GENERAL CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT, dated as of August 30, 1996, between SPECTRUM
Commercial Services, Inc., a Minnesota corporation, having its mailing address
and principal place of business at 0000 Xxxxxxxxxxxxx Xxxxx, Xxxxx 000,
Xxxxxxxxxxx, Xxxxxxxxx 00000-0000 (herein called "Lender" or "SCS"), and
Appliance Recycling Centers of America, Inc., a Minnesota corporation, having
the mailing address and principal place of business at 0000 Xxxxxxxxx Xxxxxxxxx,
Xxxxx Xxxxx Xxxx, Xxxxxxxxx 00000 (herein called "Borrower").
AGREEMENT. This Agreement states the terms and conditions
under which Borrower may obtain certain loans from Lender.
CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
"Acceptable Distributions" shall mean, with respect to
Borrower, cash distributions made to Borrower's shareholders during any period
in which Borrower has made an effective S Corporation election, in an amount
equal to the combined federal and state income tax liability of such
shareholders arising from their respective allocable share of the earnings and
profit of Borrower (with each shareholder's federal and state income tax
liability, including any minimum tax liability, to be computed on the basis of
the applicable marginal tax rate for individuals under the Code and relevant
state law as such applicable marginal tax rates are reduced by deductions for
state income taxes with respect to the Code and for federal income taxes with
respect to the relevant state law; provided, however, that no such
distribution(s) shall be made if and to the extent that, after giving effect
thereto, the aggregate amount distributed to all shareholders pursuant to this
provision in any given period exceeds an amount equal to the amount of regular
state and federal income tax that would be assessed against Borrower for such
period if Borrower were subject to the tax provisions applicable to a C
Corporation but not including any penalty tax provisions such as provisions for
accumulated earnings taxes or personal holding company taxes.
"Advance(s)" shall have the meaning provided in Paragraph
4(a).
"Affiliate" shall include, with respect to any party, any
Person which directly or indirectly controls, is controlled by, or is under
common control with such party and, in addition, in the case of Borrower, each
officer, director or shareholder of Borrower, and each joint venturer and
partner of Borrower.
"Borrower" shall have the meaning provided in the preamble
hereto.
"Borrowing Base" shall mean the sum of (i) Eighty percent
(80%) of the net amount of Eligible Receivables or such greater or lesser
percentage as Lender, in its sole discretion, shall deem appropriate, plus (ii)
the lesser of (x) Two Hundred Twenty Five Thousand and No/100ths Dollars
($225,000.00) or (y) Twenty Five percent (25%) of the net amount of Eligible
Inventory, or such greater or lesser dollars and/or percentage as Lender, in its
sole discretion, shall deem appropriate, plus (iii) One Hundred Sixty Four
Thousand and No/100ths Dollars ($164,000.00) for liquidation value of equipment
or such greater or lesser dollars as Lender, in its sole discretion, shall deem
appropriate.
"Business Day" shall mean any day on which commercial banks in
Minneapolis, Minnesota are open for the transaction of business of the kind
contemplated by this Agreement.
"Chattel Paper" shall have the meaning ascribed to such term
in Article 9 of the Commercial Code.
"Closing Date" shall mean the day specified by Borrower on
which all of the conditions precedent specified in Paragraph 21 shall have been
satisfied.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Commercial Code" shall mean the Uniform Commercial Code as
enacted in the State of Minnesota, as amended from time to time.
"Consolidated" shall, when used with reference to any
financial information pertaining to (or when used as a part of any defined term
or statement pertaining to the financial condition of) any Person, mean the
accounts of such Person and its subsidiaries, determined on a consolidated
basis, all determined as to principles of consolidation and, except as otherwise
specifically required by the definition of such term or by such statement as to
such accounts, in accordance with GAAP.
"Contingent Obligations" shall mean, with respect to any
Person, all of such Person's liabilities and obligations which are contingent
upon and will not mature unless and until the occurrence of some event or
circumstance and which are not included within the definition of Liabilities of
such Person.
"Current Assets" shall have the meaning given to that term in
accordance with GAAP.
"Current Liabilities" shall have the meaning given to that
term in accordance with GAAP, except that the outstanding principal amount of
the Advance shall, in any event, be excluded.
"Customer(s)" shall have the meaning provided in Paragraph
7(a).
"Default" shall mean any event which, with the giving of
notice or passage of time, or both, would constitute an Event of Default.
"Eligible Inventory" shall mean the dollar value of only that
Inventory in which only Lender holds a senior security interest and as to which
Lender, in its sole discretion, shall elect from time to time to constitute
Eligible Inventory. Without limiting the discretion of Lender to consider any
Inventory not to be Eligible Inventory, and by way of example of types of
Inventory that Lender will consider not to be Eligible Inventory, Lender,
notwithstanding any earlier classification of eligibility, may consider any
Inventory not to be Eligible Inventory if: (i) such Inventory does not
constitute finished goods (eg: "Fixed" or "Scratch & Dent"); (ii) such Inventory
does not meet all standards imposed by any governmental agency having regulatory
authority over such goods and/or their use, manufacture or sale; (iii) such
Inventory has not been physically received in the continental United States by
Borrower; (iv) such Inventory is not currently usable or currently salable in
the normal course of Borrower's operations; (v) such Inventory is on consignment
to or from any other Person or is subject to any bailment; (vi) such Inventory
is subject to any lien, security interest or other encumbrance whatsoever,
except for the security interest of Lender under this Agreement; (vii) such
Inventory has been sold to any other person; or (viii) such Inventory is located
in a place other than Borrower's processing centers or stores which are listed
on Schedule A. The value of Eligible Inventory shall be the lower of the cost or
market value of the Eligible Inventory computed on a first-in, first-out basis
in accordance with generally accepted accounting principles on the basis of the
most recent inventory certificates delivered to Lender pursuant to Paragraph
17(a)(v).
"Eligible Receivables" shall mean the dollar value of only
such Receivables of Borrower arising from the sale of Inventory or the rendition
of services in the ordinary course of business which has been fully performed by
Borrower and in which only Lender holds a senior security interest and as to
which Lender, in its sole discretion, shall from time to time determine to be
Eligible Receivables. Without limiting the discretion of Lender to consider any
Receivable not to be an Eligible Receivable, and by way of example only of types
of Receivables that Lender will consider not to be Eligible Receivables, Lender,
notwithstanding any earlier classification of eligibility may consider any
Receivable not to be an Eligible Receivable if: (i) any warranty is breached as
to the Receivable; (ii) the Receivable is not paid by the account debtor within
90 days from the date of the invoice relating to such Receivable; (iii) the
account debtor disputes liability or makes any claim with respect to the
Receivable; (iv) a petition in bankruptcy or other application for relief under
any insolvency law is filed with respect to the account debtor owing the
Receivable; (v) the account debtor on the Receivable makes an assignment for the
benefit of creditors, becomes insolvent, fails, suspends, or goes out of
business; (vi) the Receivable arises from a sale to an account debtor outside
the United States, unless the sale is on terms acceptable to Lender in its sole
discretion; (vii) the Receivable is owed by an account debtor who owes
Receivables of which more than 10% are more than 90 days past the date of the
invoices relating to such Receivables; (viii) the account debtor is an Affiliate
or employee of Borrower; (ix) the account debtor is also a supplier or creditor
of Borrower; (x) the account debtor is the United States of America, or any
department or any agency of any thereof, unless Borrower has complied with the
Assignment of Claims Act to Lender's satisfaction; (xi) the Receivable is either
a consignment Receivable or a bonded Receivable or a retainage; or (xii) In its
reasonable discretion, Lender shall become dissatisfied with the
creditworthiness of an account debtor owing a Receivable.
