the Bank may assess and the Borrower agrees to pay a late fee
equal to the lesser of five percent of the past due amount or $200.
Credit Facility. The Bank has authorized a credit facility to the Borrower in a,
principal amount not to exceed the face amount of this note. The credit facility
is in the form of loans made from time to time by the Bank to the Borrower. This
note evidences the Borrower's obligation to repay those loans. The aggregate
principal amount of debt evidenced by this note shall be the amount reflected
from time to time in the records of the Bank but shall not exceed the face
amount of this note. Until maturity, the Borrower may borrow, pay down, and
reborrow under this note so long as the aggregate principal amount outstanding
at any one time does not exceed the face amount of this note.
Credit Agreement. This note evidences a debt under the terms of a Line of Credit
Agreement between the Bank and the Borrower dated December 6 2000, and any
amendments (the "Agreement").
Security. To secure the payment of this note and all other present or future
liabilities of the Borrower to the Bank, whether several, joint, or joint and
several, the Borrower pledges and grants to the Bank a continuing security
interest in the following described property and all of its additions,
substitutions, increments, proceeds and products, whether now owned or later
acquired ("Collateral"):
1. All securities and other property of the Borrower in the custody,
possession or control of the Bank (other than property held by the Bank
solely in a fiduciary capacity);
2. All property or securities declared or acknowledged to constitute
security for any past, present or future liability of the Borrower to
the Bank;
3. All balances of deposit accounts of the Borrower with the Bank;
4. The following additional property: General Xxxx on all Corporate
Assets.
Bank's Right to Setoff. The Bank shall have the right at any time to apply its
own debt or liability to the Borrower or to any other party liable on this note
in whole or partial payment of this note or other present or future liabilities,
without any requirement of mutual maturity.
Representations by Xxxxxxxx. Each Borrower represents: (a) that the execution
and delivery of this note and the performance of the obligations it imposes do
not violate any law, conflict with any agreement by which it is bound, or
require the consent or approval of any governmental authority or any third
party; (b) that this note is a valid and binding agreement, enforceable
according to its terms; and (c) that all balance sheets, profit and loss
statements, and other financial statements furnished to the Bank are accurate
and fairly reflect the financial condition of the organizations and persons to
which they apply on their effective dates, including contingent liabilities of
every type, which financial condition has not changed materially and adversely
since those dates. Each Borrower, other than a natural person, further
represents: (a) that it is duly organized, existing and in good standing
pursuant to the laws under which it is organized; and (b) that the execution and
delivery of this note and the performance of the obligations it imposes (i) are
within its powers and have been duly authorized by all necessary action of its
governing body; and (ii) do not contravene the terms of its articles of
incorporation or organization, its by laws, or any partnership, operating or
other agreement governing its affairs.
Events of Default/Acceleration. If any of the following events occurs, this note
shall be due immediately, without notice, at the Bank's option.
