EXHIBIT 10.1
LOAN AGREEMENT
BETWEEN
MEDALLION CAPITAL, INC.
AND
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
SEPTEMBER 10, 1998
TABLE OF CONTENTS
ARTICLE ONE
THE INVESTMENT................................................................1
1.1 Loan.............................................................1
1.2 Security.........................................................1
1.3 Intercreditor Agreement..........................................1
1.4 Warrant..........................................................1
1.5 Securities.......................................................2
1.6 The "Investment".................................................2
1.7 Closing..........................................................2
1.8 Fees.............................................................2
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES................................................2
2.1 Good Standing....................................................3
2.2 Capital Stock....................................................3
2.3 Subsidiaries.....................................................3
2.4 Financial Statements.............................................3
2.5 Use of Proceeds..................................................3
2.6 Absence of Material Changes......................................3
2.7 Shareholders, Officers and Directors.............................4
2.8 Property Ownership; Leases.......................................4
2.9 Ownership of Intellectual Property Rights........................4
2.10 Litigation.......................................................4
2.11 Taxes............................................................4
2.12 Absence of Prohibition or Liens..................................4
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2.13 Authorization....................................................5
2.14 Absence of Public Sales..........................................5
2.15 Finder's or Broker's Fees........................................5
2.16 Small Business Concern...........................................5
2.17 Criminal Offenses................................................5
ARTICLE THREE
AFFIRMATIVE COVENANTS OF THE COMPANY..........................................6
3.1 Prompt Payment of Taxes and Claims...............................6
3.2 Insurance........................................................6
3.3 Repairs..........................................................6
3.4 Board of Directors...............................................6
3.5 Delivery of Financial and Other Documents........................6
3.6 Form of Financial Documents......................................7
3.7 Budget...........................................................8
3.8 Information on Request; Disclosure...............................8
3.9 Corporate Existence..............................................8
3.10 Litigation.......................................................8
3.11 Inspections......................................................8
3.12 Corporate Funds..................................................9
3.13 Civil Rights.....................................................9
ARTICLE FOUR
NEGATIVE COVENANTS OF THE COMPANY.............................................9
4.1 Change of Operations.............................................9
4.2 Dividends........................................................9
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4.3 Expense Reimbursement............................................9
4.4 Transactions with Insiders.......................................9
4.5 Application of Funds.............................................10
4.6 Merger and Subsidiaries..........................................10
4.7 Guaranties.......................................................10
4.8 Indebtedness.....................................................10
4.9 Encumbrances; Conditional Sales..................................10
4.10 Acquisition of Fixed Assets......................................10
4.11 Business Relocation..............................................10
4.12 Change in Control................................................11
4.13 Amend Articles...................................................11
ARTICLE FIVE
SURVIVAL OF REPRESENTATIONS AND WARRANTIES....................................11
ARTICLE SIX
INVESTMENT REPRESENTATION: REGISTRATION AND
TRANSFER OF SECURITIES........................................................11
6.1 Investment Representation........................................11
6.2 Legend...........................................................11
6.3 Transfers........................................................12
6.4 Simultaneous Registration........................................12
6.5 Subsequent One-Time Registration.................................12
6.6 Alternative Subsequent Registration..............................13
6.7 Registration Procedure...........................................13
6.8 Costs of Registration............................................14
6.9 Indemnification of Lender........................................14
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6.10 Indemnification of the Company...................................15
6.11 Termination of Transfer Restrictions.............................15
6.12 Additional Registration Covenants................................15
ARTICLE SEVEN
PRIVATE, RULE 144 SALES.......................................................16
ARTICLE EIGHT
DEFAULT.......................................................................17
8.1 Failure to Pay Interest or Principal.............................17
8.2 Untrue Representation or Warranty................................17
8.3 Contractual Default..............................................17
8.4 Other Obligations................................................18
ARTICLE NINE
REMEDIES......................................................................18
9.1 Legal and Equitable Remedies.....................................18
9.2 Acceleration.....................................................18
ARTICLE TEN
ADDITIONAL ACTIONS TAKEN BY THE COMPANY.......................................18
10.1 Opinion of Counsel for the Company...............................18
10.2 Certified Articles and Certificate of Good Standing..............19
10.3 Certified By-Laws................................................19
10.4 Governmental Authorizations......................................19
10.5 Contracts........................................................19
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10.6 SBA Forms........................................................19
10.7 Security Agreements..............................................19
10.8 Insurance Certificate............................................19
ARTICLE ELEVEN
GENERAL PROVISIONS............................................................20
11.1 Exhibits.........................................................20
11.2 Applicable Law...................................................20
11.3 Assignment.......................................................20
11.4 Headings.........................................................21
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LOAN AGREEMENT
This Agreement is entered into September 10, 1998, between MEDALLION CAPITAL,
INC., a Minnesota corporation, 0000 Xxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxxx,
Xxxxxxxxx 00000-0000, a Licensee under the Small Business Investment Act of 1958
("Lender"),
AND
APPLIANCE RECYCLING CENTERS OF AMERICA, INC., a Minnesota corporation, 0000
Xxxxxxxxx Xxxxxxxxx, Xxxxxxxxxxx, Xxxxxxxxx, 00000 (the "Company").