"Equipment" shall have the meaning provided in Paragraph 3(c).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may from time to time be amended, and the rules and
regulations promulgated thereunder by any governmental agency or authority, as
from time to time in effect.
"ERISA Affiliate" shall mean, with respect to any Person, any
trade or business (whether or not incorporated) which is a member of a group of
which such Person is a member and which is under common control within the
meaning of Section 414 of the Code, as amended from time to time, and the
regulations promulgated and rulings issued thereunder.
"ERISA Event" shall mean: (a) a Reportable Event described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the PBGC
under such regulations); (b) the withdrawal of Borrower or any ERISA Affiliate
from a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA; (c) the filing of a notice of intent to
terminate a Plan or the treatment of a Plan amendment as a termination under
Section 4041 of ERISA; (d) the institution of proceedings to terminate a Plan by
the PBGC under Section 4042 of ERISA; or (e) any other event or condition that
might reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"Event of Default" shall have the meaning provided in
Paragraph 20.
"GAAP" shall mean generally accepted accounting principles
consistently applied and maintained throughout the period indicated and
consistent with the audited financial statements delivered to Lender pursuant to
Paragraph 16(h). Whenever any accounting term is used herein which is not
otherwise defined, it shall be interpreted in accordance with GAAP.
"General Intangibles" shall have the meaning provided in
Paragraph 3(d).
"Guarantor" shall mean XXXXXX X. XXXXXXX and any other Person
who enters into a Guaranty hereof.
"Guaranty(ies)" shall mean those certain Guaranties dated as
of AUGUST 30, 1996, FROM XXXXXX X. XXXXXXX and any other agreement whereby a
Person guarantees the payment or performance of any of the Obligations.
"Independent Public Accountants" shall mean MCGLADREY &
XXXXXX, LLP, or any other firm of independent public accountants which is
acceptable to Lender.
"Inventory" shall have the meaning provided in Paragraph 3(b).
"Liabilities" of any Person shall mean those items which, in
accordance with GAAP, appear as liabilities on a balance sheet.
"Line Maintenance Fee" shall have the meaning provided in
Paragraph 17(j).
"Loan Administration Fee" shall have the meaning provided in
Paragraph 17(h).
"Loan Document(s)" shall mean individually or collectively, as
the case may be, this Agreement, the Note, the Guaranty[ies], and any and all
other documents executed, delivered or referred to herein or therein, as
originally executed and as amended, modified or supplemented from time to time.
"Material Adverse Occurrence" shall mean any occurrence of
whatsoever nature (including, without limitation, any adverse determination in
any litigation, arbitration or governmental investigation or proceeding) which
Lender shall determine, in its sole discretion, could materially adversely
affect the present or prospective financial condition or operations of Borrower
or a Guarantor or impair the ability of Borrower or a Guarantor to perform its
obligations under this Agreement or any other Loan Document.
"Maturity Date" shall mean August 30, 1999.
"Maximum Principal Amount" shall mean, at any date, One
Million Five Hundred Thousand and No/100ths Dollars ($1,500,000.00).
"Monthly Payment Date" shall mean the first day of each month.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA to which Borrower is making or accruing
an obligation to make contributions, or has within any of the preceding three
plan years made or accrued an obligation to make contributions.
"Net Income" for any period shall mean net income for such
period, determined in accordance with GAAP excluding, however, (i) extraordinary
gains, and (ii) gains (whether or not extraordinary) from sales or other
dispositions of assets other than the sale of Inventory in the ordinary course
of Borrower's business.
"Note" shall mean the promissory note in the form of Exhibit B
attached hereto and made a part hereof made by Borrower payable to the order of
Lender to evidence the Advances.
"Obligations" shall have the meaning provided in Paragraph 3.
"Origination Fee" shall have the meaning provided in Paragraph
17 (i) .
"Participant" shall mean each Person who purchases a
participation interest from Lender in the obligations.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor board, authority, agency, officer or official of the United States
administering the principal functions assigned on the date hereof to the Pension
Benefit Guaranty Corporation under ERISA.
"Person" shall mean any natural person, corporation, firm,
partnership, association, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Plan" shall mean each employee benefit plan or other class of
benefits covered by Title IV of ERISA, in either case whether now in existence
or hereafter instituted, of Borrower or any of its Subsidiaries.
"Prime Rate" shall mean the publicly announced base rate (or
other publicly announced reference rate) charged by Norwest Bank Minnesota,
National Association; Borrower acknowledges that the Prime Rate may not be the
lowest rate made available by Lender to its customers and that Lender may lend
to its customers at rates that are at, above or below the Prime Rate.
"Receivables" shall have the meaning provided in Paragraph
3(a).
"Reportable Event" shall have the meaning given to that term
in Title IV of ERISA.
"Security Interest" shall mean any lien, pledge, mortgage,
encumbrance, charge or security interest of any kind whatsoever (including,
without limitation, the lien or retained security title of a conditional vendor)
whether arising under a security instrument or as a matter of law, judicial
process or otherwise or the agreement by Borrower to grant any lien, security
interest or pledge, mortgage or encumber any asset.
"Subordinated Debt" shall mean indebtedness of Borrower for
borrowed money which is subordinated to the Obligations on terms satisfactory to
Lender in its sole discretion.
"Subsidiary" of any Person shall mean any other corporation of
which more than 50% of the outstanding shares of capital stock having ordinary
voting power for the election of directors is owned directly or indirectly by
such Person, by such Person and one or more Subsidiaries, or by one or more
other Subsidiaries.
"Surplus Cash Flow" for any period shall mean Net Income for
such period plus depreciation, amortization and other non-cash expenses for such
period minus scheduled principal payments of indebtedness for borrowed money
payable during such period (excluding principal payments with respect to the
Advances, but including any scheduled reductions in the Borrowing Base or the
Maximum Principal Amount) minus Acceptable Distributions for such period.
"Termination Date" shall mean the earliest of (i) the Maturity
Date or (ii) the date upon which Lender's obligation to make Advances is
terminated pursuant to Paragraph 20, or (iii) the date upon which the
obligations are declared to be due and payable (or automatically become due and
payable) upon the occurrence of an Event of Default as provided in Paragraph 20
or otherwise, or (iv) the date upon which this Agreement terminates as provided
in Paragraph 23, or (v) upon demand by Lender in its sole and absolute
discretion.
"Withdrawal Liability" shall have the meaning given to that
term in Title IV of ERISA.
"Working Capital" at any date shall mean Current Assets at
such date minus Current Liabilities at such date.