1. The Borrower or any guarantor of this note ("Guarantor") fails to pay
when due any amount payable under this note or under any agreement or
instrument evidencing debt to any creditor;
2. The Borrower or any Guarantor (a) fails to observe or perform any other
term of this note; (b) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; (c) makes any
materially incorrect or misleading representation in any financial
statement or other information delivered to the Bank; or (d) defaults
under the terms of any agreement or instrument relating to any debt for
borrowed money (other than the debt evidenced by this note) such that
the creditor declares the debt due before its maturity;
3. There is a default under the terms of any loan agreement, mortgage,
security agreement, or any other document executed as part of the loan
evidenced by this note, or any guaranty of the loan evidenced by this
note becomes unenforceable in whole or in part, or any Guarantor fails
to promptly perform under its guaranty;
4. A "reportable event" (as defined in the Employee Retirement Income
Security Act of 1974 as amended) occurs that would permit the Pension
Benefit Guaranty Corporation to terminate any employee benefit plan of
the Borrower or any affiliate of the Borrower;
5. The Borrower or any Guarantor becomes insolvent or unable to pay its
debts as they become due;
6. The Borrower or any Guarantor (a) makes an assignment for the benefit
of creditors; (b) consents to the appointment of a custodian, receiver,
or trustee for itself or for a substantial part of its assets; or (c)
commences any proceeding under any bankruptcy, reorganization,
liquidation, insolvency or similar laws of any jurisdiction;
7. A custodian, receiver, or trustee is appointed for the Borrower or any
Guarantor or for a substantial part of its assets without the consent
of the party against which the appointment is made and is not removed
within 60 days after such appointment;
8. Proceedings are commenced against the Borrower or any Guarantor under
any bankruptcy, reorganization, liquidation, or similar laws of any
jurisdiction, and such proceedings remain undismissed for 60 days after
commencement; or the Borrower or Guarantor consents to the commencement
of such proceedings;
9. Any judgment is entered against the Borrower or any Guarantor, or any
attachment, levy, or garnishment is issued against any property of the
Borrower or any Guarantor;
10. The Borrower or any Guarantor dies;
11. The Borrower or any Guarantor, without the Bank's written consent, (a)
is dissolved, (b) merges or consolidates with any third party, (c)
leases, sells or otherwise conveys a material part of its assets or
business outside the ordinary course of business, (d) leases, purchases
or otherwise acquires a material part of the assets of any other
corporation or business entity except in the ordinary course of
business, or (e) agrees to do any of the foregoing (notwithstanding the
foregoing, any subsidiary may merge or consolidate with any other
subsidiary, or with the Borrower so long as the Borrower is the
survivor);
12. The loan-to-value ratio of any pledged securities at any time exceeds
N/A% and such excess continues for five (5) days after notice from the
Bank to the Borrower;
13. There is a substantial change in the existing or prospective financial
condition of the Borrower or any Guarantor which the Bank in good faith
determines to be materially adverse;
14. The Bank in good xxxxx xxxxx itself insecure.
Remedies. If this note is not paid at maturity, whether by acceleration or
otherwise, the Bank shall have all of the rights and remedies provided by any
law or agreement. Any requirement of reasonable notice shall be met if the Bank
sends the notice to the Borrower at least seven (7) days prior to the date of
sale, disposition or other event giving rise to the required notice. The Bank is
authorized to cause all or any part of the Collateral to be transferred to or
registered in its name or in the name of any other person, firm or corporation,
with or without designation of the capacity of such nominee. The Borrower shall
be liable for any deficiency remaining after disposition of any Collateral. The
Borrower is liable to the Bank for all reasonable costs and expenses of every
kind incurred in the making or collection of this note, including, without
limitation, reasonable attorneys' fees and court costs. These costs and expenses
shall include, without limitation, any costs or expenses incurred by the Bank in
any bankruptcy, reorganization, insolvency or other similar proceeding.
Waiver. Each endorser and any other party liable on this note severally waives
demand, presentment, notice of dishonor and protest, and consents to any
extension or postponement of time of its payment without limit as to the number
or period, to any substitution, exchange or release of all or part of the
Collateral, to the addition of any party, and to the release or discharge of, or
suspension of any rights and remedies against, any person who may be liable for
the payment of this note. No delay on the part of the Bank in the exercise of
any right or remedy shall operate as a waiver. No single or partial exercise by
the Bank of any right or remedy shall preclude any other future exercise of it
or the exercise of any other right or remedy. No waiver or indulgence by the
Bank of any default shall be effective unless in writing and signed by the Bank,
nor shall a waiver on one occasion be construed as a bar to or waiver of that
right on any future occasion.
Miscellaneous. The Borrower, if more than one, shall be jointly and severally
liable, and the term "Borrower" shall mean any one or more of them. This note
shall be binding on the Borrower and its successors, and shall inure to the
benefit of the Bank, its successors and assigns. Any reference to the Bank shall
include any holder of this note. This note is delivered in the State of Michigan
and governed by Michigan law. Section headings are for convenience of reference
only and shall not affect the interpretation of this note.
