LOAN AGREEMENT
FIRST NATIONAL BANK OF NEW ENGLAND ("Lender")
AND
Xxxx Security International, Inc.
000 Xxxxxxx Xxx.
Xxxxxxxxxx, XX 00000
Your request for First National Bank of New England ("LENDER") to extend to you
a loan in the amount of $800,000 with a United States Department of Agriculture
Rural Business Cooperative Service (RBS) (f/k/a Farmers Home Administration,
"USDA") 80.00% Guarantee has been approved subject to the following provisions:
1. Requirements:
The Borrower shall pay a guaranty fee of 2% of the amount guaranteed
prior to the disbursement of the loan.
The Borrower shall execute all instruments and agreements as Lender may
require in order to document the loan, including:
1. Promissory Note;
2. Commercial Loan Financial Condition Affidavits;
3. Guarantee Agreement;
4. Security Agreement(s);
5. UCC-1 financing statements;
6. And such other instruments and agreements as Lender or
Lender's counsel may require in connection herewith.
2. This Authorization is subject to:
(a) Receipt by Lender of evidence that there has been no unremedied
adverse change since the date of the Application, or since any of
the preceding disbursements, in the financial or any other condition
of Borrower or Guarantors, which would warrant withholding or not
making any such disbursement or any further disbursement.
(b) The representations made by Borrower and Guarantors in its loan
application, the requirements or conditions set forth in Lender's
application form, including the supporting documents thereto, the
conditions set forth herein and any future conditions imposed by
Lender (with prior USDA approval).
3. Terms of Loan:
(a) Repayment term, interest rate(s) and maturity.
NOTE PAYABLE: The undersigned will pay principal and interest by making
payments in the initial amount of $10,572.06 on the first day of each
month beginning on March 1, 1998. The undersigned will make these payments
until they have paid in full all principal and interest and any other sums
due hereunder. Notwithstanding the foregoing, the entire indebtedness
evidenced by this Note, including, but not limited to, all outstanding
principal and accrued and unpaid interest, shall be due and payable in
full on the tenth (10) anniversary date of this Note.
The undersigned's initial monthly payments shall be calculated in
accordance with the full amortization of the loan evidenced by this Note
by level monthly payments of principal and interest over a ten (10) year
period at the interest rate applicable on the date hereof. On each
Adjustment Date (as herein defined), the amount of the monthly payments
will be adjusted so as to provide for the full amortization of the then
outstanding principal at the interest rate established at each Adjustment
Date in level monthly payments of principal and interest over the
remaining term of the original ten (10) year amortization period.
Interest Rate
Interest shall accrue on the outstanding principal amount of this Note at
a per annum rate of one and one half (1.50) percentage points above the
Prime Rate on a floating basis. The initial interest rate hereunder is ten
(10) percent. On April 1, 1998 and on the first day of each July, October,
January, and April thereafter until all sums due hereunder are paid in
full (each being referred to as an "Adjustment Date"), the interest rate
on the unpaid principal balance hereunder shall be adjusted, without
notice or demand, to a per annum rate of one and one half (1.50)
percentage points above the Prime Rate in effect on the applicable
Adjustment Date (or the following business day in the event that such
Adjustment Date falls on a Saturday, Sunday, or a legal holiday), which
such rate shall remain in effect until the succeeding Adjustment Date.
Interest hereunder shall be computed on a daily basis and on the basis of
a Three Hundred Sixty (360) day year and a thirty (30) day month. The
undersigned further agrees to pay all taxes levied or assessed on this
Note or the debt evidenced hereby against the holder of this Note, and
further agrees to pay all costs, expenses and attorneys' fees incurred in
any action to collect this Note or to defend, protect, preserve, or
realize upon or foreclose any mortgage or security agreement securing this
Note or to protect, defend, preserve, foreclose or sustain the lien of
said mortgage or security agreement or in any litigation or controversy
arising from or connected with said mortgage, security agreement, or this
Note. As used herein, "Prime Rate" shall mean the lowest New York prime
rate as set forth in the money rate section of the Wall Street Journal (or
in any successor publication).
