LOAN AGREEMENT
BETWEEN
PAPER WAREHOUSE, INC.
YALE X. XXXXXXXX
AND
RICHFIELD BANK & TRUST CO.
JANUARY 29, 1997
LOAN AGREEMENT
TABLE OF CONTENTS
ARTICLE I. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. Amount and Terms of Loan. . . . . . . . . . . . . . . . . . . 4
Section 2.01 Revolving Loan. . . . . . . . . . . . . . . . . . . . . 4
Section 2.02 Borrowing Base; Borrowing Certificate . . . . . . . . . 5
Section 2.03 Making the Revolving Loan . . . . . . . . . . . . . . . 5
Section 2.04 Note. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.05 Payments. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.06 Use of Proceeds . . . . . . . . . . . . . . . . . . . . 6
Section 2.07 Letters of Credit . . . . . . . . . . . . . . . . . . . 6
Section 2.08 Origination Fee . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III. Conditions of Lending. . . . . . . . . . . . . . . . . . . . 7
Section 3.01 Required Documents. . . . . . . . . . . . . . . . . . . 7
Section 3.02 Other Conditions. . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV. Representations and Warranties. . . . . . . . . . . . . . . . 9
Section 4.01 Corporate Existence and Power . . . . . . . . . . . . . 9
Section 4.02 Authorization . . . . . . . . . . . . . . . . . . . . . 9
Section 4.03 Legal Agreements. . . . . . . . . . . . . . . . . . . . 10
Section 4.04 Financial Statements. . . . . . . . . . . . . . . . . . 10
Section 4.05 No Adverse Change . . . . . . . . . . . . . . . . . . . 10
Section 4.06 Titles and Liens. . . . . . . . . . . . . . . . . . . . 10
Section 4.07 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.08 Litigation. . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.09 Margin Stock. . . . . . . . . . . . . . . . . . . . . . 11
Section 4.10 Employee Benefit Plans. . . . . . . . . . . . . . . . . 11
Section 4.11 No Stock or Securities. . . . . . . . . . . . . . . . . 11
Section 4.12 Information . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.13 Absence of Default. . . . . . . . . . . . . . . . . . . 11
Section 4.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V. Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.01 Financial Statements and Other Information. . . . . . . 12
Section 5.02 Books and Records . . . . . . . . . . . . . . . . . . . 13
Section 5.03 Taxes and Other Claims. . . . . . . . . . . . . . . . . 13
Section 5.04 Maintenance of Properties . . . . . . . . . . . . . . . 13
Section 5.05 Insurance . . . . . . . . . . . . . . . . . . . . . . . 14
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Section 5.06 Corporate Existence . . . . . . . . . . . . . . . . . . 14
Section 5.07 Liens . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.08 Indebtedness. . . . . . . . . . . . . . . . . . . . . . 14
Section 5.09 Guaranties . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.10 Sale of Assets . . . . . . . . . . . . . . . . . . . . 15
Section 5.11 Corporate Structure. . . . . . . . . . . . . . . . . . 15
Section 5.12 Nature of Business . . . . . . . . . . . . . . . . . . 15
Section 5.13 Investments. . . . . . . . . . . . . . . . . . . . . . 15
Section 5.14 Sale and Leaseback . . . . . . . . . . . . . . . . . . 15
Section 5.15 Compliance with Laws . . . . . . . . . . . . . . . . . 15
Section 5.16 Transactions with Affiliates . . . . . . . . . . . . . 15
Section 5.17 Debt to Tangible Net Worth Ratio . . . . . . . . . . . 16
Section 5.18 Minimum Net Income . . . . . . . . . . . . . . . . . . 16
Section 5.19 Minimum Tangible Net Worth . . . . . . . . . . . . . . 16
Section 5.20 Current Ratio. . . . . . . . . . . . . . . . . . . . . 16
Section 5.21 Bank Accounts. . . . . . . . . . . . . . . . . . . . . 16
Section 5.22 Dividends. . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VI. Events of Default, Rights and Remedies. . . . . . . . . . . . 16
Section 6.01 Events of Default. . . . . . . . . . . . . . . . . . . 16
Section 6.02 Rights and Remedies . . . . . . . . . . . . . . . . . . 18
ARTICLE VII. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.01 Waiver and Amendment. . . . . . . . . . . . . . . . . . 18
Section 7.02 Costs, Expenses and Taxes . . . . . . . . . . . . . . . 19
Section 7.03 Addresses . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.04 Binding Effect, Assignment; Severability. . . . . . . . 20
Section 7.05 Jurisdiction and Venue. . . . . . . . . . . . . . . . . 20
Section 7.06 Headings. . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.07 Governing Law . . . . . . . . . . . . . . . . . . . . . 21
Section 7.08 Further Assurances. . . . . . . . . . . . . . . . . . . 21
EXHIBITS
A BORROWING CERTIFICATE
B REVOLVING PROMISSORY NOTE
C SECURITY AGREEMENT
D CERTIFICATE OF AUTHORITY
E CERTIFICATE OF INDEBTEDNESS AND LIENS
F GUARANTY
G FORM OF SUBORDINATION AGREEMENT
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LOAN AGREEMENT
THIS AGREEMENT is entered into as of this 29th day of January, 1997,
between Paper Warehouse, Inc., a Minnesota corporation ("Borrower"), Yale X.
Xxxxxxxx, a resident of Minnesota ("Guarantor"), and Richfield Bank & Trust Co.,
a Minnesota banking corporation ("Bank").
WHEREAS, Borrower is bound by the terms and conditions of that certain Loan
Agreement dated as of March 4, 1996 by and between the Borrower, the Guarantor,
the Bank and Boatmen's First National Bank of Kansas City, a national banking
association, ("Boatmen's") pursuant to which the Bank and Boatmen's granted to
the Borrower a revolving line of credit up to a maximum of $6,500,000 (the
"Prior Loan Agreement" and the "Prior Loan"); and
WHEREAS, the Borrower has requested a revised and increased revolving loan
as well as a facility for the issuance of letters of credit, and
WHEREAS, the Bank is willing to grant such increased revolving loan on the
terms and conditions set forth herein and is willing to provide such letter of
credit facility;
NOW THEREFORE, in consideration of the mutual agreements set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by the parties, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
Section 1.01 DEFINITIONS. For purposes of this Agreement, except as
otherwise expressly provided:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
"Advance" means an advance of credit by the Bank to Borrower pursuant
to Article II.
"Affiliate" means (i) a person, directly or indirectly controlling,
controlled by or under common control with another person, (ii) any person
owning or controlling 10% of the outstanding voting stock of such other person,
(iii) any officer, director or partner of such person, and (iv) if such other
person is an officer, director or partner, any entity for which such person acts
in such capacity. For the purposes of this definition, "control" (including
with correlative meanings, the terms "controlling," "controlled by," and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
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and policies of that Person, whether through the ownership of voting securities
or by contract or otherwise.