THE PARTIES AGREE AS FOLLOWS:
ARTICLE ONE
THE INVESTMENT
1.1 LOAN.
The Company shall borrow from Lender a total of $3,500,000 (the "Loan") under
the terms described in this Agreement and the Note issued by the Company in the
form attached as Exhibit 1.1.
1.2 SECURITY.
The Company's obligations under the Note, this Agreement, the Warrant and the
Mortgages and Deed of Trust are secured pursuant to the Security Agreement
attached as Exhibit 1.2. and the Mortgages and Deed of Trust attached as Exhibit
10.7
1.3 INTERCREDITOR AGREEMENT.
The Loan is also subject to the Intercreditor Agreement attached as Exhibit 1.3.
1.4 WARRANT.
Lender shall receive a Warrant (the "Warrant") to purchase 700,000 shares of the
Company's common stock. The Warrant shall be exercisable beginning any time
after the Loan closing at an exercise price of $2.50 per share and shall
terminate, if not exercised, upon the latter of the end of the seventh year or
two years after the Loan is paid in full, all as more fully set forth in the
Warrant attached as Exhibit 1.4.
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1.5 SECURITIES.
Unless specifically stated otherwise, any reference in this Agreement to
"Security" or "Securities" shall include any and all of the Note, the Warrant
and any security for which the foregoing are convertible, exchangeable or
otherwise exercisable.
1.6 THE "INVESTMENT."
Any reference in this Agreement to the "Investment" shall refer to the purchase
by Lender of Securities on the terms and conditions stated in this Agreement and
to the Company's agreement to all of the terms and conditions. The Company
acknowledges and agrees that if the Company is not as represented and warranted
or will not comply with all of the Company's agreements that the Lender would
not have made the Investment.
1.7 CLOSING.
This Agreement has been executed by the parties on September 10, 1998 (the
"Closing" or "Closing Date").
1.8 FEES.
The Company shall pay an origination fee in the amount of $70,000 and shall pay
the drafting and legal expenses of Lender not to exceed $5,000. The fees shall
be paid at closing or when billed by Lender.
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES
To induce the Lender to make the Investment in the Company, the Company makes
the representations and warranties set forth below. The Company acknowledges
that these representations and warranties are a critical part of the Company
Profile and are intended to form one of the primary bases of Lender's decision
to make the Investment. Therefore, the Company has used great diligence to
insure that all of the representations and warranties (and the information
supplied pursuant thereto) are complete, accurate and not misleading in light of
the circumstances surrounding the Investment and can be relied on by Lender in
making the Investment. The parties agree that any representation or warranty
which proves to be untrue, incomplete, or misleading in light of the
circumstances, shall constitute a Default (as defined in Article Eight). The
Company further acknowledges and agrees that if the Company is not as
represented and warranted, the Lender would not make the Investment.
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The Company represents and warrants that:
2.1 GOOD STANDING.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of Minnesota, is authorized to engage in the business
now carried on by it, and is qualified as a foreign corporation to do business
in each state where the nature of the business done by it requires
qualification, such states being those listed on 2.1 of the Disclosure Schedule
attached as Exhibit 2.1.
2.2 CAPITAL STOCK.
The Company's authorized and outstanding capital and all outstanding options,
warrants or other securities exercisable or exchangeable for capital stock are
as described in 2.2 of the Disclosure Schedule.
2.3 SUBSIDIARIES.
The Company has the subsidiaries listed in 2.3 of the Disclosure Schedule. As
used in this Agreement, "subsidiary" means any corporation, partnership, joint
venture, limited liability company or other business entity in which the Company
owns, directly or indirectly, shares of any class of equity or debt security.
2.4 FINANCIAL STATEMENTS.
The balance sheet and related statements of earnings and retained earnings for
the periods ending December 31, 1997 and July 4, 1998, (the "Financial
Statements") attached as Exhibit 2.4 present fairly the financial position of
the Company as of their respective dates and the results of its operations for
the periods indicated.
Except as otherwise disclosed in Exhibit 2.4, specifically included in the
Financial Statements are amounts due to or from any officer, director,
shareholder, or employee of the Company or any relative of the foregoing or any
guarantees, pledges or other financial obligations of the Company to or from any
officer, director, shareholder, or employee of the Company or any relative of
the foregoing.
2.5 USE OF PROCEEDS.
The proceeds from the Securities shall be used only as described in the Sources
and Uses Schedule attached as Exhibit 2.5.
2.6 ABSENCE OF MATERIAL CHANGES.
Since the date of the Financial Statements, except as described in 2.6 of the
Disclosure Schedule, there have been no material adverse changes in the
condition, financial or otherwise, of the Company or its business or properties,
nor does the Company know of any which may occur; and since the date of the
Financial Statements , except as described in 2.6 of the Disclosure Schedule,
the Company has not issued, sold or acquired any of the outstanding shares of
any class of its capital stock, nor are there any contingent obligations,
liability for taxes or commitments not disclosed or subject to
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reserve in the Financial Statements of the Company other than transactions
described in this Agreement.
2.7 SHAREHOLDERS, OFFICERS AND DIRECTORS.
Information furnished by the Company relative to the officers and directors of
the Company (including the number of shares of any class of stock held by each),
set forth in 2.7 of the Disclosure Schedule, is true and correct.