Information Sharing. The Bank may provide, without any limitation whatsoever,
any information or knowledge the Bank may have about the undersigned or any
matter relating to this note and any related documents to BANK ONE CORPORATION,
or any of its subsidiaries or affiliates or their successors, or to any one or
more purchasers or potential purchasers of this note or any related documents,
and the undersigned waives any right to privacy the undersigned may have with
respect to such matters. The Borrower agrees that the Bank may at any time sell,
assign or transfer one or more interests or participations in all or any part of
its rights or obligations in this note to one or more purchasers whether or not
related to the Bank.
Waiver of Jury Trial. The Bank and the Borrower knowingly and voluntarily waive
any right either of them have to a trial by jury in any proceeding (whether
sounding in contract or tort) which is in any way connected with this or any
related agreement, or the relationship established under them. This provision
may only be modified in a written instrument executed by the Bank and the
Borrower.
Address: Borrower:
0000 Xxxxxxx Xxxxx, Suite E POWER EFFICIENCY CORPORATION
Ann Arbor, MI 48108
By: /s/ Xxxxxx X. Xxxxx
--------------------------------
Its: Treasurer
-------------------------------
Continuing Security Agreement
--------------------------------------------------------------------------------
Power Efficiency Corporation (the "Debtor")
Taxpayer I.D. No.: 00-0000000
Chief executive office: 0000 Xxxxxxx Xxxxx, Xxxxx X, Xxx Xxxxx, XX 00000
Grant of Security Interest. The Debtor grants to Bank One, Michigan, the secured
party referred to as "Bank", whose address is 000 Xxxxxxxx Xxxxxx, Xxxxxxx,
Xxxxxxxx 00000, a continuing security interest in the Collateral listed below,
to secure the payment and performance of all of the Debtor's debt to the Bank.
Debt shall include each and every debt liability and obligation of every type
and description now owed or arising at a later time, whether they are direct or
indirect, joint, several, or joint and several and whether or not of the same
type or class as presently outstanding, which shall collectively be referred to
as "Liabilities." Liabilities shall also include all interest, costs, expenses
and reasonable attorney's fees accruing to or incurred by the Bank in collecting
the Liabilities or in the protection, maintenance or liquidation of the
Collateral.
Collateral: Accounts Receivable, Inventory, Equipment, Instruments
Description of Collateral. The Collateral covered by this agreement is all of
the Debtor's property indicated above and as defined below, present and future,
including but not limited to any items listed on any schedule or list attached.
Also included are all proceeds, including but not limited to stock rights,
subscription rights, dividends, stock dividends, stock splits, or liquidating
dividends, and all cash, instruments, accounts, chattel paper and general
intangibles arising from the sale, rent, lease, casualty loss or other
disposition of the Collateral, and any Collateral returned to, repossessed by or
stopped in transit by the Debtor. Also included are the Debtor's books and
records which relates to the Collateral. Where the Collateral is in the
possession of the Bank, the Debtor agrees to deliver to the Bank any property
which represents an increase in the Collateral or profits or proceeds of the
Collateral.
Definitions.
1. "Accounts Receivable" shall consist of accounts, chattel paper and general
intangibles as those terms are defined in the Michigan Uniform Commercial Code
("UCC"). Also included is any right to a refund of taxes paid at any time to any
governmental entity. Also included are letters of credit, and drafts under them,
given in support of Accounts Receivable. Debtor warrants that its chief
executive office is at the address shown above.
2. "Inventory" shall consist of all property held at any location by or for
Debtor for sale, rent; or lease, or furnished or to be furnished by the Debtor
under an contract of service, or raw materials or work in process and their
products, or materials, used or consumed in its business, and shall include
containers and shelving useful for storing. Without limiting the security
interest granted, Inventory is presently located at 0000 Xxxxxxx Xxxxx, Xxxxx X,
Xxx Xxxxx, XX 00000.