All payments received by the Lender, at the option of the Lender, shall be
applied first to any outstanding charges and expenses incurred by the
Lender in connection with this Note or any documents executed in
connection with this Note, then to any unpaid and accrued
interest and finally to the outstanding principal due under the Note. The
undersigned agrees that the interest shall accrue at the foregoing rate on
unpaid balance before and after maturity, by acceleration or otherwise.
The Borrower hereby grants to the Lender or Holder hereof a lien and right
of set-off for all of the Borrower's liabilities to Lender or Holder upon
and against all of the Borrower's deposits, credits and other property now
or hereafter in the possession or control of Lender or Holder or in
transit to it. The Lender or Holder may at any time, after an event of
default, apply the same or any part thereof to any of the Borrower's
liabilities to Lender or Holder, whether or not matured at the time of
such application.
Holder should give written notice to the undersigned of each increase or
decrease in the interest (and change in installment amount, if applicable)
within thirty days after the effective date of each rate adjustment;
however, the fluctuation of the interest rate is not contingent on whether
the notice is given.
Borrower agrees to pay a late charge equal to 5% of the payment amount due
if such payment is not received within ten days of the due date. Funds
received from the borrower will be applied first to any outstanding
charges and expenses incurred by the Lender in connection with this Note
or any documents executed in connection with this Note, then to any unpaid
and accrued interest and finally to the outstanding principal due under
the Note.
The Borrower agrees that, in addition to other events of default stated in
the Note or related loan documents, each of the following shall constitute
an "event of default" under the Note:
1. Failure of Borrower or any Guarantor to pay or perform any of
Borrower's or Guarantor's liabilities or obligations to Lender or
any other interest bearing, secured obligation;
2. If Borrower or any Guarantor of any obligation of Borrower to
Lender or Holder shall be in default under any security agreement,
mortgage or other agreement governing, securing or relating to this
Loan.
Use of Proceeds of Loan as follows (show specific uses for which loan is
authorized):
1. Approximately $100,000 for the purchase of equipment
2. Approximately $150,000 for leasehold improvements to the
courtyard
3. Approximately $300,000 for the manufacturing line configuration
4. Approximately $170,000 for the Vermont retail store
5. Approximately $80,000 for permanent working capital and closing
costs
Collateral:
1. Assignment of life insurance with acknowledgment of home
office on Xxx X. Xxxxxxxx which shall be decreasing term or
existing permanent type
insurance for $800,000. The proceeds of the life insurance
shall be applied at the time of death to repay the outstanding
balance of $800,000. Original policy to be retained by Lender.
2. The unlimited guarantee of Xxx X. Xxxxxxxx and the prompt and
punctual payment of the debt.
3. First security interest in all machinery and equipment,
including power driven machinery and equipment
(includemvexcludingincludemvexcluding titled motor vehicles),
furniture and fixtures, leasehold improvements, now owned, to
be acquired with loan proceeds or hereafter acquired together
with all replacements thereof, all attachments, accessories,
parts and tools belonging thereto or for use in connection
therewith and proceeds of the same. UCC SEARCH REQUIRED AFTER
RECORDING.
4. Third security interest in all inventory and accounts, now
owned, to be acquired with loan proceeds or hereafter acquired
together with all replacements thereof and proceeds of the
same, subject only to a first and second held by Lender for a
line of credit in the amount of $250,000 and a commercial term
loan in the amount of $1,000.000. UCC SEARCH REQUIRED AFTER
RECORDING.
4. To further induce Lender to make and USDA to guarantee this Loan, Lender
and USDA impose the following conditions:
(a) Execution of all documents required in Item 1 above.
(b) Reimbursable Expenses - Borrowers will, on demand, reimburse Lender
for any and all expenses incurred, or which may be hereafter
incurred, by Lender from time to time in connection with or by
reason of Borrowers' application for and the making and
administration of the Loan.