2.8 PROPERTY OWNERSHIP; LEASES.
The Company has good title, free and clear of all liens and encumbrances (other
than liens for taxes not delinquent), except as indicated in the Financial
Statements or Disclosure Schedule, to all real estate and assets reflected on
the Financial Statements other than as disposed of in the ordinary course of
business since the date of the Financial Statements. All property or assets not
owned by the Company and used in the operation of its business, if any, are
subject to valid leases held by the Company covering their use or occupancy
which leases are not in default. The Disclosure Schedule contains a list of all
real estate owned or leased by the Company and all liens or encumbrances on the
real estate or assets.
2.9 OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS.
The Company possesses all patents, licenses, trademarks, trademark rights, trade
names, trade name rights, trade secrets, copyrights and the like ("Intellectual
Property") necessary or appropriate to conduct its business as now conducted
without conflict with those of any other person. All of the foregoing are listed
in 2.9 of the Disclosure Schedule. Attached to the Disclosure Schedule is a
listing of all licenses and/or royalty agreements and/or patent abstracts
relating to any of the Intellectual Property held by the Company.
2.10 LITIGATION.
All of the litigation or proceedings pending, or to the knowledge of the Company
or its principal officers, threatened against it or any of its properties in any
court or by or before any governmental agency or arbitrator are listed in 2.10
of the Disclosure Schedule.
2.11 TAXES.
All Federal, State and other tax returns and reports of the Company required by
law to be filed have been filed and all Federal, State and other taxes,
assessments, fees and other governmental charges (other than those presently
payable without penalty) imposed upon the Company or the properties, assets or
payroll of the Company which are due and payable have been paid. All federal
income tax returns for the prior two tax years are attached as Exhibit 2.11.
2.12 ABSENCE OF PROHIBITION OR LIENS.
There is no provision in the Company's current Articles of Incorporation or
Bylaws, or, except as described in 2.12 of the Disclosure Schedule, in any
indenture or agreement to which the Company is a party, nor any law, rule,
regulations, contract, statute of any
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governmental authority, which limits or prohibits, or which may in the future
limit or prohibit, the execution, delivery or fulfillment by the Company of this
Agreement or its Exhibits or of any of the acts or agreements contemplated by
this Agreement or by the Securities or which results or which may in the future
result in the creation of a lien or encumbrance on any asset of the Company or
on the Securities.
2.13 AUTHORIZATION.
The execution and delivery of this Agreement and of the Securities have been
duly authorized by the Board of Directors of the Company and the officers of the
Company are authorized to enter into this Agreement and take all steps necessary
to carry out its terms. Certified copies of the authorizing resolutions are
attached as Exhibit 2.13.
2.14 ABSENCE OF PUBLIC SALES.
Neither the Company nor any agent acting on its behalf has offered the
Securities or any other security of the Company for sale, nor has it solicited
offers to buy the Securities from any person or persons so as to bring the
issuance or sale of the Securities within the provisions of Section 5 of the
Securities Act of 1933, as amended, or the registration or qualification
requirements of any state securities laws.
2.15 FINDER'S OR BROKER'S FEES.
All finder's fees, brokerage fees, or other expenses and fees due to any person
as a result of the transactions in or contemplated by this agreement shall be
paid solely by the Company.
2.16 SMALL BUSINESS CONCERN.
The Company is a "Small Business Concern" as that term is defined by the Small
Business Administration. No officer or director or stockholder of the Company
is, or has been within 6 months prior to the Closing Date, an officer, director,
agent or employee of Lender or an "Associate", as that term is defined in Part
107 of Title 13 of the Code of Federal Regulations, of Lender. No portion of the
proceeds derived from the sale of the Securities will be used for any purpose in
contravention of any of the provisions of Part 107 of Title 13 of the Code of
Federal Regulations. The Company has never been debarred from contracts with any
governmental unit and no debarment proceedings are currently underway or
threatened by any governmental unit.
2.17 CRIMINAL OFFENSES.
None of the officers or directors of the Company has been convicted of a felony
within the past 10 years.
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ARTICLE THREE
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company acknowledges that the Lender would not have purchased the Securities
except for the Company's promise to take certain actions, which promises were
made to induce Lender to make the Investment. To the extent the Company fails to
fully perform each and every one of the actions described below, the Company
acknowledges that it increases Lender's risk beyond that contemplated or agreed
to by the parties and constitutes a Default. In the event the Company is in
Default on any of the Affirmative Covenants, it agrees to immediately notify
Lender. Failure to so notify Lender shall be considered a Default in its own
right.
3.1 PROMPT PAYMENT OF TAXES AND CLAIMS.
The Company shall pay when due all taxes, lawful claims for labor, materials,
supplies, rents, lease payments and other debts and liabilities which if unpaid
would by law be a lien or charge upon the property of the Company.
3.2 INSURANCE.
The Company shall maintain insurance policies in such types and amounts as are
appropriate for its business. The policies in force on the Closing Date are
listed in 3.2 of the Disclosure Schedule. In the event a policy lapses, is
modified or replaced, the Company shall immediately notify Lender and send
copies of the new policies.
3.3 REPAIRS.
The Company shall maintain in good repair and working order all assets used in
its business.