3. "Equipment" shall consist of any goods at any time acquired, owned or held by
Debtor at any location primarily for use in its business, including, but not
limited to, machinery, fixtures, furniture, furnishings and vehicles, and any
accessions, parts, attachments, accessories, tools, dies, additions,
substitutions, replacements and appurtenances to them or intended for use with
them. Without limiting the security interest granted, Equipment is presently
located at 0000 Xxxxxxx Xxxxx, Xxxxx X, Xxx Xxxxx, XX 00000.
4. "Instruments" shall consist of Xxxxxx's interest of any kind in any
negotiable instrument or security as those terms are defined in the UCC, or any
other writing which evidences a right to payment of money and is of a type which
is, in the ordinary course of business, transferred by delivery alone or by
delivery with any necessary endorsement or assignment.
Warranties and Covenants. The Debtor warrants and covenants to the Bank that:
1. It will pay its Liabilities to the Bank secured by this agreement;
2. It is or will become the owner of the Collateral free from any liens,
encumbrances or security interests, except for this security interest, and
existing liens disclosed to and accepted by the Bank in writing, and will defend
the Collateral against all claims and demands of all persons at any time
claiming any interest in it; 3. It will keep the Collateral free of liens,
encumbrances and other security interests, maintain it in good repair, not use
it illegally, and exhibit it to the Bank on demand; 4. At its own expense, the
Debtor will maintain comprehensive casualty insurance on the Collateral against
such risks, in such amounts, with such deductibles and with such companies as
may be satisfactory to the Bank, and provide the Bank with proof of insurance
acceptable to the Bank. Each insurance policy shall contain a lender's loss
payable endorsement satisfactory to the Bank and a prohibition against
cancellation or amendment of the policy or removal of the Bank as loss payee
without at least 30 days prior written notice to the Bank. In all events, the
amounts of such insurance coverages shall conform to prudent business practices
and shall be in such minimum amounts that the Debtor will not be deemed a
co-insurer; 5. It will not sell or offer to sell or otherwise transfer the
Collateral, nor change the location of the Collateral, without the written
consent of the Bank, except in the ordinary course of business; 6. It will pay
promptly when due all taxes and assessments upon the Collateral, or for its use
or operation; 7. No financing statement covering all or any part of the
Collateral or any proceeds is on file in any public office, unless the Bank has
approved that filing. At the Bank's request, Xxxxxx will execute one or more
financing statements in form satisfactory to Bank and will pay the cost of
filing them in all public offices wherever filing is deemed by Bank to be
desirable; 8. It will immediately notify Bank in writing of any name change or
any change in business organization; 9. It will provide any information that
Bank may reasonably request, and will permit Bank upon prior notice to inspect
and copy its books and records during normal business hours.
Accounts Receivable. The Debtor acknowledges that if the Collateral includes
"Accounts Receivable," then until the Bank gives notice to Debtor to the
contrary, Debtor will, in the usual course of its business and at its own cost
and expense, on the Bank's behalf but not as the Bank's agent, demand and
receive and use its best efforts to collect all moneys due or to become due on
the Accounts Receivable. Until the Bank gives notice to Debtor to the contrary
or until the Debtor is in default, it may use the funds collected in its
business. Upon notice from the Bank or upon default, the Debtor agrees that all
sums of money it receives on account of or in payment or settlement of the
Accounts Receivable shall be held by it as trustee for the Bank without
commingling with any of its funds, and shall immediately be delivered to the
Bank with endorsement to the Bank's order of any check or similar instrument. It
is agreed that, at any time the Bank elects, it shall be entitled, in its own
name or in the name of the Debtor or otherwise, but at the expense and cost of
the Debtor, to collect, demand, receive, sue for or compromise any and all
Accounts Receivable, and to give good and sufficient releases, to endorse any
checks, drafts or other orders for the payment of money payable to the Debtor in
payment and, its discretion, to file any claims or take any action or proceeding
which the Bank may deem necessary or advisable. It is expressly understood and
agreed, however, that the Bank shall not be required or obligated in any manner
to make any demand or to make any inquiry as to the nature or sufficiency of any
payment received by it or to present or file any claim or take any other action
to collect or enforce the payment of any amounts which may have been assigned to
it or to which it may be entitled at any time or times. All notices required in
this paragraph will be immediately effective when sent. Such notices need not be
given prior to the Bank taking action.