"Borrower Documents" means this Agreement, the Note, the Borrowing
Certificates, the Security Agreement, the Life Insurance Assignment, all
financing statements and writings required under Section 3.01(c), any Letter of
Credit or Letter of Credit Application contemplated by Section 2.07 and all
other writings, documents, instruments, certificates and statements contemplated
hereunder to be executed or supplied by Borrower together with any and all
amendments, replacements, substitutions, extensions, or other modifications of
any of the foregoing.
"Borrowing Certificate" has the meaning specified in Section 2.02.
"Borrowing Base" has the meaning specified in Section 2.02.
"Closing Date" means the date on which the Bank makes the initial
Advance under the Line of Credit.
"Debt" means (i) all items of indebtedness or liability which in
accordance with generally accepted accounting principles would be included in
determining total liabilities as shown on the liabilities side of a balance
sheet as at the date as of which Debt is to be determined, and (ii) indebtedness
secured by any mortgage, pledge, lien or security interest on property of the
Person whose indebtedness is being determined, whether or not the indebtedness
secured thereby shall have been, assumed, and (iii) guaranties, endorsements
(other than for purposes of collection in the ordinary course of business) and
other contingent obligations in respect of, or to purchase or otherwise acquire
indebtedness of others.
"Eligible Accounts Receivable" means only such accounts receivable of
the Borrower as the Bank, in its sole discretion, shall deem eligible. Without
limiting the discretion of the Bank to consider any other account receivable not
to be an Eligible Account Receivable, and by way of example only of types of
accounts receivable that the Bank will consider not to be Eligible Accounts
Receivable, notwithstanding any earlier classification of eligibility, the
following accounts receivable shall not be considered Eligible Accounts
Receivable: (i) any account receivable which is more than 61 days past invoice
date; (ii) any account receivable as to which any warranty is breached; (iii)
any account receivable as to which the account debtor or other obligor disputes
liability or makes any claim; (iv) any account receivable owed by any Affiliate
or any officer, director or shareholder of the Borrower or any Affiliate or any
of their relatives or any partnership, corporation, association, joint venture
or other business entity wholly or partly owned or controlled directly or
indirectly by any of them or any of their relatives; (v) any account receivable
owed by any person as to whom a petition in bankruptcy or other application for
relief is filed under any bankruptcy, reorganization, moratorium, insolvency or
similar law; (vi) any account receivable owed by any person who is deceased,
makes an assignment for the benefit of creditors, becomes insolvent, fails,
suspends business, goes out of business or is in receivership; (vii) any
account receivable owed by the United States government or any agency of the
United States government; (viii) any account receivable owed by any person if
10% or more in amount of the accounts receivable owed by such person to the
Borrower are more than 61 days past invoice date or are otherwise considered
ineligible; (ix) consignment receivables; (x) bonded receivables; (xi) any
account receivable constituting a retainage;
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(xii) any account receivable for goods which have not been shipped or work which
has not been fully performed; (xiii) any account receivable owed by any person
outside the United States of America; (xiv) any account receivable sold to a
factor and (xv) any account receivable owed by any person with whose
creditworthiness the Bank becomes dissatisfied. In the event the Borrower owes
any amount to any person that owes an account receivable to the Borrower, such
amount owed by the Borrower shall be deducted from that portion of the account
receivable which would otherwise qualify as an Eligible Account Receivable and
only the difference thereof shall be considered an Eligible Account Receivable.
No account receivable which does not qualify as an Eligible Account Receivable
shall be considered an Eligible Account Receivable unless the Bank, upon the
written request of the Borrower, states in writing that such account receivable
is to be considered an Eligible Account Receivable.
"Eligible Inventory" means the lesser of cost or fair market value of
only such inventory of the Borrower as the Bank, in its sole discretion, shall
deem eligible, computed on a first-in, first-out basis in accordance with
generally accepted accounting principles consistently applied. Without limiting
the discretion of the Bank to consider any other inventory not to be Eligible
Inventory, notwithstanding any earlier classification of eligibility, the
following inventory shall not be considered Eligible Inventory: (i) any
inventory that does not constitute finished goods; (ii) any inventory which does
not meet all standards imposed by any governmental agency; (iii) any inventory
which has not been physically received by the Borrower at one of its locations
described in the Security Agreement; (iv) any inventory which is obsolete, or
which is not usable by the Borrower in the normal course of its business; (v)
any inventory which is on consignment to or from any other person, or which has
been sold to any other person, or which is subject to any bailment or lease; (v)
any inventory which is not held for sale by the Borrower in the normal course of
its business, or which is not saleable by the Borrower in the normal course of
its business; and (vi) any inventory in which the Bank does not have a perfected
security interest constituting a first lien.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning specified in Section 6.01.
"Guarantor Documents" means the Guaranty and all writings, documents,
instruments, certificates and statements contemplated hereunder to be delivered
by the Guarantor together with any and all amendments, replacements,
substitutions, extensions, or other modifications of any of the foregoing.
"Guaranty" has the meaning specified in Section 3.01(g).
"Letter of Credit" has the meaning specified in Section 2.08.
"Letter of Credit Application" has the meaning specified in Section
2.07.
"Life Insurance Assignment" has the meaning specified in Section
3.01(k).
"Line of Credit" has the meaning specified in Section 2.01.
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"Loan" means Advances under the Line of Credit.
"Loan Documents" means collectively, the Borrower Documents, the
Guarantor Documents, and all other writings, documents, instruments,
certificates and statements contemplated hereunder together with any and all
amendments, replacements, substitutions, extensions, or other modifications of
any of the foregoing.
"Note" has the meaning specified in Section 2.04.
"Person" means any natural person, corporation, joint venture,
partnership, trust, association, limited liability entity, governmental
authority or unit, or any other entity, whether acting in an individual,
fiduciary, or other capacity.
"Plan" has the meaning specified in Section 4.10.
"Prohibited Transaction" has the meaning assigned to that term in
ERISA.
"Reportable Event" has the meaning assigned to that term in ERISA.
"Security Agreement" has the meaning specified in Section 3.01(b).
"Subordinated Debt" means Debt, the payment of which is subordinate to
Debt due the Bank.
"Subordination Agreement" has the meaning specified in
Section 3.01(l).
"Tangible Net Worth" means the aggregate of Borrower's paid in
capital, retained earnings and Subordinated Debt reduced by the aggregate value
of (i) all patents, trademarks, tradenames, copyrights, licenses, good will,
rights under noncompete agreements, deferred charges or treasury stock or any
securities or Debt of Borrower or any other securities (unless the same are
readily marketable in the United States of America) and debt acquisition fees,
and (ii) any write-up in the book value of any assets.
ARTICLE II.
AMOUNT AND TERMS OF LOAN
Section 2.01 REVOLVING LOAN. The Bank shall, on the terms and subject to
the conditions hereinafter set forth, make Advances to the Borrower from time to
time during the period from the date hereof to and including May 31, 1998, in an
aggregate amount not to exceed at any time outstanding taken together with the
available amount of all issued and outstanding Letters of Credit issued by the
Bank pursuant to Section 2.07, the lesser of $7,500,000 or the following
amounts: the lesser of (a) the Borrowing Base plus $1,500,000 or (b) 65% of the
aggregate value of Eligible Inventory of Borrower, (the "Line of Credit").