(c) Books, Records, and Reports - Borrowers and Guarantors will at all
times keep proper books of account in a manner satisfactory to
Lender and/or USDA. Borrowers and Guarantors hereby authorize Lender
or USDA to make or cause to be made, at Borrowers or Guarantors'
expense and in such manner and at such times as Lender or USDA may
require, (a) inspections and audits of any books, records and papers
in the custody or control of Borrowers or others, relating to
Borrower or Guarantors' financial or business conditions, including
the making of copies thereof and extracts therefrom, and (b)
inspections and appraisals of any of Borrowers or Guarantors'
assets.
Xxxx Security International, Inc. shall provide an annual fiscal
year end independent Certified Public Accountant (CPA) audited
financial statement to the Lender and USDA for the twelve (12) month
period ending December 31, 1997, and annually thereafter (no later
than 4 months following the expiration of any such period), along
with tax returns for the Borrower.
Borrowers and Guarantors shall annually provide the Lender and USDA
with complete copies of their federal tax returns and personal
financial statements on First National Bank of New England forms.
Borrowers and Guarantors hereby authorize all Federal, State, and
municipal authorities to furnish reports of examinations, records,
and other information from reports, returns, files and records of
such authorities upon request therefor by Lender or USDA.
Distributions and Compensation - Borrowers and or Guarantors will not,
without the prior written consent of Lender (a) if Borrowers and or
Guarantors are corporations, declare or pay any commercially
unreasonable dividends or make any commercially unreasonable
distribution upon its capital stock, or purchase or retire any of
its capital stock, or consolidate or merge with any other company,
or give any preferential treatment, make any commercially
unreasonable advance, directly or indirectly, by way of loan, gift,
bonus, or otherwise, to any company directly or indirectly,
controlling or affiliated with or controlled by Borrowers and or
Guarantors, or any other company, or to any officer, director or
employee of Borrowers and or Guarantors, or of any such company, (b)
if Borrowers and or Guarantors is a partnership or individual make
any distribution of assets of the business of Borrowers and or
Guarantors, other than reasonable compensation for services, or give
any preferential treatment, make any commercially unreasonable
advance, directly or indirectly, by way of loan, gift, bonus, or
otherwise, to any partner or any of its employees, or to any company
directly or indirectly controlling or affiliated with or controlled
by Borrowers and or Guarantors, or any other company.
Other Provisions:
1. Borrowers and or Guarantors are prohibited from assuming
liabilities or obligations of others.
2. Borrower shall not sell the business without prior approval
from the Lender.
3. Borrowers and or Guarantors shall not in any way alter its
form of business organization without the prior written
consent of Lender.
4. Borrowers and or Guarantors will not sell, exchange, discard,
or otherwise transfer those fixed assets, including real
estate, pledged as collateral to the Lender without the prior
written consent of the Lender.
Prior to the first disbursement, Lender shall be in receipt of satisfactory
evidence that all applicable taxes have been paid, and all zoning regulations
and all licensing regulations have been complied with regard to the property
being mortgaged.
Insurance Provisions
1. Borrowers shall provide and maintain hazard insurance on all
business personal property in such amounts and for such
coverage as shall be satisfactory in all respects to Lender.
Said insurance shall be maintained for the life of the loan.
Policy coverage on real property shall designate Lender as
loss payee under a standard or New York loss payee clause and
shall provide a minimum to ten (10) days written notice to
Lender of cancellation.
2. Prior to first disbursement, the lender must be in receipt of
evidence of the kind described below from an independent
authoritative source which is sufficient to indicate to the
lender that the property is not in a special flood hazard area
(SFHA). Property is defined as the asset(s) financed as a part
of the USDA financial assistance and/or other collateral
deemed necessary by the field office. If such evidence is not
provided to the lender, the borrower must obtain, and
maintain, a Standard Flood Insurance Policy (SFIP) or other
appropriate special flood hazard insurance in amounts and
coverages equal to the lesser of (1) the insurable value of
the property or (2) the maximum amount of coverage available.