SECURITY. As security for all present and future sums loaned
or advanced by Lender to Borrower and for all other obligations now or hereafter
chargeable to Borrower's loan account hereunder, and all other obligations and
liabilities of any and every kind of Borrower to Lender, due or to become due,
direct or indirect, absolute or contingent, joint or several, howsoever created,
arising or evidenced, now existing or hereafter at any time created, arising or
incurred (herein called "Obligations'), Borrower hereby grants to Lender a
security interest in and to the following property:
All Receivables of Borrower now owned or hereafter
acquired or arising, together with all customer lists, original books
and records, ledger and account cards, computer tapes, discs, printouts
and records, whether now in existence or hereafter created.
"Receivables" means all rights of Borrower to the payment of money,
whether or not earned and howsoever evidenced or arising, including
(without limitation) all present and future "Accounts", accounts
receivable, "Chattel Paper", "Instruments", and rights to payment which
are "General Intangibles" (as those terms are used in the Commercial
Code), all security therefor and all of Borrower's rights as an unpaid
seller of goods (including rescission, replevin, reclamation and
stopping in transit) and all of Borrower's rights to any goods
represented by any of the foregoing including returned or repossessed
goods;
All Inventory of Borrower, whether now owned or
hereafter acquired and wherever located. "Inventory" includes all Goods
(as defined in Article 9 of the Commercial Code) intended for sale or
lease or to be furnished under contracts of service, all raw materials
and work in process therefor, all finished goods thereof, all materials
and supplies of every nature used or usable or consumed or consumable
in connection with the manufacture, packing, shipping, advertising,
selling, leasing or furnishing of such Goods, and all accessories
thereto and all documents of title therefor evidencing the same;
All Equipment of Borrower, whether now owned or
hereafter acquired and wherever located. "Equipment" includes all of
Borrower's Goods other than Inventory, all replacements and
substitutions therefor and all accessions thereto, and specifically
includes, without limitation, all present and future machinery,
equipment, vehicles, manufacturing equipment, shop equipment, office
and record keeping equipment, furniture, fixtures, parts, tools and all
other Goods (except Inventory) used or acquired for use by Borrower for
any business or enterprise;
All General Intangibles (as defined in Article 9 of
the Commercial Code) of Borrower, whether now owned or hereafter
acquired, including (without limitation) all present and future
domestic and foreign patents, patent applications, trademarks,
trademark applications, copyrights, trade names, trade secrets, patent
and trademark licenses (whether Borrower is licensor or licensee), shop
drawings, engineering drawings, blueprints, specifications, parts
lists, manuals, operating instructions, customer and supplier lists,
licenses, permits, franchises, the right to use Borrower's corporate
name and the goodwill of Borrower's business; and
All products and proceeds of any and all of the
foregoing and all products and proceeds of any other Collateral (as
hereinafter defined) including the proceeds of any insurance covering
any of the Collateral.
All such Receivables, Inventory, Equipment, General Intangibles, products and
proceeds, together with all other assets and properties of Borrower in or on
which Lender is now or hereafter granted a security interest, mortgage, lien or
encumbrance pursuant to this Agreement or otherwise, are hereinafter sometimes
referred to as "Collateral".
ADVANCES.
At the request of Borrower, Lender agrees, subject to
the terms and conditions hereinafter set forth, to make loans (each
such loan being herein sometimes called individually an "Advance" and
collectively the "Advances") to Borrower from time to time on any
Business Day during the period from the date hereof and ending on the
Termination Date; provided, however, that Lender shall not be required
to make any Advance if, after giving effect to such Advance, the
aggregate unpaid principal amount of Advances outstanding would exceed
the lesser of the Borrowing Base or the Maximum Principal Amount. The
amount of each such Advance shall be charged to Borrower's loan
account. Borrower acknowledges that Lender may, but shall not be
obligated to, make an Advance at any time in an amount equal to any
overdraft in any account of Borrower maintained with Lender or any
Participant even if the aggregate unpaid principal amount of Advances
exceeds or would exceed the Borrowing Base or the Maximum Principal
Amount.
In order to obtain an Advance, Borrower shall give
written or telephonic notice to Lender, by not later than 11:00 a.m.
(Minneapolis time) on the date the requested Advance is to be made.
Lender, shall make such Advance by transferring the amount thereof in
immediately available funds for credit to an account (other than a
payroll account) of Borrower at Lender, as specified in such notice. At
the request of Lender, Borrower shall confirm in writing any telephonic
notice.
The obligation of Lender to make Advances shall
terminate on the Termination Date.
If at any time the sum of the aggregate outstanding
principal balance of the Advances exceeds the lesser of (i) the Maximum
Principal Amount or (ii) the Borrowing Base, then Borrower agrees to
make, on demand, a principal repayment on the Advances in an amount
equal to such excess together with accrued interest on the amount
repaid to the date of repayment. Borrower agrees that, on the
Termination Date, it will repay the entire outstanding principal
balance of the Advances together with accrued interest thereon and all
accrued fees without presentment or demand for payment, notice of
dishonor, protest or notice of protest, all of which are hereby waived.
The Advances shall be evidenced by the Note made by
Borrower payable to the order of Lender in a principal amount equal to
the Maximum Principal Amount; subject, however, to the provisions of
the Note to the effect that the principal amount payable thereunder at
any time shall not exceed the then unpaid principal amount of all
Advances made by Lender. Borrower hereby irrevocably authorizes Lender
to make or cause to be made, at or about the time of each Advance made
by Lender, an appropriate notation on the records of Lender, reflecting
the principal amount of such Advance, and Lender shall make or cause to
be made, on or about the time of receipt of payment of any principal of
the Note, an appropriate notation on its records reflecting such
payment. The aggregate amount of all Advances set forth on the records
of Lender shall be rebuttable presumptive evidence of the principal
amount owing and unpaid on the Note.
4A. DEMAND FACILITY. All interest, principal, Advances, and any other
amounts owing hereunder are due ON DEMAND and Lender specifically reserves the
absolute right to demand payment of all such amounts at any time, with or
without advance notice, for any reason or no reason whatsoever. Lender's right
to make such demand is not exclusive and Lender may coincidentally or separately
from such demand make further demand for payment pursuant to Paragraph 20 or
otherwise hereunder and, further, amounts may become due hereunder (pursuant to
Paragraph 20 or otherwise) without a demand by Lender, as provided in this
agreement.
INTEREST. Borrower agrees to pay interest on the outstanding
principal amount of the Note, at the close of each day at a fluctuating rate per
annum (computed on the basis of actual number of days elapsed and a year of 360
days) which is at all times equal to Four Percent (4%) in excess of the Prime
Rate; each change in such fluctuating rate caused by a change in the Prime Rate
to occur simultaneously with the change in the Prime Rate; provided, however,
that (i) in no event shall the interest rate in effect hereunder at any time be
less than 10% per annum; and (ii) interest payable hereunder with respect to
each calendar month shall not be less than $7,500.00 regardless of the amount of
loans, Advances or other credit extensions that actually may have been
outstanding during the month. Interest accrued through the last day of each
month will be due and payable to Lender on the next Monthly Payment Date,
commencing October 1, 1996. Interest shall also be payable on the Maturity Date
or on any earlier Termination Date. Interest accrued after the Maturity Date or
earlier Termination Date shall be payable on Demand. Interest may be charged to
Borrower's loan account as an Advance at Lender's option, whether or not
Borrower then has the right to obtain an Advance pursuant to the terms of this
Agreement. Notwithstanding the foregoing, after an Event of Default, this Note
shall bear interest until paid at 5% per annum in excess of the rate otherwise
then in effect, which rate shall continue to vary based on further changes in
the Prime Rate; provided, however, that after an Event of Default, (i) in no
event shall the interest rate in effect hereunder at any time be less than 15%
per annum; and (ii) interest payable hereunder with respect to each calendar
month shall not be less than $7,500.00 regardless of the amount of loans,
Advances or other credit extensions that actually may have been outstanding
during the month. The undersigned also shall pay the holder of this Note a late
fee equal to 10% of any payment under this Note that is more than 10 days past
due.