Notwithstanding the foregoing, the Bank shall not be obligated at any time to
make Advances under the Line of Credit, if, after giving effect to the Advance
requested, the unpaid principal amount of Advances made by the Bank exceeds the
lesser
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of $7,500,000 or the maximum amount of Advances permitted under this Section.
Further, in a period of at least 60 consecutive days during each fiscal year,
Borrower shall limit the amount outstanding under the Line of Credit to the
maximum amount of the Borrowing Base in effect for such period. Within the
limits of the Line of Credit, the Borrower may borrow, prepay, and reborrow
under this Section 2.01.
Section 2.02 BORROWING BASE; BORROWING CERTIFICATE.
(a) The availability of Advances shall be determined by reference to
the "Borrowing Base", which means the sum of (i) 75% of Eligible Accounts
Receivable of Borrower and (ii) 50% of Eligible Inventory of Borrower.
(b) Within 30 days after the end of each month as long as the Note is
outstanding, Borrower shall deliver to the Bank a borrowing certificate in the
form of Exhibit A hereto (the "Borrowing Certificate"), dated as of such date
and properly completed and executed by an officer of Borrower, which Borrowing
Certificate shall state the amount of assets constituting elements of the
Borrowing Base formula and the amount of the Borrowing Base, all such amounts to
be determined as of the close of business on a day reasonably satisfactory to
the Bank, and shall certify that the representations and warranties contained in
Article IV are correct in all material respects as of the date of the Borrowing
Certificate and that no event has occurred or would result from any requested
Advance which constitutes an Event of Default or would constitute an Event of
Default with notice or the passage of time or both. In the event that the
amount outstanding under the Line of Credit exceeds the maximum amount of the
Line of Credit permitted under the terms of Section 2.01, Borrower shall pay to
the Bank within 15 days of demand thereto, the amount of such excess, which
payment shall be applied to the Note.
Section 2.03 MAKING THE REVOLVING LOAN. Each Advance shall be made on
prior written request from Borrower to the Bank or telephonic request from any
person purporting to be authorized to request Advances on behalf of Borrower,
which request shall be made prior to 1:00 p.m. on the date on which the
requested Advance is to be made and shall specify the date of the requested
Advance and the amount thereof. Upon fulfillment of the terms and conditions
hereof, the Bank shall disburse the amount of the requested Advance by crediting
the same to Borrower's demand deposit account maintained with the Bank or in
such other manner as the Bank and Borrower may from time to time agree.
Borrower shall promptly confirm each telephonic request for an Advance by
executing and delivering to the Bank an appropriate written confirmation in such
form as the Bank requests. Borrower shall be obligated to repay all Advances
notwithstanding the failure of the Bank to receive such confirmations and
notwithstanding the fact that the person requesting the Advance was not
authorized to do so. Any request for an Advance shall be deemed to be a
representation that the statements set forth in Sections 3.02(c) and 3.02(d) are
correct as of the date of such request. On the Closing Date, any amounts due
under the terms of the Prior Loan shall be deemed to be due under the terms of
the Note.
Section 2.04 NOTE. The obligation to repay the Advances together with
interest and other charges thereon shall be evidenced by a promissory note of
the Borrower in the principal amount of $7,500,000 payable to the order of the
Bank in the form of Exhibit B hereto (the "Note"), dated effective the date of
this Agreement. Interest shall accrue on the unpaid principal balance due under
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the Note at a rate that shall always be one half of one percent (0.50%) in
excess of the Bank's base rate which rate shall change when and as such base
rate shall change. All interest shall be calculated on the number of days
elapsed in a 360 day year. Interest at the rate specified in the Note is due
and payable on the thirtieth day of each month (or the last day of the month of
February) commencing February 28, 1997 and the entire unpaid principal balance
due thereunder together with all accrued but unpaid interest thereon, plus all
other charges under the Note and hereunder, shall be due and payable on May 31,
1998.
Section 2.05 PAYMENTS. All payments (including prepayments) made by the
Borrower on account of principal, interest and fees shall be made without set
off or counterclaim and shall be made to the Bank at the Bank's principal
office, in each case in lawful money of the United States of America and in
immediately available funds. If any payment hereunder becomes due and payable
on a day other than a business day, such payment shall be extended to the next
succeeding business day, and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
Whenever any payment received by the Bank under this Agreement or the Note is
insufficient to pay in full all amounts then due and payable to the Bank under
this Agreement and the Note, such payment shall be distributed and applied by
the Bank in the following order: FIRST, to the payment of all expenses and other
amounts due and payable to the Bank; SECOND, to the payment of interest then due
and payable under the Note; and THIRD, to the payment of the principal amount of
the Note which is then due and payable. Borrower agrees that the amount shown
on the books and records of the Bank as being the unpaid balance of principal,
accrued interest and other charges, fees and expenses under the Note and this
Agreement shall be prima facie evidence thereof. Borrower hereby irrevocably
authorizes the Bank, if and to the extent payment is not promptly made pursuant
hereto, to set off and charge against any amount owing by the Bank to Borrower
an amount equal to the principal, accrued interest and other charges, fees and
expenses then due. In addition, Borrower hereby irrevocably authorizes the Bank
to collect interest and other charges, fees and expenses, under the Note and
this Agreement when due from time to time by charging Borrower's demand deposit
accounts at the Bank and grants to the Bank all rights of banker's lien provided
by applicable law.
Section 2.06 USE OF PROCEEDS. Proceeds from the Loan shall be used
exclusively to repay the Prior Loan, for working capital and for capital
expenditures for creation of new retail locations. Upon application of Advances
to payment of the Prior Loan, the Prior Loan Agreement and the agreements
related thereto shall terminate. The Bank shall thereupon return to Borrower
and the Guarantor the originals of any promissory notes and guaranties delivered
by Borrower or Guarantor pursuant to the Prior Loan Agreement.
Section 2.07 LETTERS OF CREDIT. From time to time as requested by
Borrower, Bank agrees to issue on Borrower's behalf one or more Letters of
Credit in favor of parties designated by Borrower to secure the performance of
obligations of Borrower. Such letters of credit, and any renewals thereof,
shall be issued for Borrower's account. (Each such Letter of Credit is referred
to herein as a "Letter of Credit".) The face amount of all Letters of Credit
issued on Borrower's behalf and outstanding hereunder shall not exceed at any
time the sum of $500,000. No Letter of Credit shall have an expiration date
later than one year from the date of issue. Any Letters of Credit issued by the
Bank for the benefit of Borrower prior to the date of this Agreement and
outstanding as of the date hereof shall be deemed to have been issued under the
terms of this Section as of the effective
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date of this Agreement. Each Letter of Credit shall be issued in accordance
with the Bank's customs and practices in effect from time to time pursuant to a
Letter of Credit application to be entered into between Borrower and the Bank in
such form as may be required by the Bank (each a "Letter of Credit
Application"). Upon the issuance of any Letter of Credit, the Borrower shall
pay to the Bank an issuance fee of $200 which shall be the sole fee payable with
respect to the issuance of said Letters of Credit. All amounts disbursed by the
Bank in response to a draw on any of the Letters of Credit shall be deemed to be
an advance under the terms of the Note and shall be repaid together with
interest thereon in accordance with the terms of the Note.