3.4 BOARD OF DIRECTORS.
The Company's Board of Directors shall meet at least quarterly and consist of at
least 3 people. The Company shall furnish Lender at least 15 days prior to any
Board meeting written notice and an agenda of the meeting and shall provide
Lender promptly a copy of the minutes of all meetings of the Board and all other
actions and other reports of or given to the Board or any committee thereof. A
representative of Lender shall have the right to attend all Board meetings and
have the full rights of a Board member at the meeting except the right to vote
on Board resolutions. The Company shall reimburse Lender (its employees or
representatives) its actual out-of-pocket expenses for meetings with the
Company.
3.5 DELIVERY OF FINANCIAL AND OTHER DOCUMENTS.
The Company shall deliver to Lender:
3.5.1 As soon as available and in any event within 120 days after the
close of each fiscal year (a) a balance sheet of the Company as of the
close of the fiscal year and consolidated statements of income and
retained earnings and changes in financial position for the year then
ended,
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accompanied by an unqualified opinion of the Company's independent
certified public accountants, acceptable to the Lender, and (b) a
letter from such accountants stating whether the Company is in
compliance with the provisions of Sections 4.2, 4.3, 4.4, 4.5, 4.10 and
4.11.
3.5.2 Within 10 days after the Company's issuance or receipt, copies of
all reports submitted to the Company by its certified public
accountants that contain an opinion rendered in connection with an
examination of any financial statements of the Company; the preliminary
prospectus and the effective prospectus contained in any registration
statements filed with the Securities and Exchange Commission; any
annual or periodic reports filed with the Commission; any listing
application filed with any stock exchange; and each annual report and
all other reports, including proxy solicitations, which the Company
shall send to its shareholders.
3.5.3. Within 30 days after each monthly accounting period separate
balance sheets of the Company and each of its subsidiaries as of the
close of each month and statements of income and retained earnings for
the portion of the fiscal year-to-date then ended, prepared in
conformity with paragraph 3.6 and Lender's informational requirements.
Upon request by Lender, a monthly aging report of the Company's
accounts receivable and accounts payable, a copy of the reconciliation
of the Financial Statements to the cash accounts, any off balance sheet
liabilities assumed by the Company, any capital expenditures in excess
of $10,000.
3.6 FORM OF FINANCIAL DOCUMENTS.
For purposes of this Agreement:
3.6.1 Except as provided in subsection 3.6.2, all financial statements
of the Company provided under this Agreement shall be prepared in
conformity with generally accepted accounting principles applied on a
consistent basis.
3.6.2 If any accounting principle, method of valuation or governmental
regulations followed in the preparation of financial statements is
required to be modified by the Financial Accounting Standards Board,
the Company shall so notify Lender, and the financial statements may be
modified to such extent.
3.6.3 All fiscal year-end financial statements delivered to Lender
shall be accompanied by a letter from the certified public accountant
who prepared them stating that such statements have been prepared in
compliance with the provisions of Section 3.6. All other financial
statements and reports delivered to Lender pursuant to this Agreement
shall be accompanied by a certificate signed by the Company's
President, Treasurer or Chief Financial Officer, certifying that they
have been prepared in compliance with the provisions of Section 3.6,
that they fairly and accurately state the current financial condition
of the Company, that the financial statements have been reconciled with
the
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cash accounts, and that all payroll withholding taxes were paid when
due, and that no event of Default existed during the accounting period
covered by the financial statements. (A copy of the form of the
certification is attached as Exhibit 3.6.3.) In the event the
President, Treasurer or Chief Financial Officer cannot certify the
above, a detailed disclosure of those items which cannot be certified
together with a detailed explanation for each item shall be given to
Lender, together with the financial statements. Disclosure of
non-certified matters shall not cure any Default.
3.7 BUDGET.
At least 90 days prior to the Company's fiscal year end it shall begin
developing a budget for the following fiscal year. At least 30 days prior to the
close of each fiscal year, the Company's Board of Directors shall review the
budget and the Board shall adopt an operating and capital expenditures budget
for the next succeeding fiscal year. A copy of the budget with underlying
assumptions shall be delivered to Lender not later than 10 days after approval
by the Board.
3.8 INFORMATION ON REQUEST; DISCLOSURE.
The Company shall furnish promptly, at Lender's request, such information as may
be reasonably necessary to determine whether the Company is in compliance with
the terms of this Agreement or as may be needed by such Lender to prepare any
required reports to shareholders or appropriate federal and state regulatory
authorities. Lender shall keep the information confidential except that the
Company consents to reasonable disclosure by Lender of the Company's
information, including financial information, to the shareholders of Lender and
appropriate federal and state regulatory authorities.
3.9 CORPORATE EXISTENCE.
The Company shall maintain its corporate existence and conduct its business in
an orderly and regular manner.
3.10 LITIGATION.
The Company shall immediately notify Lender of all actual or threatened
litigation and of all actual of threatened proceedings before any governmental
or regulatory body to which it is a party and which may affect its business.
3.11 INSPECTIONS.
The Company shall permit, at such times as will not unreasonably interfere with
the conduct of its business, Lender's representatives to visit and inspect any
property of the Company and shall make available to the representatives for
inspection or copying any of the Company's books and records. Each officer of
the Company and the Company's independent accountants will discuss with any
Lender's representatives any of the Company's affairs, finances and accounts at
such times and as often as Lender may reasonably request.