SET-OFF; ETC. Upon the occurrence of a Default or an Event of
Default, Lender is hereby authorized at any time and from time to time, without
notice to Borrower (any such notice being expressly waived by Borrower), to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by Lender or any Participant to or for the credit or the account of Borrower,
including specifically any amounts held in any account maintained at Lender or
any Participant, against any and all amounts which may be owed to Lender or any
Participant by Borrower whether in connection with this Agreement or otherwise
and irrespective of whether Borrower shall have made any requests under this
Agreement.
REPORTS AND COLLECTION.
Borrower agrees to furnish to Lender, at least
weekly, schedules describing Receivables created or acquired by
Borrower (including confirmatory written assignments thereof), and, if
requested by Lender, copies of all invoices to account debtors and
other obligors (all herein referred to as "Customers") and original
shipping or delivery receipts for all goods sold, but if Borrower fails
to do so the rights of Lender as a secured party will not be impaired.
At any time after the occurrence of an Event of Default, Lender may
notify Customers at any time that Receivables have been assigned to
Lender and collect them directly in Lender's own name but unless and
until Lender does so or gives Borrower other instructions, Borrower
shall make collection for Lender at Borrower's sole cost and expense.
Borrower shall advise Lender promptly of any goods which are returned
by Customers or otherwise recovered involving an amount in excess of
$5,000.00 and, unless instructed to deliver such goods to Lender,
Borrower shall resell them for Lender and assign or deliver to Lender
the resulting Receivables or other proceeds. Borrower shall also advise
Lender promptly of all disputes and claims by Customers involving an
amount in excess of $5,000.00 and settle or adjust them at no expense
to Lender. At any time after the occurrence and during the continuance
of an Event of Default, Lender may at all times settle or adjust such
disputes and claims directly with the Customers for amounts and upon
terms which Lender considers advisable. If Lender so directs at any
time after an Event of Default, no discount, credit or allowance shall
be granted by Borrower to any Customer and no return of goods shall be
accepted by Borrower without Lender's written consent.
Borrower agrees to furnish to Lender Inventory
certifications in accordance with Paragraph 17(a)(v) and a physical
listing of all Inventory, wherever located, at least once every twelve
months or, in either case, as more frequently requested by Lender.
All full and partial payments arising from the sale
or other disposition of Collateral shall immediately be delivered by
Borrower to Lender in their original form, except for endorsement where
necessary. Until such payments are so delivered to Lender, such
payments shall be held in trust by Borrower for and as Lender's
property and shall not be commingled with any funds of Borrower. The
net amount received by Lender as proceeds arising from the sale or
other disposition of Collateral will be credited by Lender to
Borrower's loan account (subject to final collection thereof) after
allowing the number of days required by the applicable bank for
collection of checks and other instruments.
WARRANTY AS TO COLLATERAL. Borrower warrants that:
all Receivables listed in or reported on Borrower's
schedules will, when Borrower delivers the schedules to Lender, be bona
fide existing obligations created by the sale and actual delivery of
goods or the rendition of services to Customers in the ordinary course
of business, which Borrower then owns free of any Security Interest
except for the Security Interest in favor of Lender created by this
Agreement or Security Interests permitted under Paragraph 18(d), and
which are then unconditionally owing to Borrower without defense,
offset or counterclaim; and that all shipping or delivery receipts,
invoice copies and other documents furnished to Lender in connection
therewith will be genuine; and
all Inventory and Equipment is and shall be owned by
Borrower, free of any Security Interest except for the Security
Interest of Lender created by this Agreement or Security Interests
permitted by Paragraph 18(d).
Lender's rights to and security interest in the Collateral will not be impaired
by the ineligibility of any such Collateral for Advances and will continue to be
effective until all obligations chargeable to Borrower's loan account have been
fully satisfied.
POWER OF ATTORNEY. Borrower appoints Lender, or any of
Lender's officers, employees or agents whom Lender may from time to time
designate, as Borrower's attorney with power to: (a) to endorse Borrower's name
on any checks, notes, acceptances, drafts or other forms of payment or security
that may come into Lender's possession; (b) to sign Borrower's name on any
invoice or xxxx of lading relating to any Receivables, on drafts against
Customers, on schedules and confirmatory assignments of Receivables, on notices
of assignment, financing statements and amendments under the Commercial Code and
other public records, on verifications of accounts and on notices to Customers;
(c) to notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender; (d) to receive, open and
dispose of all mail addressed to Borrower; (e) to send requests for verification
of accounts to Customers; and (f) to do all things necessary to carry out this
Agreement; provided however, that the powers specified in clauses (c) and (d)
above may be exercised only after the occurrence of an Event of Default.
Borrower ratifies and approves all acts of the attorney. Neither Lender nor the
attorney will be liable for any acts of commission or omission nor for any error
in judgment or mistake of fact or law. This power, being coupled with an
interest, is irrevocable so long as any Receivable in which Lender has a
security interest or any Obligation remains unpaid. Borrower waives presentment
and protest of all instruments and notice thereof, notice of default and
dishonor and all other notices to which Borrower may otherwise be entitled.
LOCATION OF COLLATERAL. Borrower warrants that its chief
executive office is at the address stated in the opening paragraph of this
Agreement and that its books and records concerning Receivables are located
there. Borrower's Inventory, Equipment and other goods are at the location or
locations as designated on Schedule A annexed hereto. Borrower shall immediately
notify Lender if any additional locations for Collateral are subsequently
established. Borrower shall not change the location of its chief executive
office, the place where it keeps its books and records, or the location of any
Collateral (except for sales of Inventory in the ordinary course of business)
until Borrower has obtained the written consent of Lender and all necessary
filings have been made and other actions taken to continue the perfection of
Lender's Security Interest in such new location. Lender's Security Interest
attaches to all the Collateral wherever located, and the failure of Borrower to
inform Lender of the location of any item or items of Collateral shall not
impair Lender's Security Interest therein.