Section 2.08 ORIGINATION FEE. Borrower shall pay to the Bank an
Origination Fee of $7,500 on the Closing Date.
ARTICLE III.
CONDITIONS OF LENDING
Section 3.01 REQUIRED DOCUMENTS. The making of the initial Advance under
the Line of Credit shall be subject to the condition precedent that the Bank
shall have received prior thereto a duly executed copy of this Agreement
together with all of the following, in form and substance reasonably
satisfactory to the Bank:
(a) The Note properly executed on behalf and in the name of Borrower.
(b) A security agreement, in the form of Exhibit C hereto (the
"Security Agreement"), properly executed on behalf and in the name of Borrower.
(c) All financing statements, certificates of title and other
writings, properly executed, which are deemed by the Bank to be necessary or
desirable to grant the Bank a perfected security interest constituting a first
lien on the property described in the Security Agreement subject only to the
liens described in Section 5.07.
(d) A certificate of insurance covering the tangible property
described in the Security Agreement, in such amounts, against such risks and in
such companies as shall be reasonably acceptable to the Bank, which certificate
shall name the Bank as loss payee or additional insured as its interest may
appear, and certificates of all other insurance required by Section 5.05.
(e) A certificate of the Secretary of Borrower, attested by a
director of the Borrower and showing the corporate seal, if any, of Borrower, in
the form of Exhibit D hereto. The Bank may conclusively rely on such
certificate until the Bank shall receive a further certificate of the Secretary
of Borrower, in form and substance satisfactory to the Bank, canceling or
amending the prior certificate and containing and certifying the signatures of
the officers named in such further certificate.
(f) A certificate of indebtedness and liens, in the form of Exhibit E
hereto, properly completed and executed by an officer of Borrower and attested
by one other officer of Borrower.
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(g) A guaranty agreement, in the form of Exhibit F hereto (the
"Guaranty"), properly executed by the Guarantor.
(h) An opinion of counsel to the Borrower in form and substance
satisfactory to the Bank certifying as to such matters as the Bank may request
including by way of example and not limitation (i) that the Borrower is duly
organized and validly existing under the laws of the State of Minnesota; and is
duly qualified as a foreign corporation and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property, or the
conduct of its business requires such qualification except where the failure to
be so qualified would not have a material adverse effect on the business or
financial condition of the Borrower; (ii) that the Borrower Documents have been
duly authorized by all necessary action of the Borrower; (iii) that the Loan
Documents have been duly executed and delivered, are the legal, valid, and
binding obligations of the Borrower, the Guarantor and other signatories
thereto, and are enforceable in accordance with their terms subject to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles;
(iv) that to the best of such counsel's knowledge and belief, there is no
action, proceeding or investigation pending or threatened which involves the
Borrower or the Guarantor or which might materially adversely affect the ability
of the Borrower or the Guarantor to perform their obligations under the Loan
Documents; and (v) that, to the best of such counsel's knowledge and belief, the
transactions contemplated hereby will not result in any violation of or be in
conflict with any term of the Borrower's organizational documents or of any
mortgage, indenture, lease, assignment, agreement or other instrument or any
license, permit, judgment, decree, order, statute, law, ordinance, or
governmental rule or regulation applicable to the Borrower or result in the
creation of any lien upon any of its properties or assets, other than as
contemplated hereby.
(i) A current certificate of good standing or due qualification for
Borrower issued by the Secretaries of State for Minnesota, Missouri, Oklahoma,
Kansas, Colorado, Iowa, and Wisconsin.
(j) A properly completed and executed Federal Reserve Form U-1 from
the Borrower.
(k) An assignment of Life Insurance Policy as Collateral relating to
Policy No. 4102683 issued by Principal Mutual Life Insurance Company on the life
of the Guarantor (the "Life Insurance Assignment"). The parties agree that the
assignment of insurance policy executed and delivered by Borrower to the Bank
dated February 21, 1990 shall constitute the Life Insurance Assignment for the
purposes of this Agreement and shall secure any and all liabilities to the Bank
under the terms of the Borrower Documents. Borrower agrees to maintain the Life
Insurance Policy in full force and effect so long as any amounts remain due the
Bank under any of the Loan Documents.
(l) Subordination agreements (collectively, the "Subordination
Agreement") in the form of Exhibit G hereto properly executed by the Borrower
and all Affiliates of Borrower to whom Borrower is indebted.
(m) Such other documents as the Bank may reasonably request.
8
The obligation of the Bank to make the initial Advance under the Line
of Credit shall be subject to the additional condition precedent that the
following have occurred to the satisfaction of the Bank:
(n) Borrower shall have paid in full or shall pay out of the proceeds
of the Loan all amounts due with respect to the Prior Loan.
(o) Borrower shall have paid the Origination Fee described in Section
2.08.
Section 3.02 OTHER CONDITIONS. Each Advance (including the initial
Advance) shall be subject to the further conditions precedent that prior to such
Advance:
(a) The Bank shall have received all Borrowing Certificates required
to be delivered by Borrower in accordance with Section 2.02; and
(b) The most recent Borrowing Certificate shall show, to the
satisfaction of the Bank, that the amount outstanding under the Line of Credit
plus the amount of the requested Advance is less than the maximum amount
permitted under the terms of Section 2.01; and
(c) The representations and warranties contained in Article IV are
correct in all material respects as of the date of such Advance as though made
as of such date, except to the extent that such representations and warranties
relate solely to an earlier date; and
(d) No event has occurred and is continuing, or would result from
such Advance, which constitutes an Event of Default or would constitute an Event
of Default with notice or passage of time or both.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Borrower and the Guarantor represent and warrant to the Bank as follows
insofar as each such representation and warranty applies to them or their
actions:
Section 4.01 CORPORATE EXISTENCE AND POWER. The Borrower is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Minnesota, is duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by it makes such licensing or qualification
necessary, and has all requisite power and authority to own its property and
carry on its business. The Borrower has all requisite power and authority to
execute and deliver and to perform all of its obligations under the Borrower
Documents.
Section 4.02 AUTHORIZATION. The execution, delivery and performance by
the Borrower of the Borrower Documents have been duly authorized by all
requisite action and do and will not (a) require any consent or approval of any
person or governmental authority, (b) violate any law, rule, regulation, order,
writ, injunction or decree, or the articles of incorporation or bylaws of the
9
Borrower, (c) result in a breach of or constitute a default under any contract,
agreement or other writing to which the Borrower is a party or by which the
Borrower or any property of the Borrower may be bound or affected, or (d) result
in, or require the creation or imposition of, any mortgage, security interest or
other interest, encumbrance, claim or charge of any nature, except in favor of
the Bank, upon or with respect to any property of the Borrower.