Representations by Xxxxxx. Each Debtor represents: (a) that the execution and
delivery of this agreement and the performance of the obligations it imposes do
not violate any law, conflict with any agreement by which it is bound, or
require the consent or approval of any governmental authority or any third
party; (b) that this agreement is a valid and binding agreement; enforceable
according to its terms; and (c) that all balance sheets, profit and loss
statement, and other financial statements furnished to the Bank are accurate and
fairly reflect the financial condition of the organizations and persons to which
they apply on their effective dates, including contingent liabilities of every
type, which financial condition has not changed materially and adversely since
those dates. Each Debtor, other than a natural person, further represents: (a)
that it is duly organized, existing and in good standing pursuant to the laws
under which it is organized; and (b) that the execution and delivery of this
agreement and the performance of the obligations it imposes (i) are within its
powers and have been duly authorized by all necessary action of its governing
body; (ii) do not contravene the terms of its articles of incorporation or
organizations, its by-laws, or any partnership, operating or other agreement
governing its affairs.
Pledge. If the Debtor is not liable for all or any part of the Borrower's
obligations to the Bank (the "Debt"), then it agrees that:
(a) If any monies become available to the Bank that it can apply to any Debt,
the Bank may apply them to Debt not secured by this agreement. (b) Without
notice to or the consent of the Debtor, the Bank may (i) take any action it
chooses against any Borrower, against any collateral for the Debt, or against
any other person liable for the Debt; (ii) release any Borrower or any other
person liable for the Debt, release any collateral for the Debt, and neglect to
perfect any interest in any such collateral; (iii) forbear or agree to forbear
from exercising any rights or remedies, including any right of setoff, that it
has against the Borrower, any other person liable for the Debt, or any other
collateral for the Debt; (iv) extend to any Borrower additional Debt to be
secured by this agreement; or (v) renew, extend, modify or amend any Debt, and
deal with any Borrower or any other person liable for the Debt as it chooses.
(c) None of the Debtor's obligations under this agreement shall be affected by
(i) any act or omission of the Bank; (ii) the voluntary or involuntary
liquidation, sale or other disposition of all or substantially all of the assets
of any Borrower; (iii) any receivership, insolvency, bankruptcy, reorganization
or other similar proceedings affecting any Borrower or any of its assets; or
(iv) any change in the composition or structure of any Borrower or any Debtor,
including a merger or consolidation with any other entity.
(d) The Bank's rights under this section and this agreement are unconditional
and absolute, regardless of the unenforceability of any provision of any
agreement between any Borrower and the Bank, or the existence of any defense,
setoff or counterclaim that any Borrower may be able to assert against the Bank.
(e) It waives all rights of subrogation, contribution, reimbursement, indemnity,
exoneration, implied contract, recourse to security, and any other claim (as
that term is defined in the federal Bankruptcy Code, as amended from time to
time) that it may have or acquire in the future against any Borrower, any other
person liable for the Debt, or any collateral for the Debt, because of the
existence of this agreement, the Debtor's performance under this agreement, or
the Bank's availing itself of any rights or remedies under this agreement.