OWNERSHIP AND PROTECTION OF COLLATERAL. Borrower warrants,
represents and covenants to Lender that the Collateral is now and, so long as
Borrower is obligated to Lender, will be owned by Borrower free and clear of all
Security Interests except for the Security Interest in favor of Lender created
by this Agreement and except the Security Interests, if any, permitted by
Paragraph 18(d), and that said Collateral, including the Receivables and
proceeds resulting from the collection, sale or other disposition thereof, will
remain free and clear of any and all Security Interests except for the Security
Interest in favor of Lender created by this Agreement and except the Security
Interests, if any, permitted under Paragraph 18(d). Borrower will not sell,
lease or otherwise dispose of the Collateral, or attempt so to do (except for
sales of Inventory in the ordinary course of business and sales of obsolete and
worn equipment not in excess of $25,000.00 in the aggregate in any calendar
year) without the prior written consent of Lender and unless the proceeds of any
such sale are paid to Lender for application on Borrower's Obligations. After
the occurrence of a Default or an Event of Default, Lender will at all times
have the right to take physical possession of any Inventory and Equipment
constituting Collateral and to maintain such possession on Borrower's premises
or to remove the same or any part thereof to such other places as Lender may
wish. If Lender exercises Lender's right to take possession of such Collateral,
Borrower shall on Lender's demand, assemble the same and make it available to
Lender at a place reasonably convenient to Lender. Borrower shall at all times
keep the Equipment constituting Collateral in good condition and repair. All
expenses of protecting, storing, warehousing, insuring, handling and shipping of
the Collateral, all costs of keeping the Collateral free of any Security
Interests prohibited by this Agreement and of removing the same if they should
arise, and any and all excise, property, sales and use taxes imposed by any
state, federal or local authority on any of the Collateral or in respect of the
sale thereof, shall be borne and paid by Borrower and if Borrower fails to
promptly pay any thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge Borrower's loan account therefor. Borrower
agrees to renew all insurance required by this Paragraph 11 or Paragraph 13 at
least 30 days prior to its expiration. Borrower agrees that, with respect to any
Inventory maintained in a public warehouse, (i) Borrower will ensure that any
warehouse receipts issued are not in a negotiable form, (ii) Borrower will, upon
request from Lender, deliver all warehouse receipts to Lender, and (iii)
Borrower will cause the public warehouseman to execute an agreement similar to
those delivered pursuant to Paragraph 21(m) and in form and substance
satisfactory to Lender.
PERFECTION OF SECURITY INTEREST. Borrower agrees to execute
such financing statements together with any and all other instruments or
documents and take such other action, including delivery, as may be required to
create, evidence, perfect and maintain Lender's Security Interest in the
Collateral and Borrower shall not in any manner do any act or omit to do any act
which would in any manner impair or invalidate Lender's Security Interest in the
Collateral or the perfection thereof.
INSURANCE. Borrower shall maintain insurance coverage on any
Collateral other than Receivables with such companies, against such hazards, and
in such amounts as may from time to time be acceptable to Lender and shall
deliver such policies or copies thereof to Lender with satisfactory lender's
loss payable endorsements naming Lender. Each policy of insurance shall contain
a clause requiring the insurer to give not less than 30 days prior written
notice to Lender in the event of any anticipated cancellation of the policy for
any reason and a clause that the interest of Lender shall not be impaired or
invalidated by any act or neglect of Borrower nor by the occupation of the
premises wherein such Collateral is located for purposes more hazardous than are
permitted by said policy. Borrower will maintain, with financially sound and
reputable insurers, insurance with respect to its properties and business
against such casualties and contingencies of such types (which may include,
without limitation, public and product liability, larceny, embezzlement, or
other criminal misappropriation insurance) and in such amounts as may from time
to time be required by Lender.
BORROWER'S ACCOUNT. Lender may charge to Borrower's loan
account at any time the amounts of all Obligations (and interest, if any,
thereon) owing by Borrower to Lender, including (without limitation) loans,
Advances, debts, liabilities, obligations acquired by purchase, assignment or
participation and all other obligations, whenever arising, whether absolute or
contingent and whether due or to become due; also the amount of all costs and
expenses and all attorneys' fees and legal expenses incurred in connection with
efforts made to enforce payment of such obligations, or to obtain payment of any
Receivables, or the foreclosure of any Collateral or in the prosecution or
defense of any actions or proceedings relating in any way to this Agreement
whether or not suit is commenced, including reasonable attorneys' fees and legal
expenses incurred in connection with any appeal of a lower court's order or
judgment; and also the amounts of all unpaid taxes and the like, owing by
Borrower to any governmental authority or required to be deposited by Borrower,
which Lender pays or deposits for Borrower's account. All of Borrower's
borrowings hereunder and (unless otherwise specified) all other obligations
which are chargeable to Borrower's loan account shall be payable ON DEMAND;
recourse to security will not be required at any time. All sums at any time
standing to Borrower's credit on Lender's books and all of Borrower's property
at any time in Lender's possession or upon or in which Lender has a Security
Interest, may be held by Lender as security for all obligations which are
chargeable to Borrower's loan account. Subject to the foregoing, Lender, at
Borrower's request, will remit to Borrower any net balance standing to
Borrower's credit on Lender's books. Lender will account to Borrower monthly and
each monthly accounting will be fully binding on Borrower, unless, within thirty
days thereafter, Borrower gives Lender specific written notice of exceptions.
All debit balances in Borrower's loan account will bear interest as provided in
Paragraph 5 of this Agreement. If Lender so requests at any time, Borrower will
immediately execute and deliver to Lender a promissory note in negotiable form
payable on demand to Lender's order in a principal amount equal to the amount of
the debit balance in Borrower's loan account, with interest as provided in
Paragraph 5 of this Agreement. In any event, Borrower covenants to pay all
Advances, debts, accounts and interest when due.
PARTICIPATIONS. If any Person shall acquire a participation in
Advances made to Borrower hereunder, Borrower hereby grants to any such Person
holding a participation, and such Person shall have and is hereby given a
continuing Security Interest in any money, securities and other property of
Borrower in the custody or possession of such Participant, including the right
of set-off as fully as if such Participant had lent directly to Borrower the
amount of such participation.
GENERAL REPRESENTATIONS AND WARRANTIES. To induce Lender to
make Advances hereunder, Borrower makes the following representations and
warranties, all of which shall survive the initial Advance:
Borrower is a corporation duly organized, existing,
and in good standing under the laws of the state of Minnesota has
corporate power to own its property and to carry on its business as now
conducted, and is duly qualified to do business in all states in which
the nature of its business requires such qualification. During the past
five years, Borrower has done business solely under the names listed on
Schedule B attached hereto. Borrower does not own any capital stock of
any corporation, except as set forth on Schedule C attached hereto.
The execution and delivery of this Agreement and the
other Loan Documents and the performance by Borrower of its obligations
hereunder and thereunder do not and will not conflict with any
provision of law, or of the charter or bylaws of Borrower, or of any
agreement binding upon Borrower.
The execution and delivery of this Agreement and the
other Loan Documents have been duly authorized by all necessary
corporate action by directors and shareholders of Borrower; and this
Agreement and the other Loan Documents have in fact been duly executed
and delivered by Borrower and constitute its lawful and binding
obligations, legally enforceable against it in accordance with their
respective terms.
Except as disclosed to Lender on Schedule D attached
hereto, there is no action, suit or proceeding at law or equity, or
before or by any federal, state, local or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, pending or, to the knowledge of Borrower,
threatened against Borrower or any Guarantor or the property of
Borrower or any Guarantor which, if determined adversely, would be a
Material Adverse Occurrence or would affect the ability of Borrower or
any Guarantor to perform its obligations under the Loan Documents; and
neither Borrower nor any Guarantor is in default with respect to any
final judgment, writ, injunction, decree, rule or regulation of any
court or federal, state, local or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, where the effect of such default would be a Material Adverse
Occurrence.
The authorization, execution and delivery of this
Agreement, and the payment of the loans and interest hereon, is not,
and will not be, subject to the jurisdiction, approval or consent of
any federal, state or local regulatory body or administrative agency.