The execution, delivery and performance by the Guarantor of the Guarantor
Documents will not (a) require any consent or approval of any person or
governmental authority, (b) violate any law, rule, regulation or order, writ,
injunction or decree, (c) result in a breach of or constitute a default under
any contract, agreement or other writing to which the Guarantor is a party or by
which the Guarantor or his property is bound or affected, or (d) result in or
require the creation or imposition of any mortgage, security interest or other
interest, encumbrance, claim or charge of any nature, except in favor of the
Bank, upon or with respect to any property of the Guarantor.
Section 4.03 LEGAL AGREEMENTS. The Borrower Documents constitute, or when
executed, will constitute, the legal, valid and binding obligations of the
Borrower; and the Guarantor Documents constitute, or when executed, will
constitute, the legal, valid and binding obligations of the Guarantor; and all
said agreements are enforceable in accordance with their respective terms,
subject to the effect of bankruptcy, insolvency, reorganization or other similar
laws affecting the rights and remedies of creditors generally, statutes of
limitation and the effect of general principles of equity.
Section 4.04 FINANCIAL STATEMENTS. The Borrower has furnished the Bank
with a copy of Borrower's financial statements and accompanying annual audit
report for the fiscal year ending January 26, 1996, and a copy of Borrower's
unaudited financial statements for the ten month period ending November 30,
1996, in the form contemplated by Section 5.01, including all schedules and
notes pertaining thereto. Such financial statements were prepared in accordance
with generally accepted accounting principles consistently applied, and fully
and fairly present the financial condition of the Borrower on the date thereof
and the results of its operations for the periods covered thereby. The
Guarantor has furnished the Bank with his personal compiled financial statement
as of a recent date which statement fully and fairly presents the financial
condition of the Guarantor as of the date thereof.
Section 4.05 NO ADVERSE CHANGE. There has been no material adverse change
in the business, property or condition (financial or otherwise) of the Borrower
since the date of the latest financial statement referred to in Sections 4.04
and 5.01, and there has been no material adverse change in the financial
condition of the Guarantor since the date of his latest financial statement
referred to in Sections 4.04 and 5.01.
Section 4.06 TITLES AND LIENS. The Borrower has good title to all of the
properties reflected in the latest balance sheets referred to in Sections 4.04
and 5.01, and in all Borrowing Certificates free and clear of all mortgages,
security interests and other interests, encumbrances, claims and charges, except
for liens permitted by Section 5.07 and covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere
with the business or operations of the Borrower.
10
Section 4.07 TAXES. Except as permitted by Section 5.03, the Borrower and
the Guarantor have filed all required tax returns, have paid all due and payable
taxes, assessments and other governmental charges levied or imposed upon any of
them or upon any of their income or profits or upon any of their property, and
have made adequate provision for the payment of such taxes, assessments and
other charges accruing but not yet due and payable.
Section 4.08 LITIGATION. There is no pending or threatened notice, claim,
litigation, proceeding or investigation against or affecting the Borrower or the
Guarantor or any property of any of them, whether or not covered by insurance,
that would involve the payment by the Borrower or the Guarantor of $100,000 or
more in the aggregate or would otherwise have a material adverse effect on the
financial condition, business, prospects, property or operations of the Borrower
or the Guarantor, and, to their best knowledge and belief, there is no basis for
any such order, notice, claim, litigation, proceeding or investigation.
Section 4.09 MARGIN STOCK. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section 4.10 EMPLOYEE BENEFIT PLANS. No Reportable Event or Prohibited
Transaction has occurred with respect to any employee benefit plan or other plan
maintained for employees of the Borrower ("Plan"). Each Plan is in compliance
with all applicable requirements of ERISA and all applicable rulings and
regulations thereunder.
Section 4.11 NO STOCK OR SECURITIES. The Borrower has no subsidiaries and
owns no shares of stock or securities of any non-governmental entities.
Section 4.12 INFORMATION. No information furnished or to be furnished by
or on behalf of the Borrower or the Guarantor to the Bank for the purposes of or
in connection with this Agreement or any transaction contemplated hereby
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they are made, not materially misleading.
Section 4.13 ABSENCE OF DEFAULT. No event has occurred which either of
itself or with the lapse of time or the giving of notice or both, would give any
creditor of either the Borrower or the Guarantor the right to accelerate the
maturity of any indebtedness of such party for borrowed money. The Borrower and
the Guarantor are not in default under any other lease, agreement or instrument,
or any law, rule, regulation, order, writ, injunction, decree, determination or
award, non-compliance with which could materially adversely affect the property,
financial condition or business operations of such party.
Section 4.14 INSURANCE. The Borrower carries all insurance required by
law and such other insurance, to such extent and against such hazards and
liabilities, as is customarily maintained by companies similarly situated.
11
ARTICLE V.
COVENANTS
So long as the Note or any amendment, extension, renewal or replacement
thereof shall remain outstanding, the Borrower and the Guarantor shall comply
with the following requirements:
Section 5.01 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower
shall deliver to the Bank, in form and substance reasonably satisfactory to the
Bank:
(a) As soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the annual audit report of
the Borrower together with the unqualified opinion of the independent certified
public accountants selected by the Borrower and reasonably acceptable to the
Bank, which report shall include the balance sheet of the Borrower as of the end
of such fiscal year, and the related statements of income, retained earnings and
cash flows of the Borrower for such fiscal year, including all supporting
schedules and notes, all in reasonable detail, prepared in accordance with
generally accepted accounting principles applied on a basis consistent with the
accounting practices applied in the annual financial statements previously
furnished by Borrower to the Bank and a report signed by such accountants
stating that in making the investigations in connection with their review of the
financial statements they obtained no knowledge, except as specifically stated,
of any Event of Default or of any event which with notice of lapse of time or
both would constitute an Event of Default, all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the Borrower is
in compliance with the requirements set forth in Sections 5.17 through 5.20.
(b) As soon as available and in any event within 30 days after the
end of each month the balance sheet of the Borrower as of the end of such month
and related statements of income and retained earnings of the Borrower for such
month and for the year to date, including all supporting schedules and notes,
all in reasonable detail, prepared and certified by an officer of the Borrower
to have been prepared on a basis consistent with the accounting practices
applied in the financial statements referred to in Section 5.01(a), subject,
however, to year-end adjustments.
(c) As promptly as practicable (but in any event not later than five
business days) after any officer of the Borrower obtains knowledge thereof,
written notice of all orders, notices, claims, litigation, proceedings and
investigations against or affecting the Borrower or any property of the type
described in Section 4.08.