(f) If any payment to the Bank on any Debt is wholly or partially invalidated,
set aside, declared fraudulent or required to be repaid to the Borrower or
anyone representing the Borrower or the Borrower's creditors, under any
bankruptcy or insolvency act or code, under any state or federal law, or under
common law or equitable principles, then this agreement shall remain in full
force and effect or be reinstated, as the case may be, until payment in full to
the Bank of the repaid amounts, and of the Debt. If this agreement must be
reinstated, the Debtor agrees to execute and deliver to the Bank new agreements
and financing statements, if necessary, in form and substance acceptable to the
Bank, covering the Collateral.
Default/Remedies. If the Debtor or the Borrower fails to pay any of the
Liabilities when due, or if a default by anyone occurs under the terms of any
agreement related to any of the Liabilities, or if the Debtor dies or fails to
observe or perform any term of this agreement, or if any representation or
warranty contained in this agreement is untrue, or if there is a material change
in the financial condition of the Debtor which the Bank in good faith determines
to be materially adverse, then the Bank shall have the rights and remedies
provided by law or this agreement, including but not limited to the right to
require the Debtor to assemble the Collateral and make it available to the Bank
at a place to be designated by the Bank which is reasonably convenient to both
parties, the right to take possession of the Collateral with or without demand
and with or without process of law, and the right to sell and dispose of it and
distribute the proceeds according to law. In connection with the right of the
Bank to take possession of the Collateral, the Bank may take possession of any
other items of property in or on the Collateral at the time of taking
possession, and hold them for the Debtor without liability on the part of the
Bank. If there is any statutory requirement, for notice, that requirement shall
be met if the Bank sends notice to the Debtor at least seven (7) days prior to
the date of sale, disposition or other event giving rise to the required notice.
The Debtor shall be liable for any deficiency remaining after disposition of the
Collateral.
Miscellaneous.
1. Where the Collateral is located at, used in or attached to a facility leased
by the Debtor, the Debtor will obtain from the lessor a consent to the granting
of this security interest and a subordination of the lessor's interest in any
of the Collateral, in form acceptable to the Bank.
2. At its option the Bank may, but shall be under no duty or obligation to,
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral, pay for insurance on the Collateral, and pay
for the maintenance and preservation of the Collateral, and the Debtor agrees to
reimburse the Bank on demand for any payment made or expense incurred by the
Bank, with interest at the maximum legal rate.
3. No delay on the part of Bank in the exercise of any right or remedy shall
operate as a waiver, no single or partial exercise by the Bank of any right or
remedy shall preclude any other exercise of it or the exercise of any other
right or remedy, and no waiver or indulgence by the Bank of any default shall be
effective unless in writing and signed by the Bank, nor shall a waiver on one
occasion be construed as a waiver of that right on any future occasion.
4. If any provision of this agreement is invalid, it shall be ineffective only
to the extent of its invalidity, and the remaining provisions shall be valid and
effective.
5. Notice from one party to another relating to this agreement shall be deemed
effective if made in writing (including telecommunications) and delivered to the
recipient's address, telex number or telecopier number set forth above by any of
the following means: (a) hand delivery, (b) registered or certified mail,
postage prepaid, with return receipt requested, (c) first class or express mail,
postage prepaid, (d) Federal Express, Purolator Courier or like overnight
courier service or (e) telecopy, telex or other wire transmission with request
for assurance of receipt in a manner typical with respect to communications of
that type. Notice made in accordance with this section shall be deemed delivered
on receipt if delivered by hand or wire transmission, on the third business day
after mailing if mailed by first class, registered or certified mail, or on the
next business day after mailing or deposit with an overnight courier service if
delivered by express mail or overnight courier.
6. All rights of the Bank shall inure to the benefit of the Bank's successors
and assigns; and all obligations of the Debtor shall bind the Debtor's heirs,
executors, administrators, successors and assigns. If there is more than one
Debtor, their obligations are joint and several.
7. A carbon, photographic or other reproduction of this agreement is sufficient,
and can be filed as a financing statement. The Bank is irrevocably appointed the
Debtor's attorney-in-fact to execute any financing statement on Xxxxxx's behalf
covering the Collateral.