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3.12 CORPORATE FUNDS.
Cash funds of the Company in excess of needs reasonably necessary for its
day-to-day operations shall be used to purchase U.S. Treasury Bills or U.S.
guaranteed securities or be deposited in bank or savings and loan association
accounts or certificates of deposit.
3.13 CIVIL RIGHTS.
The Company shall comply with the provisions of the Civil Rights Acts of 1964
and file with or make available to Lender such information as may be necessary
to enable Lender to meet its reporting requirements to the Small Business
Administration.
ARTICLE FOUR
NEGATIVE COVENANTS OF THE COMPANY
The Company understands and agrees that there are certain business practices
which increase the risk to Lender's investment. Therefore, to induce the Lender
to make the investment, the Company agrees not to take certain actions. In the
event the Company does take any of the actions forbidden below, the Company
agrees that this materially changes the nature of Lender's investment and
increases Lender's risk beyond that contemplated or agreed to by the parties and
constitutes a substantial and major Default. In the event the Company violates
any of the Negative Covenants, it agrees to notify Lender immediately. Failure
to so notify Lender shall be considered a major Default in and of itself.
Therefore, so long as Lender holds any of the Securities, the Company shall not:
4.1 CHANGE OF OPERATIONS.
Substantially change the present nature of its business operations.
4.2 DIVIDENDS.
Directly or indirectly purchase, acquire, redeem or retire any shares of its
capital stock outstanding nor pay any dividends except dividends paid by a
subsidiary to the Company.
4.3 EXPENSE REIMBURSEMENT.
Cause or permit out-of-pocket expenses reimbursed to fail to meet the Internal
Revenue Service test as a business expense deduction and will be reimbursed only
upon submission of an expense report meeting the business expense documentation
requirements of the Internal Revenue Service.
4.4 TRANSACTIONS WITH INSIDERS.
Purchase or sell any asset or service to or from a Company director or officer,
or any person who owns or controls, directly or indirectly, 5% or more of the
voting capital
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stock of the Company, or any relative of any of the foregoing, or
any organization in which any one or more of the foregoing, together, hold,
directly or indirectly, an ownership interest of 5% or more ("Affiliate"), or
rent or lease property to or from an Affiliate, except with the prior written
approval of Lender or except as set forth in 4.4 of the Disclosure Schedule.
4.5 APPLICATION OF FUNDS.
Invest in or otherwise divert any of its funds to an individual, other
corporation or business entity, except to the Company or to a wholly-owned
subsidiary of the Company, it being the intent of this Agreement that the
Company and its subsidiaries will apply their full capital and resources to
their own corporate business and purposes.
4.6 MERGER AND SUBSIDIARIES.
Except as set forth in 4.6 of the Disclosure Schedule, consolidate or merge with
or purchase all or a substantial part of the assets of any other business or
sell, lease or otherwise transfer any assets other than in the normal course of
its present business or enter into any franchising agreements or create any
subsidiaries.
4.7 GUARANTIES.
Guarantee or endorse any obligation of others, except obligations of its
subsidiaries as may be appropriate for purposes of their obtaining usual and
normal open account and short-term credit of the type normally and necessarily
outstanding in the operation of the business, or otherwise assume any contingent
liability.
4.8 INDEBTEDNESS.
Incur any indebtedness in addition to that existing or committed at the Closing
Date except for usual and normal unsecured open account and short-term credit of
the type normally and necessarily outstanding in the operation of the business,
other than as provided in Section 4.9.
4.9 ENCUMBRANCES; CONDITIONAL SALES.
Except for those encumbrances and liens disclosed in 4.9 of the Disclosure
Schedule, create, incur, assume or suffer to exist any mortgage, pledge, lien or
other encumbrance of any kind on any of its properties now owned or hereafter
acquired, nor acquire or agree to acquire property under any conditional sales
agreement or title retention contract, nor engage in any sale-and-leaseback
transaction.
4.10 ACQUISITION OF FIXED ASSETS.
A summary of all purchases of fixed assets shall be presented to the Lender in
conjunction with the monthly financial statements.
4.11 BUSINESS RELOCATION.
Move its corporate or business offices or make any other substantial change in
the nature of the Company's business.
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4.12 CHANGE IN CONTROL.
Sell, lease, transfer or dispose of any of the Company's assets outside the
ordinary course of business nor transfer any assets necessary for the
continuation of the Company's business except as disclosed in 4.12 of the
Disclosure Schedule.
4.13 AMEND ARTICLES.
Amend or change its Articles of Incorporation or By-Laws, or violate or breach
any provisions thereof.
ARTICLE FIVE
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The Company understands and agrees that all its representations, warranties,
covenants and agreements shall survive the execution and delivery of this
Agreement and the Securities.
ARTICLE SIX
INVESTMENT REPRESENTATION: REGISTRATION AND
TRANSFER OF SECURITIES
6.1 INVESTMENT REPRESENTATION.
Lender represents that it is purchasing the Securities for the purpose of
investment and not with a view to or for sale in connection with any
distribution. Lender may sell the Securities only pursuant to the provisions of
this Agreement and subject to applicable federal and state securities laws.