(d) As promptly as practicable (but in any event not later than five
business days) after any officer of the Borrower obtains knowledge of the
occurrence of any event which constitutes an Event of Default or would
constitute an Event of Default with notice or passage of time or both, written
notice of such occurrence, together with a detailed statement by such
responsible officer of the Borrower of the steps being taken by such corporation
to cure the effect of such event.
(e) Promptly after the Bank's request therefor, such other
information respecting the condition, financial or otherwise, business or
property of the Borrower as the Bank may from time to time reasonably request.
12
The Guarantor shall deliver to the Bank, in form and substance satisfactory
to the Bank:
(f) As soon as available, and in any event within 90 days after the
end of each calendar year, financial statements showing the financial condition
of the Guarantor as of December 31 of such year.
(g) As promptly as practicable, but in any event within five business
days after obtaining knowledge thereof, written notice of all orders, notices,
claims, litigation, proceedings and investigations against or affecting the
Guarantor or his property of the kind described in Section 4.08.
(h) As promptly as practicable, but in any event within five business
days after obtaining knowledge of the occurrence of an Event of Default or any
event which constitutes an Event of Default or would constitute an Event of
Default with notice or passage of time or both written notice of such
occurrence, together with a detailed statement by a responsible officer of the
Borrower or the Guarantor of the steps being taken by the Borrower or the
Guarantor to cure the effect of such event.
(i) Promptly after the Bank's request therefor, such other
information respecting the condition, financial or otherwise, business or
property of the Guarantor as the Bank may from time to time reasonably request.
Section 5.02 BOOKS AND RECORDS. The Borrower shall keep accurate books
and records in which true and complete entries will be made in accordance with
generally accepted accounting principles consistently applied. Upon request of
the Bank, the Borrower during normal business hours, shall give representatives
of the Bank access to and permit such representatives to examine, copy and make
extracts from all books, records and other writings in its possession, to
inspect its property and to discuss its finances, accounts, property and
business with any of its officers and directors.
Section 5.03 TAXES AND OTHER CLAIMS. The Borrower and the Guarantor shall
file when due all required tax returns, shall pay when due all taxes,
assessments and other governmental charges levied or imposed upon them or upon
their income or profits or upon any of their property, and shall pay when due
all lawful claims for labor, materials and supplies which, if unpaid, might
become a lien or charge upon any property; provided, that neither the Borrower
nor the Guarantor shall be required to pay any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings, and for which a proper reserve has been established
in accordance with generally accepted accounting principles.
Section 5.04 MAINTENANCE OF PROPERTIES. The Borrower shall keep and
maintain its inventory, equipment, real estate and other property necessary or
useful in its business in good condition and repair and shall pay when due all
rental and mortgage payments due on such property; provided, that nothing in
this Section shall prevent the Borrower from discontinuing the operation and
maintenance of any such property if such discontinuance is, in the judgment of
the Borrower, desirable in the conduct of its business and not disadvantageous
in any material respect to the Bank as holder of the Note.
13
Section 5.05 INSURANCE. The Borrower shall obtain and maintain insurance
with insurers that are reasonably acceptable to the Bank, in such amounts and
with such coverages (including without limitation commercial general liability
insurance, fire, hazard and extended coverage property insurance on all of its
assets, business interruption insurance, necessary workers, compensation
insurance and all other coverages as are consistent with industry practice) as
are reasonably acceptable to the Bank. All insurance policies shall name the
Bank as loss payees or additional insured, as appropriate, and shall contain a
provision whereby they cannot be canceled except after 30 days, written notice
to the Bank. In the event the Borrower fails to pay any premium on any such
insurance, the Bank may do so, and the Borrower shall reimburse the Bank for any
such payment on demand. The Borrower hereby assigns to Bank all returned or
unearned premiums that may be payable to the Borrower upon cancellation of any
such policies for any reason (other than as a result of an intentional change by
the Borrower of its insurance carrier), and all proceeds of such insurance, and
agrees that upon the occurrence of and during the continuance of an Event of
Default the Bank may direct the insurers to pay the Bank all such amounts. The
Borrower hereby grants the Bank a limited power of attorney to endorse any check
or other remittance payable to the Borrower to collect such returned or unearned
premiums and the proceeds of such insurance, and any amount so collected may be
applied by the Bank to any obligations due the Bank by the Borrower as the Bank,
in its discretion, deem appropriate.
Section 5.06 CORPORATE EXISTENCE. The Borrower shall preserve and
maintain its corporate existence and all of its rights, privileges and
franchises, and comply with all applicable laws and regulations.
Section 5.07 LIENS. The Borrower shall not create, incur or permit to
exist in favor of any person other than the Bank any mortgage, deed of trust,
security interest or other lien on any of its property now owned or hereafter
acquired, except mortgages, deeds of trust, security interests and other liens
securing any indebtedness for borrowed money in existence on the date hereof and
listed in the certificate of indebtedness and liens described in Exhibit E and
purchase money security interests securing indebtedness permitted by Section
5.08(d).
Section 5.08 INDEBTEDNESS. The Borrower shall not incur, create, assume
or permit to exist any indebtedness for borrowed money or any other indebtedness
or liability evidenced by notes, bonds, debentures or similar obligations,
except:
(a) Indebtedness to the Bank;
(b) Indebtedness in existence on the date hereof (other than the
Prior Loan) and listed in Exhibit E hereto, but not including any extensions or
renewals thereof, (other than extensions or renewals of Subordinated Debt);
(c) Indebtedness and extensions and renewals thereof, which is
subordinated in right of payment to all indebtedness of the Borrower to the
Bank; and
(d) Indebtedness incurred in the purchase (or borrowing for the
purchase) or lease of equipment.
14
Section 5.09 GUARANTIES. The Borrower shall not guarantee, endorse,
assume or otherwise become directly or contingently liable in connection with
any obligation of any other person, except by the endorsement of negotiable
instruments by the Borrower for deposit or collection or similar transactions in
the ordinary course of business.
Section 5.10 SALE OF ASSETS. The Borrower shall not sell, lease, assign,
transfer or otherwise dispose of all or a substantial part of its assets
(whether in one transaction or in a series of transactions) to any person other
than in the ordinary course of business.
Section 5.11 CORPORATE STRUCTURE. The Borrower shall not consolidate
with or merge into any other person, or permit any other person to merge into
it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all of the assets of any other
person.
Section 5.12 NATURE OF BUSINESS. The Borrower shall not engage in any
line of business materially different from that presently engaged in by the
Borrower without consent of the Bank.
Section 5.13 INVESTMENTS. The Borrower shall not purchase or hold
beneficially any shares of stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other person, except:
(a) Certificates of deposit issued by a bank having deposits in
excess of $100,000,000.00 and whose deposits are insured by the Federal Deposit
Insurance Corporation;
(b) Obligations of, or guaranteed by the United States Government or
any agency thereof;
(c) Travel advances to officers and employees of the Borrower; and
(d) Advances in the form of progress payments, prepaid rent or
security deposits.