8. The terms and provisions of this security agreement shall be governed by
Michigan law.
Information Sharing. The Bank may provide, without any limitation whatsoever,
any information or knowledge the Bank may have about the undersigned or any
matter relating to this agreement and any related documents to BANK ONE
CORPORATION, or any of its subsidiaries or affiliates or their successors, or to
any one or more purchasers or potential purchasers of this agreement or any
related documents, and the undersigned waives any right to privacy the
undersigned may have with respect to such matters. The Debtor agrees that the
Bank may at any time sell, assign or transfer one or more interests or
participations in all or any part of its rights or obligations in this agreement
to one or more purchasers whether or not related to the Bank.
Waiver of Jury Trial. The Bank and the Debtor knowingly and voluntarily waive
any right either of them have to a trial by jury in any proceeding (whether
sounding in contract or tort) which is in any way connected with this or any
related agreement, or the relationship established under them. This provision
may only be modified in a written instrument executed by the Bank and the
Debtor.
Dated: December 6, 2000
Debtor:
POWER EFFICIENCY CORPORATION
By: /s/ Xxxxxx X. Xxxxx
---------------------
Its: Treasurer
-------------------------------------
This FINANCING STATEMENT is presented for filing FOR FILING OFFICER
pursuant to the Michigan Uniform Commercial Code. (Please Type All Information) (Date, Time, Number,
and Filing Officer)
---------------------------------------------------------- --- -------------------------------------------------
1. Debtor(s) (Last Name, First, If Individual) & Soc. Security DO NOT WRITE IN THIS SPACE
Address(es) Soc. Security #/Tax ID # #/Tax ID #
Power Efficiency Corporation 00-0000000
00-0000000
-------------------
----------------------------------------------------------
Address
0000 Xxxxxxx Xxxxx, Xxxxx X
----------------------------------------------------------
------------------------------ ------- ------------------- -------------------
City Stale Zip Code
Ann Arbor MI 48108
---------------------------------------------------------- -------------------
Debtor(s) (Last Name, First, if Individual) & Address(es)
-------------------
---------------------------------------------------------- -------------------
---------------------------------------------------------- -------------------
Address
----------------------------------------------------------
------------------------------ ------- ------------------- -------------------
City Stale Zip Code
------------------------------ ---------------------- ------------------------------------------------
2. If filing without debtor 3. Secured Party(ies) and Address(es) Secured 5. No. of Add'l Sheets 6. State Account No.
signature Item a, b, c, or d Party #
must be marked [X]. Bank One, Michigan M00003
a. [ ] Collateral was c/o American National Bank
already subject to the 000 X. XxXxxxx Xxxxxx
security interest in another B2-IL1-1145
state when it was brought Chicago, IL 60603
into Michigan, or when the
Debtor's location changed to --------------------------------------------------------------
Michigan; 4. MAIL ACKNOWLEDGEMENT COPY TO: 7. (Mark [X] if applicable):
b. [ ] Collateral is
proceeds of the original Bank One, Michigan [ ] Products of collateral
collateral in which a c/o American National Bank
security interest was 000 X. XxXxxxx Xxxxxx
perfected; B2-IL1-1145 [ ] The debtor is a
c. [ ] A previous filing Chicago, IL 60603 transmitting
covering the collateral has utility as defined
lapsed (Pre. Filing in MCLA
# ); 440.9105(1)(o).
d. [ ] The filing covers
collateral acquired after a -------------------------------------- ---------------------------------------------------
change of name identity, or 8. Assignee(es) (if any) and
corporate structure of Address(es)
Debtor (MCLA 440.9402(2) &
(7))
FROM:
(Prev. Filing
# ).
--------------------------------------------------------------------------------
9. This financing statement covers the following types (or items) of property:
All present and future equipment wherever located. All present and future
accounts, chattel paper, instruments and general intangibles. All present and
future inventory, wherever located.