Borrower can show that special flood hazard insurance has been
acquired by submitting a copy of the policy or providing
evidence of premium payment for the appropriate coverage to a
licensed insurance agent. Borrower will not be eligible for
either any future disaster assistance or USDA business loan
assistance if special flood hazard insurance is not maintained
as stipulated herein throughout the entire term of this loan.
Corporate Provisions
1. Corporate Requirements of Xxxx Security International, Inc.:
Prior to first disbursement on this loan, Xxxx Security
International, Inc. to provide Lender with:
(a) Resolution of Board of Directors
(b) Certificate of Good Standing from the Secretary of
State's Office.
Environmental Provisions
1. Borrower agrees to comply with all existing and future state
and federal regulations governing the handling, storage and
use of any and all hazardous, toxic, or otherwise regulated,
substances or materials; and further covenants that he will
permit no such materials or substances or by
products or wastes thereof, to be permanently stored at the
facility, and that borrower will operate the facility in such
a manner that the site will remain free of contaminating
materials, wastes, by products or substances.
2. Borrower agrees to comply with all existing and future state
and federal regulations governing the maintenance and
emplacement of underground storage tanks and further covenants
that borrower will permit no petroleum base waste or hazardous
waste to be stored at the site, and that he will operate the
business in such a manner that the site will remain free of
such contamination waste.
Miscellaneous Provisions.
1. Annual non-financed capital expenditures of Xxxx Security
International, Inc. in aggregate shall be limited to $100,000.
2. Borrowers will not, prior to payment in full of the
indebtedness evidenced by the Note, without prior written
consent of the holder of the Note, pledge, mortgage or
otherwise cause or permit to be encumbered in any manner
whatsoever any of the Borrowers' property or assets, whether
then owned or thereafter acquired, except for prior security
interests granted to the lender. However, the holder of the
note will permit chattel mortgages on purchased equipment not
to exceed $100,000 annually.
3. Tangible consolidated net worth of Xxxx Security
International, Inc. shall be at least 10% of tangible assets
upon closing of the $800,000 loan and shall be evidenced by a
management-prepared pro-forma balance sheet and signed and
dated by an appropriate corporate officer to certify its
accuracy.
4. Xxxx Security International, Inc.'s current ratio, as defined
under generally accepted accounting principles (but excluding
from current debt any subordinated debt) shall be at least
2.0x, measured annually based on the company's 12/31 fiscal
year end CPA-audited financial statements.
5. Xxxx Security International, Inc.'s debt to net worth ratio,
as defined under generally accepted accounting principles
shall not exceed .35x as measured annually based on the
company's 12/31 fiscal year end CPA- audited financial
statements.
6. Without the prior consent of Lender or USDA, total annual
salaries or drawing by Xxx X. Xxxxxxxx, including bonuses,
commissions or other compensation, shall be limited to a base
salary of $125,000 per year, with unlimited annual increases,
provided only if Xxxx Security International, Inc. reports a
net profit in excess of $100,000 and the Borrower and
Guarantor are in compliance with all covenants and the loan
agreement. Further, total annual salaries or drawing by
Xxxxxxx Xxxxx, Xxxxxxx Xxxxxxx, Xxxxxxx Xxxxxx, and Xxxx
Xxxxxx, including bonuses, commissions or other compensation,
shall be limited to their current base
salaries of $43,000, $60,000, $63,000, and $90,000 per year
respectively. Further, annual subsequent increases in
salaries, bonuses, commissions and other compensation paid to
Xxxxxxx Xxxxx, Xxxxxxx Xxxxxxx, and Xxxxxxx Xxxxxx shall not
be permitted if it would result in a net loss for the company
for the fiscal year ending December 31st, as defined under
generally accepted accounting principals unless the amount of
such payment(s) causing a net loss for the Borrower is lent
back to the company (after payment of personal taxes) on a
fully subordinated basis. Further, annual subsequent increases
in salaries, bonuses, commissions and other compensation paid
to Xxxxxxx Xxxxx, Xxxxxxx Xxxxxxx, and Xxxxxxx Xxxxxx shall
not be permitted unless the Borrower and guarantor are in
compliance with the loan agreement and loan covenants. A
standstill agreement shall be executed in this regard.