All of the assets of Borrower are free and clear of
Security Interests except those listed on Schedule E attached hereto.
Borrower has filed all federal, state and local tax
returns which, to the knowledge of Borrower, are required to be filed,
and Borrower has paid all taxes shown on such returns and all
assessments which are due. Borrower has made all required withholding
deposits. Federal income tax returns of Borrower have been examined and
approved or adjusted by the applicable taxing authorities or closed by
applicable statutes for all fiscal years prior to and including the
fiscal year ended on . Borrower does not have knowledge of any
objections to or claims for additional taxes by federal, state or local
taxing authorities for subsequent years which would be a Material
Adverse Occurrence.
Borrower has furnished to Lender the financial
statements listed on Schedule G attached hereto. These statements were
prepared in accordance with GAAP and present fairly the financial
condition of Borrower and its Consolidated Subsidiaries. There has been
no material adverse change in the condition of Borrower and its
Consolidated Subsidiaries, financial or otherwise, since the date of
the most recent of such financial statements.
The value of the assets and properties of Borrower at
a fair valuation and at their then present fair salable value is and,
after giving effect to any pending Advance and the application of the
amount advanced, will be materially greater than its total liabilities,
including Contingent Obligations, and Borrower has (and has no reason
to believe that it will not have) capital sufficient to pay its
liabilities, including Contingent Obligations, as they become due.
Borrower is in compliance with all requirements of
law relating to pollution control and environmental regulations in the
respective jurisdictions where Borrower is presently doing business or
conducting operations.
All amounts obtained pursuant to Advances will be
used for Borrower's working capital purposes.
Except for the trademarks, patents, copyrights and
franchise rights listed on Schedule F attached hereto, Borrower is not
the owner of any patent, trademark, copyright or franchise rights.
(i) Each Plan is in compliance in all material
respects with all applicable provisions of ERISA and the Code; (ii) the
aggregate present value of all accrued vested benefits under all Plans
(calculated on the basis of the actuarial assumptions specified in the
most recent actuarial valuation for such Plans) did not exceed as of
the date of the most recent actuarial valuation for such Plans the fair
market value of the assets of such Plans allocable to such benefits;
(iii) Borrower is not aware of any information since the date of such
valuations which would materially affect the information contained
therein; (iv) no Plan which is subject to Part 3 of Subtitle B of Title
I of ERISA or Section 412 of the Code has incurred an accumulated
funding deficiency, as that term is defined in Section 302 of ERISA or
Section 412 of the Code (whether or not waived); (v) no liability to
the PBGC (other than required premiums which have become due and
payable, all of which have been paid) has been incurred with respect to
any Plan, and there has not been any Reportable Event which presents a
material risk of termination of any Plan by the PBGC; and (vi) Borrower
has not engaged in a transaction which would subject it to tax, penalty
or liability for prohibited transactions imposed by ERISA or the Code.
Borrower does not contribute to any Multiemployer Plan.
No part of any Advance shall be used at any time by
Borrower to purchase or carry margin stock (within the meaning of
Regulation U promulgated by the Board of Governors of the Federal
Reserve System) or to extend credit to others for the purpose of
purchasing or carrying any margin stock. Borrower is not engaged
principally, or as one of its important activities, in the business of
extending credit for the purposes of purchasing or carrying any such
margin stock. No part of the proceeds of any Advance will be used by
Borrower for any purpose which violates, or which is inconsistent with,
any regulations promulgated by the Board of Governors of the Federal
Reserve System.
Borrower is not an "investment company", or an
"affiliated person" of, or a "promoter" or "principal underwriter" for,
an "investment company", as such terms are defined in the Investment
Company Act of 1940, as amended. The making of the Advances, the
application of the proceeds and repayment thereof by Borrower and the
performance of the transactions contemplated by this Agreement will not
violate any provision of said Act, or any rule, regulation or order
issued by the Securities and Exchange Commission thereunder.
The number of shares and classes of the capital stock
of Borrower and the ownership thereof are accurately set forth on
Schedule H attached hereto. Borrower has not: (i) issued any
unregistered securities in violation of the registration requirements
of Section 5 of the Securities Act of 1933, as amended, or any other
law; or (ii) violated any rule, regulation or requirement under the
Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, in either case where the effect of such violation
would be a Material Adverse Occurrence. No proceeds of the Advances
will be used to acquire any security in any transaction which is
subject to Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended.
Except for Contingent Obligations shown on Schedule I
attached hereto, Borrower does not have any Contingent obligations.
All factual information heretofore or herewith
furnished by or on behalf of Borrower to Lender for purposes of or in
connection with this Agreement or any transaction contemplated hereby
is, and all other such factual information hereafter furnished by or on
behalf of Borrower to Lender will be, true and accurate in every
material respect on the date as of which such information is dated or
certified and no such information contains any material misstatement of
fact or omits to state a material fact or any fact necessary to make
the statements contained therein not misleading.
Each representation and warranty shall be deemed to
be restated and reaffirmed to Lender on and as of the date of each
Advance under this Agreement except that any reference to the financial
statements referred to in Paragraph 16(h) shall be deemed to refer to
the financial statements then most recently delivered to Lender
pursuant to Paragraphs 17(a)(i) and (ii).
AFFIRMATIVE COVENANTS. Borrower agrees that it will:
Furnish to Lender in form satisfactory to Lender:
Within 90 days after the end of each fiscal
year of Borrower, a complete audited financial report prepared
and certified without qualification or explanatory language by
Independent Public Accountants on a Consolidated and
consolidating basis for Borrower and any Consolidated
Subsidiaries of Borrower; together with a copy of the
management letter or memorandum, if any, delivered by such
independent certified public accountant to Borrower and
Borrower's response thereto. If Borrower shall fail to supply
the report within such time limit, Lender shall have the right
(but not the duty) to employ certified public accountants
acceptable to Lender to prepare such report at Borrower's
expense;
Within 30 days after the end of each month,
a balance sheet with operating figures as to that month,
certified as correct by the chief financial officer or
treasurer of Borrower but subject to adjustments as to
inventories or other items to which an officer of Borrower
directs attention in writing, together with a reconciliation
of any variances between the information provided on such
balance sheet and the information for that day previously
delivered to Lender pursuant to Paragraph 17(a)(v);
With the financial statements described in
Paragraph 17(a)(i) and (ii), a compliance certificate in the
form attached as Exhibit A certified as true and accurate by
the chief financial officer or treasurer of Borrower;
Within 10 days after the end of each month,
an aging of accounts receivable together with a reconciliation
in a form satisfactory to Lender and an aging of accounts
payable in form acceptable to Lender and certified as true and
accurate by an officer of Borrower;
Within 10 days after the end of each month,
an inventory certification report for all Inventory locations
in form acceptable to Lender and certified as true and
accurate by an officer of Borrower; and
From time to time, at Lender's request, any
and all other material, reports, information, or figures
reasonably required by Lender.
Permit Lender and its representatives access to, and
the right to make copies of, the books, records, and properties of
Borrower at all reasonable times; and permit Lender and its
representatives to discuss Borrower's financial matters with officers
of Borrower and with its Independent Public Accountant (and, by this
provision, Borrower authorizes its Independent Public Accountant to
participate in such discussions).