---------------------------------------------------------------------------------------------------------------------------------
POWER EFFICIENCY CORPORATION BANK ONE, MICHIGAN
x /s/ Xxxxxx X. Xxxxx x /s/ X. Xxxx Xxxxxxx
------------------------------------------------- -------------------------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
or Assignee(s) of Record
Its: Treasurer X. Xxxx Xxxxxxx, First Vice
President
x x
------------------------------------------------- -------------------------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
or Assignee(s) of Record
IF YOU WISH THE ACKNOWLEDGEMENT COPY TO BE MAILED TO AN ADDRESS OTHER THAN THE SECURED PARTY SHOWN IN ITEM 3,
PROVIDE
EXHIBIT 1
XXXXXXXX'S REPRESENTATIONS REGARDING LOAN LOSS RESERVE FUND
The undersigned borrower (the "Borrower") acknowledges and
understands:
(a) that the loan to be made by Bank One-Michigan, N.A. (the
"Lender") to the Borrower will be filed for enrollment by the Lender in the Loan
Loss Reserve Program (the "Program"), a program established by the Michigan
Strategic Fund (the "MSF"), an agency of the State of Michigan;
(b) that the purpose of the Program is to assist the Lender in making
loans that might otherwise not qualify for a loan from the Lender;
(c) that as a condition of having the loan filed for enrollment in
the Program, the Borrower is required to pay a non-refundable premium charge to
an administrative account called the Reserve Fund, which Reserve Fund is
established by the Michigan Strategic Fund to help cover losses that the Lender
may sustain on loans enrolled in the Program; and
(d) that the Borrower's payment of its non-refundable premium charge
will be collected by the Lender for the transmittal to the Reserve Fund, and
that other payments or transfers will be made to the Reserve Fund by the Lender
and the Michigan Strategic Fund.
The Borrower acknowledges the foregoing and hereby represents and
warrants that it has no, and has not been promised or told by anyone that it has
any, legal, beneficial or equitable interest in the aforementioned
non-refundable premium charges or any other funds credited to the Reserve Fund,
and hereby waives any right, claim or interest to any and all such funds paid or
credited to the Reserve Fund from time to time.
Borrower: POWER EFFICIENCY CORPORATION
By: /s/ Xxxxxx X. Xxxxx
--------------------------------
Dated: 12/6/00
EXHIBIT 2
NOTICE TO BORROWER
This notice is provided to borrowers who may receive a loan from a bank
under the Loan Loss Reserve Program of the Michigan Strategic Fund, a State of
Michigan agency.
The purpose of this program is to assist banks to make loans that might
otherwise not qualify for a bank loan. The program utilizes a special loss
reserve to assist the bank in covering losses from a portfolio of loans that a
bank makes under the program. The borrower pays a premium payment to the
reserve, which is matched by a bank premium payment to the reserve. The Michigan
Strategic Fund will then match the combined total of the Borrower's payment and
the bank's payment.
It is important to emphasize that the loan is private transaction
between the bank and the borrower. While the program may assist a bank in being
able to take more risk than normal, it is important to understand that it is
still the bank that is bearing the risk of the loan. The Michigan Strategic Fund
is not a party to the loan and plays no role at all in the bank's decision
regarding whether or not to make the loan, or in the setting of the interest
rate, fees, duration, or any other terms or conditions of the loan. The bank's
rights and remedies are delineated in the loan contract and in law applicable to
any decision by the bank with respect to enforcing the bank's rights under the
loan contract.
While the program is intended to assist the bank in providing you with
access to bank financing, you should understand that it is likely to be more
expensive for the borrower than would be the case with a conventional bank loan.
Not only does the borrower make a payment to the reserve, but it is expected
that the bank may, in some manner, recover from the borrower the cost of the
bank's payment into the reserve.