Section 5.14 SALE AND LEASEBACK. The Borrower shall not enter into any
arrangement, directly or indirectly, with any other person whereby the Borrower
shall sell or transfer any real or personal property and then or thereafter rent
or lease as lessee such property or any part thereof or any other property which
the Borrower intends to use for substantially the same purpose as the property
being sold or transferred.
Section 5.15 COMPLIANCE WITH LAWS. The Borrower will comply with the
requirements of applicable laws and regulations, the noncompliance with which
would materially and adversely affect its business or the financial condition of
the Borrower.
Section 5.16 TRANSACTIONS WITH AFFILIATES. The Borrower will not
directly or indirectly, enter into any transaction, whether or not in the
ordinary course of business, with any Affiliate other than on terms and
conditions at least as favorable to the Borrower, as those that would be
obtained through an arm's length negotiation with an unaffiliated third party.
15
Section 5.17 DEBT TO TANGIBLE NET WORTH RATIO. The Borrower shall
achieve a ratio of Debt (exclusive of Subordinated Debt) to Tangible Net Worth
as of July 31, 1997 of not more than 2.25 to 1 and as of the end of Borrower's
fiscal year ended January 1998 of not more than 2.00 to 1.
Section 5.18 MINIMUM NET INCOME. During the fiscal year ending in January
1998, the Borrower shall achieve a net income before distributions to
shareholders of not less than $1,500,000.
Section 5.19 MINIMUM TANGIBLE NET WORTH. The Borrower shall have a
minimum Tangible Net Worth of not less than $6,000,000 as of the end of its
fiscal year ending in January 1998.
Section 5.20 CURRENT RATIO. The Borrower shall achieve a ratio of its
current assets to its current liabilities of not less than 1 to 1 as of the end
of its fiscal year ending in January 1998.
Section 5.21 BANK ACCOUNTS. So long as any amounts remain outstanding
under the terms of the Note, the Borrower shall maintain its primary
disbursement accounts with the Bank.
Section 5.22 DIVIDENDS. The Borrower shall not declare or pay any
dividends or other payments (other than dividends payable solely in stock of
such entity) on account of any shares of its stock, in excess of amounts
necessary to permit shareholders of Borrower to pay income taxes attributable to
them by reason of any election by Borrower to be taxed as a S Corporation.
ARTICLE VI.
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 6.01 EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "Event of Default":
(a) Default in the payment of any amount due under this Agreement or
the Note and the continuance of such default for a period of 10 days; or
(b) Any statement, representation or warranty of the Borrower or the
Guarantor (or any officer, employee, Bank or attorney of the Borrower or the
Guarantor) to the Bank at any time, including without limitation any statement,
representation or warranty made in this Agreement or in any writing contemplated
by this Agreement, shall be incorrect or misleading in any material respect when
made; or
(c) Default in the performance or breach of any covenant or agreement
of the Borrower or the Guarantor in this Agreement, any writing contemplated by
this Agreement or any other agreement with the Bank, or any of the documents
contemplated thereby, and the continuance of such default for a period of 30
days; or
(d) The Borrower or the Guarantor shall become insolvent, be unable
or admit in writing its or their inability to pay its or their debts as they
mature, make an assignment for the benefit of creditors, apply for or consent to
the application or suffer the appointment of any receiver, trustee or similar
officer, die, or initiate or have initiated against it or him or them any act,
process or
16
proceeding under any insolvency, bankruptcy, dissolution, liquidation or similar
law (provided that the filing of an involuntary petition in bankruptcy against
the Borrower or the Guarantor shall constitute an Event of Default only if the
petition is not dismissed within 60 days after filing); or
(e) A default continuing for more than 10 days after notice thereof
under any lease, conditional sales contract or any other agreement, bond,
debenture, note or other evidence of indebtedness (other than Subordinated Debt)
of the Borrower involving $50,000 or more (or any note in favor of the Bank
without regard to amount) or under any indenture or other writing under which
any such evidence of indebtedness has been issued or by which it is governed if
such default results in the acceleration of payment of any such indebtedness or
gives the holder thereof the right to accelerate such indebtedness; or
(f) The Borrower or the Guarantor shall suffer a final judgment or
other order for the payment of money in the amount of $25,000 or more and shall
not discharge the same within a period of 30 days in a manner acceptable to the
Bank; or
(g) The issuance or levy of any writ, warrant, attachment, execution
or similar process (other than garnishment summons or the like relating to
employee wages) against or the attachment of any tax lien to, any property of
the Borrower or the Guarantor and, in the case of any such tax lien, the same is
not discharged in a manner acceptable to the Bank within a period of 30 days, or
such tax lien has become prior to the lien or security interest of the Bank in
any such property; or
(h) The occurrence of any Reportable Event or Prohibited Transaction
with respect to any Plan, or any Plan shall not be in compliance with all
applicable requirements of ERISA and all applicable rules and regulations
thereunder, or any Plan shall terminate, or a trustee or receiver is appointed
to administer any Plan, or the Pension Benefit Guaranty Corporation shall
institute any proceeding with respect to any Plan provided that no such Event of
Default shall exist if such occurrence may be cured under applicable law without
any material adverse effect on the Borrower and the Borrower is diligently
attempting to do so; or
(i) The Borrower or the Guarantor shall, for any reason, take any
action to revoke, terminate, contest the validity or enforceability of, declare
to be null and void, or to otherwise deny that such party has any or further
liability or obligation under any Loan Document or any other guaranty, liability
or agreement in favor of the Bank, or any Loan Document or other such guaranty,
liability or agreement shall otherwise for any reason cease to be in full force
and effect; or
(j) There is a material adverse change in the condition (financial or
otherwise), business or property of the Borrower or the Guarantor; or
(k) Borrower's audited financial statements for the fiscal year ended
in January 1997 disclose that (i) Borrower achieved a net income for the twelve
month period then ended of less than $750,000; or (ii) Borrower achieved a ratio
of Debt (exclusive of Subordinated Debt) to Tangible Net Worth as of the end of
such fiscal of more than 2.25:1; or (iii) Borrower had a minimum Tangible Net
Worth as of the end of such fiscal year of less than $5,000,000; or (iv)
17
Borrower had a ratio of its current assets to its current liabilities as of the
end of such fiscal year of less than 1:1; or
(l) Borrower shall fail for a period of at least 60 consecutive days
during each fiscal year of Borrower to limit the amount outstanding under the
Line of Credit to less than the maximum amount of the Borrowing Base in effect
for such period; or
(m) The Bank shall in good faith believe that the prospect for due
and punctual payment or performance of any obligation under any of the Loan
Documents is impaired.
Section 6.02 RIGHTS AND REMEDIES. Upon the occurrence of an Event of
Default or at any time thereafter until such Event of Default is cured to the
reasonable satisfaction of the Bank, the Bank may exercise any and all of the
following rights and remedies:
(a) The Bank may, by notice to Borrower, declare the Line of Credit
to be terminated, whereupon the same shall terminate and the Bank's obligations
to make any Advances thereunder shall terminate.