Pay when due all taxes, assessments, and other
liabilities against it or its properties except those which are being
contested in good faith and for which an adequate reserve has been
established; Borrower shall make all withholding payments when due;
during any period for which Borrower has made an effective S
Corporation election, Borrower shall promptly provide Lender with
evidence of payment by Borrower's shareholders of estimated income
taxes.
Promptly notify Lender in writing of any substantial
change in present management of Borrower.
Pay when due all amounts necessary to fund in
accordance with its terms any Plan.
Comply in all material respects with all laws, acts,
rules, regulations and orders of any legislative, administrative or
judicial body or official applicable to Borrower's business operation
or Collateral or any part thereof; provided, however, that Borrower may
contest any such law, act, rule, regulation or order in good faith by
appropriate proceedings so long as (i) Borrower first notifies Lender
of such contest, and (ii) such contest does not, in Lender's sole
discretion, adversely affect Lender's right or priority in the
Collateral or impair Borrower's ability to pay the Obligations when
due.
Pay Lender for the period commencing on the date of
this Agreement and continuing through the date of payment of all
Obligations after the Termination Date, a reasonable administration fee
(herein called the "Loan Administration Fee"), which so long as no
Default or Event of Default exists under this Agreement, shall be equal
to the sum of $1,000.00 per quarter (commencing with the quarter
beginning October 1, 1996) plus all out-of-pocket expenses incurred by
Lender in conducting examinations. The Loan Administration Fee shall be
non-refundable, shall be deemed earned when paid and shall be payable
to Lender in advance on October 1, 1996 and on the first day of each
subsequent 3 month period/quarter. Borrower hereby consents to such
examinations by Lender.
Pay to Lender an origination fee (the "Origination
Fee") in the amount of Five Thousand and No/100ths Dollars ($5,000.00).
Pay to Lender a survey fee (the "Survey Fee") in the amount of Three
Thousand Five Hundred and No/100ths Dollars ($3,500.00), receipt of
which is hereby acknowledged. The entire amount of the Origination Fee
and Survey Fee shall be nonrefundable and shall be deemed to have been
earned upon execution of this Agreement.
Pay Lender, for the period commencing on the date of
this Agreement and continuing through the Termination Date, a
non-refundable line maintenance fee (the "Line Maintenance Fee") at the
rate of 1.0% per annum of the Maximum Principal Amount. Such Line
Maintenance Fee shall be payable to Lender in advance on the Closing
Date and on each subsequent anniversary date of this Agreement until
all amounts owing hereunder are repaid in full. The Line Maintenance
Fee shall be non-refundable and shall be deemed earned when paid.
Notwithstanding the above subparagraph, should Borrower's 1996 Net
Income (before provision for income taxes) or gross profit fail to meet
or exceed a figure which is 90% of the projected Net Income for 1996
(as it appears on Borrower's projected income statement attached as
Exhibit C), then the Line Maintenance Fee for the first calendar
quarter of 1997 shall be increased from 1.0% per annum to 1.5% per
annum, and Borrower shall immediately pay to Lender, on demand, the
amount of any deficiency in the Line Maintenance Fee previously paid
with respect to such quarter.
Notwithstanding the above subparagraph, during 1997, should Borrower's
Net Income (before provision for income taxes) or gross profit in any
calendar quarter fail to meet or exceed a figure which is 85% of the
projected Net Income for that quarter (as it appears on Borrower's
projected income statement attached as Exhibit C), then the Line
Maintenance Fee for the next calendar quarter shall be increased from
1.0% per annum to 1.5% per annum, and Borrower shall immediately pay to
Lender, on demand, the amount of any deficiency in the Line Maintenance
Fee previously paid with respect to such quarter.
Promptly notify Lender in writing of (x) any
litigation which (i) involves an amount in dispute in excess of
$10,000.00 (ii) relates to the matters which are the subject of this
Agreement, or (iii) if determined adversely to Borrower would be a
Material Adverse Occurrence; and (y) any adverse development in any
litigation described in clause (x).
Promptly notify Lender of any Default or Event of
Default.
At the end of each quarter of the Borrower's fiscal
year, Borrower must achieve Seventy-Five percent (75%) of their
projected Net Income (before provision for income taxes) and gross
profit both for that calendar quarter and for the fiscal year to date
through the end of that quarter, as reflected in the projections which
are attached hereto as Exhibit A.
NEGATIVE COVENANTS. Borrower agrees that it will not:
Without Lender's consent, expend or contract to
expend an aggregate in excess of $400,000.00 for fixed assets in any
fiscal year, whether by way of purchase, lease or otherwise, and
whether payable currently or in the future.
Purchase or redeem any shares of Borrower's capital
stock; or declare or pay any dividends (other than dividends payable in
capital stock); or make any distribution to stockholders of any assets
of Borrower; (provided, however, that so long as no Default or Event of
Default exists or would result from such distributions, Borrower may
make Acceptable Distributions to be used by Borrower's shareholders
solely to make required income tax payments.
Without Lender's consent, incur or permit to exist
any indebtedness, secured or unsecured, for money borrowed, except: (i)
borrowings under this Agreement; (ii) borrowings, if any, which are
existing on the date of this Agreement and which are disclosed on
Schedule J attached hereto; or (iii) indebtedness, not exceeding
$50,000.00 at any one time in the aggregate outstanding incurred to
acquire fixed assets but only to the extent that such fixed asset
acquisition is permitted by Paragraph 18(a).
Create or permit to exist any Security Interest on
any assets now owned or hereafter acquired except: (i) those created in
Lender's favor and held by Lender; (ii) liens of current taxes not
delinquent or taxes which are being contested in good faith for which
an adequate reserve has been established; (iii) purchase money security
interests securing indebtedness permitted by Paragraph 18(c)(iii);
provided, however, that such Security Interest extends only to the
fixed assets acquired with the proceeds of such indebtedness; and (iv)
Security Interests disclosed on Schedule E attached hereto, securing
only debt outstanding on the date of this Agreement and disclosed on
Schedule J.
Effect any recapitalization; or be a party to any
merger or consolidation; or, except in the normal course of business,
sell, transfer, convey or lease all or any substantial part of its
property; or sell or assign (except to Lender), with or without
recourse, any Receivables or General Intangibles.
Enter into a new business or purchase or otherwise
acquire any business enterprise or any substantial assets of any person
or entity; or make any loans to any person or entity; or purchase any
shares of stock of, or similar interest in, or make any capital
contribution to or investment in, any entity.