6.2 LEGEND.
Until the occurrence of one of the events specified in Section 6.11, the
certificates representing the Securities shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT") OR UNDER THE
SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF FOR VALUE EXCEPT PURSUANT TO REGISTRATION OR
OPERATION OF LAW WITHOUT THE OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION
UNDER THE MINNESOTA SECURITIES
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LAWS, THE SECURITIES LAWS OF ANY OTHER STATE AND/OR THE 1933 ACT.
6.3 TRANSFERS.
Prior to any transfer of the Securities, Lender shall give the Company written
notice of its intention to make the transfer, describing briefly the manner of
the intended transfer. Promptly after receiving written notice, the Company
shall present copies of the notice to counsel acceptable to Lender and the
Company. If in the opinion of counsel the proposed transfer may be effected
without registration of the Securities, the Company shall promptly notify
Lender, and the Securities may be transferred in accordance with the terms of
the notice. The Company shall not be required to effect any transfer prior to
the receipt of a favorable opinion.
6.4 SIMULTANEOUS REGISTRATION.
If the Company takes action to register any of its securities under the
Securities Act of 1933 or its successor ("1933 Act") other than any registration
on Form S-4 or S-8 or any similar form that does not allow a registration of the
type contemplated hereby, the Company shall give Lender written notice of its
intention and use its best efforts to register the Common Stock issued or
issuable upon exercise of the Warrant as Lender may specify by written notice to
the Company within 20 days after Lender's receipt of the Company's notice. If,
however, the offering to which the proposed registration statement relates is to
be distributed by or through an underwriter selected by the Company, Lender
shall agree either to sell its Common Stock issued or issuable upon exercise of
the Warrant through the underwriter on the same terms and conditions as the
Company or to withhold such Securities from the market for a period of 120 days
(or such period as the underwriter requires) after the effective date of the
registration statement. If the underwriter determines that the total number of
the Company's securities and other securities proposed to be registered is more
than can be accommodated without adversely affecting the offering, then the
number of shares of Common Stock and other securities registered pursuant to
this Section 6.4 on behalf of the Lender shall be reduced pro rata (by number of
shares) to the number of shares offered by the Company such that the aggregate
number is acceptable to the underwriter. As used in this Section and Section
6.5, the number of securities shall mean in the case of a convertible Note, the
number of shares of Common Stock into which they may be converted. As used in
this Article and Article Seven, registration under the 1933 Act shall include
offerings made pursuant to the provisions of Regulation A under the 1933 Act.
6.5 SUBSEQUENT ONE-TIME REGISTRATION.
If after the initial registered public offering of any of the Company's
securities, Lender requests the registration of its Common Stock issued or
issuable upon exercise of the Warrant (other than those times specified in
Section 6.4 but on not more than one occasion), the Company shall promptly
thereafter (and consistent with the provisions of Section 6.4) use its best
efforts to register all the Securities under the 1933 Act and in a manner
corresponding to the methods of distribution described in Lender's request. If
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other of the Company's securities are to be included in any registration, the
other securities shall be offered through underwriters selected by Lender, and
acceptable to the Company. The Company shall not, however, without Lender's
written consent, include under the registration statement or any other
registration statement filed within 180 days after the effective date of the
registration statement filed under this Section 6.5 any number of the shares of
the Company's securities and other securities greater than the number the
underwriter determines in its sole discretion will not adversely affect the
offering. If the underwriter determines that the total number of Securities and
other securities proposed to be registered is more than can be accommodated
without adversely affecting the offering, then the number of other securities
registered pursuant to this Section 6.5 shall be reduced pro rata (by number of
shares) to the number of shares offered such that the aggregate number is
acceptable to the underwriter.
6.6 ALTERNATIVE SUBSEQUENT REGISTRATION.
If at any time after 36 months from the Closing the Company has made any
registered public offering of any of its securities, Lender requests the Company
to register its Securities, other than as provided in Sections 6.4 and 6.5, the
Company shall, as expeditiously as possible, and consistent with Sections 6.4
and 6.5, use its best efforts to register those Securities under the 1933 Act,
in accordance with the methods of disposition described in the request.
All expenses incurred in effecting any registration under this Section shall be
paid by the Company.
6.7 REGISTRATION PROCEDURE.
When the Company is required by the provisions of this Article to use its best
efforts to register Common Stock issued or issuable upon exercise of the Warrant
under the 1933 Act, the Company shall, as expeditiously as possible:
6.7.1 Prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement (including amendments and
supplements) and otherwise comply with the provisions of the 1933 Act
with respect to the Securities and use its best efforts to cause the
registration statement to become and remain effective for the period,
not to exceed 180 days, as may be necessary to effect the sale or other
disposition of the Securities covered by the registration statement;
6.7.2 Before filing the registration statement, or prospectus or
amendments or supplements, furnish Lender with copies of all documents
proposed to be filed, which shall be subject to the approval of counsel
designated by Lender;
6.7.3 Notify Lender promptly of the time when any registration
statement or post effective amendment has become effective or any
supplement to any prospectus forming part of any registration statement
has been filed;
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6.7.4 Notify Lender promptly of any stop order by the Commission
suspending the effectiveness of any registration statement or of the
initiation or threat of any proceeding for that purpose, and promptly
use its best efforts to prevent the issuance of a stop order and to
obtain the withdrawal of any stop order issued;
6.7.5 Use its best efforts to register or qualify the Securities
covered by the registration statement under the securities or Blue Sky
Laws of jurisdictions which Lender shall reasonably request and do any
and all other acts and things as may be necessary or advisable to
enable Lender to consummate the public sale or other disposition of the
Securities; and
6.7.6 Furnish to Lender a signed counterpart, addressed to Lender, of:
(a) an opinion of counsel for the Company, dated the effective date of
the registration statement, and (b) a "comfort" letter signed by the
Company's independent public accountants, covering substantially the
same matters with respect to the registration statement (and the
prospectus included therein) and, in the case of the accountants'
letter, with respect to events subsequent to the date of the financial
statement, as are customarily covered in opinions in connection with
underwritten public offerings of securities.