7. All debt due officers, related parties, and guarantors shall
be fully subordinated to FNB and remain at standstill until
all debt due to FNB is paid in full.
8. Opinion Letter of Borrower's Counsel.
9. Xxxx Security International, Inc.'s debt service coverage
ratio, as defined as earnings before interest and taxes plus
depreciation, amortization, less taxes and non-financed
capital expenditures, and dividends, divided by total annual
debt service should be at a minimum 1.25x, and shall be
tested, beginning December 31, 1998, on an annual basis based
on the Company's FYE. Should the $250M line of credit with FNB
not be drawn, the interest payments will not be included in
debt service.
Parties Affected - This Agreement shall be binding upon Borrower and
Borrower's successors and assigns and guarantors and their successors and
assigns. No provision stated herein shall be waived without the prior
written consent of USDA. The Loan shall be administered as provided in the
USDA Lenders Agreement. The terms and conditions of this Loan Agreement
shall survive the loan closing and shall not be merged into the loan
documentation notwithstanding any provisions to the contrary contained
herein. In the event any provision(s) of this Loan Agreement conflicts
with any provision(s) of the loan documentation, including the Security
Agreement by and between Borrower and Lender dated September 25, 1997, as
amended, the provision(s) of this Loan Agreement shall control.
FIRST NATIONAL BANK OF NEW ENGLAND
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By: Xxxxxxx X. Xxxxxxx, V.P. Date
Borrower and guarantors hereby agree to the conditions imposed herein and
further agrees that the terms and conditions herein are for the benefit of, and
may be enforced by, Lender and
USDA. This Authorization and Loan Agreement and amendments constitute the Loan
Agreement between Lender and Borrower.
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Borrower: Xxxx Security International, Inc. Date
duly authorized representative
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Guarantor: Xxx X. Xxxxxxxx Date
FIRST AMENDMENT TO TERM NOTE
This First Amendment to the Commercial Term Promissory Note described
below is made as of the ___ day of February, 1998 by and between XXXX SECURITY
INTERNATIONAL INC., whose principal place of business is located at 000 Xxxxxxx
Xxxxxx, Xxxxxxxxxx, Xxxxxxx 00000 (the "Borrower"), and FIRST NATIONAL BANK OF
NEW ENGLAND, a banking corporation with a usual place of business at Xxx
Xxxxxxxxxx Xxxxx, Xxxxxxxx, Xxxxxxxxxxx (the "Lender").
Reference is made to a certain Commercial Term Promissory Note given by
Borrower to Lender in the original principal amount of $800,000.00, dated
September 25, 1997 (the "Note"). The U.S. Department of Agriculture Rural
Business Cooperative Service ("RBS") is prepared to issue a guaranty to Lender
for a portion of the loan evidenced by the Note, and the Borrower and the Lender
desire to amend the terms of the Note in certain respects, as hereinafter
described. In furtherance of the foregoing and for mutual consideration received
and acknowledged, the parties hereto agree as follows:
1. Definition of Terms. All other terms not otherwise defined herein shall
have the same meanings as set forth in the Note.
2. Amendment to Interest Adjustment Date. The second subparagraph of
Paragraph 1 entitled Interest is hereby deleted in its entirety and the
following language is inserted in its place:
"The interest rate may be adjusted on the first day of April, 1998, and on
the first day of each July, October, January and April thereafter (or the
following business day in the event that such date falls on a Saturday, Sunday,
or holiday) until all sums due hereunder are paid in full without notice or
demand (each such day being referred to as an "Adjustment Date"), which rate
shall remain in effect until the succeeding Adjustment Date.
Holder should give written notice to the undersigned of each increase or
decrease in the interest within thirty days after the effective date of each
rate adjustment; however, the fluctuation of the interest rate is not contingent
on whether such notice is given."