(b) The Bank may, by notice to Borrower, declare its obligation to
issue Letters of Credit pursuant to the provisions of Section 2.07 to be
terminated, whereupon the same shall terminate and the Bank's obligations to
issue any Letters of Credit hereunder shall terminate.
(c) The Bank may declare all principal, interest and other charges
and amounts under the Note, and this Agreement to be due and payable, whereupon
the same shall become due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by Borrower.
(d) The Bank may, without prior notice to Borrower or any other
person, apply any and all money owing by the Bank to Borrower to the payment of
principal, interest and other charges and amounts under the Note, and this
Agreement. Upon exercise of this remedy, the Bank shall promptly notify
Borrower.
(e) The Bank may exercise and enforce their rights and remedies under
any of the other Loan Documents, the Uniform Commercial Code and any other
applicable law.
ARTICLE VII.
MISCELLANEOUS
Section 7.01 WAIVER AND AMENDMENT. No provision of the Loan Documents can
be waived, modified, amended, abridged, supplemented or terminated, except by a
writing executed by the Bank. A waiver shall be effective only in the specific
instance and for the specific purpose given. No delay or failure by the Bank to
exercise any right or remedy shall be a waiver thereof, nor shall any single or
partial exercise by the Bank of any right or remedy preclude any other exercise
thereof or the
18
exercise of any other right or remedy. All rights and remedies of the Bank
under this Agreement and any other writing are cumulative and not exclusive.
Section 7.02 COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on
demand all reasonable out-of-pocket costs and expenses of the Bank in connection
with the evaluation, preparation and processing of Borrower's loan request, the
preparation, execution, delivery, amendment and administration of the Loan
Documents and all other instruments or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith, including, but
not limited to, fees and out-of-pocket costs and expenses of counsel to the Bank
and counsel to the Participant, closing costs, lien searches,, filing and
recording fees, appraisers fees, the costs of pre-loan collateral audits
performed by the Bank or the Participant, and any subsequent audits and
examinations performed by the Bank. Such costs and expenses shall be payable to
the Bank regardless of whether the Loan is funded and may be deducted from the
proceeds of the Loan. The Borrower further agrees to pay on demand all
reasonable out-of-pocket costs and expenses (including reasonable attorneys'
fees and legal expenses) incurred by the Bank in connection with the enforcement
of this Agreement, the Loan Documents or any such other instruments or documents
during the continuance of any Event of Default. In addition, the Borrower
agrees to pay, and to save the Bank harmless from all liability for, any stamp
or similar taxes which may be payable in connection with the execution or
delivery of this Agreement, the borrowings hereunder, the issuance of the Note,
the recording or filing of any Loan Documents and any instruments or documents
provided for herein or delivered or to be delivered hereunder or in connection
herewith. All obligations provided for in this Section 7.02 shall survive any
termination of this Agreement. For the purposes of this Section 7.02, the term
"Participant" means Firstar Bank Milwaukee N. A., a national banking
association, which will purchase a participation in the Loan from the Bank.
Section 7.03 ADDRESSES. All notices, requests, demands and other
communications provided for under this Agreement and the other Loan Documents
shall be in writing and shall be delivered in person, by facsimile transmission
or deposited in the mail, postage prepaid, addressed as follows:
If to the Borrower or the Guarantor:
Paper Warehouse, Inc.
Attention: Mr. Yale X. Xxxxxxxx
0000 Xxxxxxxxx Xxxxxxxxx
Xx. Xxxxx Xxxx, Xxxxxxxxx 00000-0000
With a copy to:
Maslon, Edelman, Xxxxxx and Brand
Attention: Xx. Xxxx X. Xxxxxxxxx
0000 Xxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
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If to the Bank:
Richfield Bank & Trust Co.
0000 Xxxxxxx Xxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Attention: Xx. Xxxxxx X. Xxxxxxx
With a copy to:
Xxxxxxx, Rumble & Xxxxxx
Professional Association
Attention: C. Xxxxxx Xxxxxxx
0000 Xxxxx Xxxxxx Towers
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such notices, requests, demands and other communications
shall be effective when actually delivered, or deposited in the mail, except
that notices and requests to the Bank pursuant to Article II shall not be
effective until received by the Bank.
Section 7.04 BINDING EFFECT, ASSIGNMENT; SEVERABILITY. The Loan Documents
shall be binding upon and inure to the benefit of the parties hereto and thereto
and their respective successors and assigns, except that Borrower shall not have
any right to assign any of its rights hereunder or thereunder or any interest
herein or therein without the prior written consent of the Bank. The Bank
reserves the right to sell or transfer all or a portion of its interest in the
Loan and in connection therewith to disclose to any purchaser or potential
purchaser of such interest any information furnished to the Bank by Borrower or
the Guarantor and to assign to any such purchaser all or a portion of the Bank's
rights and interests under the terms of the Loan Documents. If any provision or
application of any of the Loan Documents is held unlawful or unenforceable, in
any respect, such illegality or unenforceability shall not affect the other
provisions or applications which can be given effect, and the Loan Documents
shall be construed as if the unlawful or unenforceable provision or application
had never been contained herein or therein or prescribed hereby or thereby.
Section 7.05 JURISDICTION AND VENUE. Borrower and Guarantor consent to
the personal jurisdiction of the state and federal courts located in the State
of Minnesota in connection with any controversy related in any way to the Loan
Documents, waive any argument that venue in such forums is not convenient, and
agree that any litigation initiated by Borrower or the Guarantor, against the
Bank in connection with the Loan Documents shall be venued in either the
District Court of Hennepin County, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division.
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Section 7.06 HEADINGS. Article and Section headings in this Agreement are
for convenience of reference only, and shall not constitute a part of this
Agreement for any other purpose or a limitation of the scope of the particular
Articles or Sections to which they refer.
Section 7.07 GOVERNING LAW. This Agreement and the other Loan Documents
(except as otherwise stated therein), shall be governed by and construed in
accordance with the laws of the State of Minnesota.
Section 7.08 FURTHER ASSURANCES. The Borrower and the Guarantor will, at
any time and from time to time, execute and deliver, and use their best efforts
to cause to be executed and delivered by all necessary persons, such further
instruments and take such further action as may be reasonably requested by the
Bank in order to cure any defects in the execution and delivery of, or to comply
with, or to accomplish the purposes, covenants and agreements contained in this
Agreement, the Note, or any other Loan Document, and in connection therewith,
the Borrower and the Guarantor shall deliver to the Bank such other documents
and take such further actions as the Bank shall, from time to time, reasonably
request.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
PAPER WAREHOUSE, INC.
(Borrower)
By /s/ Yale X. Xxxxxxxx
------------------------------
Title President
---------------------------
/s/ Yale X. Xxxxxxxx
--------------------------------
Yale X. Xxxxxxxx
(Guarantor)
RICHFIELD BANK & TRUST CO.
(Bank)
By /s/ [ILLEGIBLE]
------------------------------
Title [ILLEGIBLE]
---------------------------
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