6.8 COSTS OF REGISTRATION.
The costs and expenses of registration, including legal fees, special audit
fees, printing expenses, filing fees and premiums for insurance, if any,
incurred by the Company in connection with any registration made pursuant to
this Article, shall be borne entirely by the Company.
6.9 INDEMNIFICATION OF LENDER.
In the event of any registration of the Common Stock issued or issuable upon
exercise of the Warrant pursuant to this Article, the Company shall indemnify
Lender against all losses, claims, damages and liabilities caused by any untrue
statement of a material fact contained in any registration statement or
prospectus as amended or supplemented, or any preliminary prospectus or any
offering circular, or caused by any omission to state a material fact required
to be stated or necessary to make the statements not misleading in light of the
circumstances under which they are made, except insofar as such losses, claims,
damages or liabilities of Lender are caused by any untrue statement or omission
based upon information furnished in writing to the Company by Lender expressly
for use therein.
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6.10 INDEMNIFICATION OF THE COMPANY.
The obligations of the Company to register any of the Securities shall be
subject to the condition that Lender agrees in writing to indemnify the Company,
its officers and directors, against all losses, claims, damages and liabilities
caused by any untrue statement or omission based upon information furnished in
writing by Lender to the Company expressly for use in a registration statement,
prospectus or offering circular.
6.11 TERMINATION OF TRANSFER RESTRICTIONS.
The restrictions imposed by this Article on the transfer of the Securities shall
terminate as to any portion of the Securities when:
6.11.1 Such portion of the Securities shall have been effectively
registered under the 1933 Act and sold by Lender in accordance with
such registration; or
6.11.2 Written opinions to the effect that registration is not required
under any Federal or State law or regulation of Governmental authority
shall have been received from legal counsel for the Company or Lender
(and, if from legal counsel for Lender, such opinion is in form and
substance satisfactory to the Company). If a favorable opinion is
obtained only from Lender's counsel, Lender shall indemnify the Company
against all liability or loss it may sustain in connection with the
transfer.
Whenever the restrictions imposed by this Article shall terminate as to any
Securities, Lender shall be entitled to receive promptly from the Company,
without expense to Lender, a new certificate for the Securities, not bearing the
restrictive legend set forth in Section 6.2.
6.12 ADDITIONAL REGISTRATION COVENANTS.
So long as any of the Securities remain subject to the restrictions imposed by
this Article, the Company shall not without Lender's written consent enter into
any agreement or undertaking with any purchaser of the Company's capital stock,
Warrant, options or securities convertible into the Company's capital stock to
register any of the Securities pursuant to the 1933 Act (except with respect to
the warrants, options and convertible securities currently outstanding or the
issuance of which is currently contemplated by the Company in each case as
described in 2.2 of the Disclosure Schedule, which may contain such an agreement
or understanding).
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ARTICLE SEVEN
PRIVATE, RULE 144 SALES
The Company shall file with the Securities and Exchange Commission on a timely
basis all current information regarding the Company as shall be necessary to
meet the current public information requirements of Rule 144 under the 1933 Act,
and shall otherwise fully cooperate with Lender in the private sale or sale
under Rule 144 of any of the Securities. In addition, the Company represents and
warrants that the information and documents so filed shall not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements, in light of the circumstances under which the
statements were made, not misleading, and further agrees to indemnify and hold
harmless Lender and each broker, dealer or underwriter (within the meaning of
the 0000 Xxx) acting for it in connection with any offering or sale of
Securities from all losses, liabilities and judgments arising out of or
resulting from any breach of the foregoing representations or warranty.
ARTICLE EIGHT
DEFAULT
The following acts by the Company shall constitute a default ("Default"):
8.1 FAILURE TO PAY INTEREST OR PRINCIPAL.
If the Company fails to pay any installment of interest or principal due on the
Note within 10 days after the due date.
8.2 UNTRUE REPRESENTATION OR WARRANTY.
If any representation or warranty made by the Company to the Lender subsequently
proves to have been incomplete or untrue in any material respect as of the
Closing Date, or any statement, certificate or data furnished by the Company
under this Agreement or its Exhibits proves to have been incomplete or untrue in
any respect or misleading under the circumstances in which it was provided as of
the date on which the information is stated or certified.