3. Reference to Loan Agreement. Subparagraph (d) of Paragraph 7 entitled
Events of Default is hereby amended by inserting the following language after
"Note," in the third line thereof: "including but not limited to a certain Loan
Agreement by and among Lender, Borrower, and Xxx X. Xxxxxxxx as Guarantor, dated
February __, 1998."
4. Other Terms and Conditions Unchanged. The Borrower and the Lender agree
that all other terms and conditions of the Note shall remain unchanged and in
full force and effect and all other terms and conditions are hereby ratified and
confirmed.
Executed as a sealed instrument as of the date first written above.
WITNESS: XXXX SECURITY INTERNATIONAL, INC.
By
---------------------------------- --------------------------------
its duly authorized:
Page 1 of 2
WITNESS: FIRST NATIONAL BANK OF NEW ENGLAND
By:
---------------------------------- --------------------------------
Its
Page 2 of 2
FIRST AMENDMENT TO SECURITY AGREEMENT
This First Amendment to the Security Agreement described below is made
this ______ day of February, 1998 by and between XXXX SECURITY INTERNATIONAL,
INC., whose principal place of business is located at 000 Xxxxxxx Xxxxxx,
Xxxxxxxxxx, Xxxxxxx 00000 (the "Debtor"), and FIRST NATIONAL BANK OF NEW
ENGLAND, a corporation organized and existing under and by virtue of the laws of
the United States of America, with its office at Xxx Xxxxxxxxxx Xxxxx, Xxxxxxxx,
Xxxxxxxxxxx (the "Secured Party").
The Debtor and the Secured Party are parties to a Security Agreement
September 25, 1997, pursuant to which the Debtor grants to the Secured Party a
security interest in certain Collateral as defined and more particularly
described therein (the "Security Agreement"). The U.S. Department of Agriculture
Rural Business Cooperative Service ("RBS") is prepared to issue a guaranty to
Lender for a portion of the obligations secured by the Security Agreement, and
the Debtor and the Secured Party desire to amend the terms of the Security
Agreement in certain respects, as hereinafter described. In furtherance of the
foregoing and for mutual consideration received and acknowledged, the parties
hereto agree as follows:
1. Definition of Terms. All terms not otherwise defined herein shall have
the same meanings as set forth in the Security Agreement.
2. Financing Agreements. Section III(F) of the Security Agreement, which
defines "Financing Agreements", is hereby amended by deleting the semi-colon (;)
at the end thereof and inserting the following language: ", as amended by a
certain First Amendment to Term Note by and between Debtor and Secured party
dated February _____, 1998, and that certain Loan Agreement by and among Lender,
Borrower, and Xxx X. Xxxxxxxx as Guarantor, dated February _____, 1998 (the
"Loan Agreement")."
3. Schedule 6(f). Schedule 6(f) of the Security Agreement is hereby
deleted in its entirety, and replaced with the Schedule 6(f) attached hereto and
made a part hereof.
4. Schedule 6(f)(1). Schedule 6(f)(1) of the Security Agreement is hereby
deleted in its entirety.
5. Confirmation of Continued Validity and Priority of Lien. The Debtor and
the Secured Party agree that the lien and priority of the security interest
granted pursuant to the Security Agreement in and to the Collateral shall not be
affected by this First Amendment.
6. Other Terms and Conditions Unchanged. The Debtor and the Secured Party
agree that all other terms and conditions of the Security Agreement shall remain
unchanged and in full force and in effect and all such other terms and
conditions are hereby ratified and confirmed.
Executed as a sealed instrument as of the date first written above.
XXXX SECURITY INTERNATIONAL, INC.
(Debtor)
By:
------------------------------
Its duly authorized:
FIRST NATIONAL BANK OF NEW
ENGLAND
By:
------------------------------ ------------------------------
Witness
its
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Schedule 6(f)
Financial Covenants / Requirements
See the Loan Agreement and the other Financing Agreements.
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