8.3 CONTRACTUAL DEFAULT.
If the Company breaches any part of this Agreement or the Exhibits thereto it
shall constitute a Default. The Company acknowledges and agrees that the failure
of the Company to comply with the Affirmative and Negative Covenants contained
in Articles Three and Four increases the risk to Lender's investment above that
contemplated and agreed to by the parties and the Company agrees that any
failure to comply with the Affirmative and Negative Covenants is a Default and
will be so treated by the Lender.
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Provided, the Company shall have 30 days from the date of any Default to cure
the Default if there is a reasonable chance the Default can be cured.
8.4 OTHER OBLIGATIONS.
The Company defaults in any of its obligations to any party other than Lender
concerning borrowed money.
ARTICLE NINE
REMEDIES
9.1 LEGAL AND EQUITABLE REMEDIES.
Nothing contained in this Agreement is in any way intended by the parties to
waive or modify any legal or equitable remedies the parties may have. Where
specific remedies or adjustments to the Investment have been set out in this
Agreement and Exhibits, whether legal, equitable, contractual or otherwise, they
shall be in addition to the legal and/or equitable remedies the parties shall
have.
9.2 ACCELERATION.
In the event of any Default, Lender may, by notice in writing to the Company,
declare the entire principal amount and accrued interest of any of the Company's
debt held by Lender immediately due and payable without presentment, demand,
protest, notice of protest or other notice of dishonor of any kind, all of which
are waived by the Company. This remedy shall not be exclusive of any other
remedy in law or equity.
ARTICLE TEN
ADDITIONAL ACTIONS TAKEN BY THE COMPANY
The Company has delivered the following to Lender which are attached as
Exhibits:
10.1 OPINION OF COUNSEL FOR THE COMPANY.
An opinion of counsel for the Company, dated the Closing Date and attached as
Exhibit 10.1.
10.2 CERTIFIED ARTICLES AND CERTIFICATE OF GOOD STANDING.
A copy of the Company's Articles of Incorporation and a Certificate of Good
Standing, both certified to by the Secretary of State of the state in which the
Company was incorporated and attached as Exhibit 10.2.
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10.3 CERTIFIED BY-LAWS.
A true and correct copy of the By-Laws of the Company, certified by the
secretary of the Company and attached as Exhibit 10.3.
10.4 GOVERNMENTAL AUTHORIZATIONS.
Consents, permits and authorizations from any governmental agency having
jurisdiction over the issuance of the Securities necessary for the Company
lawfully to issue the Securities. The permits, consents and authorizations are
listed in 10.4 of the Disclosure Schedule.
10.5 CONTRACTS.
All written employment contracts; contracts with any officer, director or
stockholder or their relatives; all plans pursuant to which benefits are paid to
any employee of the Company; and all material contracts with brokers or others
for services; and a brief written description of any such agreements that are
not in writing, all of which must be satisfactory to Lender and are attached as
Exhibit 10.5.
10.6 SBA FORMS.
An executed copy of SBA Form 000, XXX Xxxx 000, Xxxxxxxxx certification, and
Statement of Qualification. The SBA forms are attached as Exhibit 10.6.
10.7 SECURITY AGREEMENTS.
The Lender shall be in receipt of the necessary UCC forms to perfect their
security interests and the mortgage documents necessary to grant the Lender a
second mortgage in all of the real property of the Company (the "Mortgages" and
the "Deed of Trust"). The documents are attached as Exhibit 10.7.
10.8 INSURANCE CERTIFICATE.
One or more Certificates of Insurance confirming that the Company has in force
fire, extended coverage and liability insurance in amounts satisfactory to the
Lender with Lender named as loss payee.
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ARTICLE ELEVEN
GENERAL PROVISIONS
11.1 EXHIBITS.
The attached exhibits are by reference made an integral part of this Agreement:
Exhibit Title
-------------------
1.1 Promissory Note
1.2 Security Agreement
1.3 Intercreditor Agreement
1.4 Warrant
2.1 Disclosure Schedule
2.4 Financial Statements
2.5 Use of Proceeds
2.7 Shareholder Information
2.11 Tax Returns
2.13 Authorizations of Shareholders and Directors
3.6.3 Form of Certification
10.1 Opinion of Counsel
10.2 Articles of Incorporation and Certificate of Good Standing
10.3 By-Laws
10.5 Employment and Consulting Contracts
10.6 SBA Forms
10.7 UCC Forms
11.2 APPLICABLE LAW.
This Agreement is to be interpreted in conformity with the Small Business
Investment Act of 1958, as amended, and is otherwise governed by the laws of
Minnesota. The provisions of this Agreement shall be severable.
11.3 ASSIGNMENT.
This Agreement shall not be assigned by the Company except with the written
consent of Lender. Subject to the preceding sentence, the rights and obligations
of this Agreement shall be binding upon and inure to the benefit of the parties
and their respective successors and assigns.
11.4 HEADINGS.
The headings used in this Agreement are intended for informational purposes only
and shall not affect its interpretation.
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Executed this 10th day of September, 1998.
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
By: /s/ Xxxxxx X. Xxxxxxx
-----------------------------------
Xxxxxx X. Xxxxxxx
President
MEDALLION CAPITAL, INC.
By: /s/ Xxxx X. Xxxxxxxxx
-----------------------------------
Xxxx X. Xxxxxxxxx
Executive Vice President
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