Permit more than $150,000.00 to be owing at any one
time to Borrower by all of Borrower's employees, officers, directors,
or shareholders, or members of their families, as a result of any
borrowings, purchases, travel advances or other transactions or events;
Become a guarantor or surety or pledge its credit or
its assets on any undertaking of another, except for the Contingent
Obligations shown on Schedule I attached hereto;
In any fiscal year pay excessive or unreasonable
salaries, bonuses, fees, commissions, fringe benefits or other forms of
compensation (such salaries, bonuses, fees, commissions, fringe
benefits or other forms of compensation being 'Compensation") to any of
its officers or directors; or increase the Compensation of any officers
by more than percent (10%) or pay any such increases in Compensation of
officers other than from profits earned in the year of such payment;
Permit any default to occur under the terms of any
note, loan agreement, lease, mortgage, contract for deed, security
agreement, or other contractual obligation binding upon Borrower;
Make any substantial change in present management or
policy or in its present business or enter into a new business;
Enter into any agreement providing for the leasing by
Borrower of property which has been or is to be sold or transferred by
Borrower to the lessor thereof, or which is substantially similar in
purpose to the property so sold or transferred;
Change its terms of trade with respect to the due
date of any Receivable;
Change its fiscal year;
(i) Permit or suffer any Plan maintained for
employees of Borrower or any commonly controlled entity to engage in
any transaction which results in a liability of Borrower under Section
409 or 502(i) of ERISA or Section 4975 of the Code; (ii) permit or
suffer any such Plan to incur any "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA and Section 412 of the
Code), whether or not waived; (iii) terminate, or suffer to be
terminated, any Plan covered by Title IV of ERISA maintained by
Borrower or any commonly controlled entity or permit or suffer to exist
a condition under which PBGC may terminate any such Plan; or (iv)
permit to exist the occurrence of any Reportable Event (as defined in
Title IV of ERISA) which represents termination by the PBGC of any
Plan;
Enter into any transaction with any Affiliate of
Borrower upon terms and conditions less favorable to Borrower than the
terms and conditions which would apply in a similar transaction with an
unrelated third party;
Enter into any agreement containing any provision
which would be violated or breached by Borrower under any Loan Document
or by the performance by Borrower of its obligations under any Loan
Document;
Amend or modify the provisions of any Subordinated
Debt; or
Maintain any Inventory at a warehouse which issues
negotiable warehouse receipts with respect to such inventory.
AVAILABILITY OF COLLATERAL. Lender may from time to time, for
its convenience, segregate or apportion the Collateral for purposes of
determining the amounts and maximum amounts of Advances which may be made
hereunder. Nevertheless, Lender's security interest in all such Collateral, and
any other collateral rights, interests and properties which may now or hereafter
be available to Lender, shall secure and may be applied to the payment of any
and all loans, Advances and other Obligations secured by Lender's security
interest, in any order or manner of application and without regard to the method
by which Lender determines to make Advances hereunder.
DEFAULT AND REMEDIES. It shall be an Event of Default under
this Agreement if:
Borrower fails to make any payment when due or
required under this Agreement, or any present or future supplements
hereto, or any note issued by Borrower in favor of Lender, or any other
agreement between Borrower and Lender (including payments due upon
demand should demand be made); or
Borrower fails to perform or observe any covenant,
condition or agreement contained in this Agreement or in any other Loan
Document; or
Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Guarantor proves
to have been false, incorrect or misleading in a material respect when
made; or
A proceeding seeking an order for relief under the
Bankruptcy Code is commenced by or against Borrower or any Guarantor,
provided however, that if such a proceeding is commenced against
Borrower or any Guarantor on an involuntary basis, then only if such
action is not dismissed within 60 days of first being filed; or
Borrower or any Guarantor becomes insolvent or
generally fails to pay, or admit in writing its or his inability to
pay, its or his debts as they become due; or
Borrower or any Guarantor applies for, consents to,
or acquiesces in, the appointment of a trustee, receiver or other
custodian for it or him or for any of its or his property, or makes a
general assignment for the benefit of creditors; or, in the absence of
such application, consent or acquiescence, a trustee, receiver or other
custodian is appointed for Borrower or for Guarantor or for a
substantial part of Borrower's or any Guarantor's property; or
Any other reorganization, debt arrangement, or other
case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding is commenced in respect of
Borrower or any Guarantor, provided however, that if such a proceeding
is commenced against any Guarantor on an involuntary basis, then only
if such action is not dismissed within 60 days of first being filed; or
Borrower or any Guarantor takes any action to
authorize, or in furtherance of, any of the events described in the
foregoing clauses (d) through (g); or
Any judgments, writs, warrants of attachment,
executions or similar process (not covered by insurance) in the
aggregate amount that exceeds $10,000.00 is issued or levied against
Borrower, any Guarantor or any of its or his assets and is not
released, vacated or fully bonded prior to any sale and in any event
within five days after its issue or levy; or
(k) the attachment of any tax lien to any property of Borrower
or any Guarantor which is other than for taxes or assessments not yet
due and payable; or
there is a material adverse change in the condition
(financial or otherwise), business or property of Borrower or any
Guarantor; or
Any Guarantor dies or attempts to revoke his or its
guaranty.
Upon the occurrence of any Event of Default described in Paragraphs 20(d), (e),
(f), (g) or (h), all Obligations shall be and become immediately due and payable
without any declaration, notice, presentment, protest, demand or dishonor of any
kind (all of which are hereby waived by Borrower) and Borrower's ability to
obtain any additional Advances under this Agreement shall be immediately and
automatically terminated. Upon the occurrence of any other Event of Default,
Lender, without notice to Borrower, may terminate Borrower's ability to obtain
any additional Advances under this Agreement and may declare all or any portion
of the Obligations to be due and payable, without notice, presentment, protest
or demand or dishonor of any kind (all of which are hereby waived), whereupon
the full unpaid amount of the obligations which shall be so declared due and
payable shall be and become immediately due and payable. Upon the occurrence of
an Event of Default, Lender shall have all the rights and remedies of a secured
party under the commercial Code and may require Borrower to assemble the
Collateral and make it available to Lender at a place designated by Lender, and
Lender shall have the right to take immediate possession of the Collateral and
may enter any of the premises of Borrower or wherever the Collateral is located
with or without process of law and to keep and store the same on said premises
until sold (and if said premises be the property of Borrower, Borrower agrees
not to charge Lender or a purchaser from Lender for storage thereof for a period
of at least 90 days). upon the occurrence of an Event of Default, Lender,
without further demand, at any time or times, may sell and deliver any or all of
the Collateral at public or private sale, for cash, upon credit or otherwise, at
such prices and upon such terms as Lender deems advisable, at its sole
discretion. Any requirement under the Commercial Code or other applicable law of
reasonable notice will be met if such notice is mailed to Borrower at its
address set forth in the opening paragraph of this Agreement at least ten days
before the date of sale. Lender may be the purchaser at any such sale, if it is
public. The proceeds of sale will be applied first to all expenses of retaking,
holding, preparing for sale, selling and the like, including attorneys' fees and
legal expenses (whether or not suit is commenced) including, without limitation,
reasonable attorneys' fees and legal expenses incurred in connection with any
appeal of a lower court's order or judgment, and second to the payment (in
whatever order Lender elects) of all other obligations chargeable to Borrower's
loan account hereunder. Subject to the provisions of the Commercial Code, Lender
will return any excess to Borrower and Borrower shall remain liable to Lender
for any deficiency. Borrower agrees to give Lender immediate notice of the
existence of any Default or Event of Default.
CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of
Lender to make the initial Advance is subject to the condition precedent that
Lender shall have received on or before the date of the initial Advance copies
of all of the following, unless waived by Lender:
A favorable opinion of counsel to Borrower and the
Guarantors in form and substance satisfactory to Lender;
UCC-1 Financing Statements in a form acceptable to
Lender appropriately completed and duly executed by Borrower;
Acceptable recent UCC, tax lien, judgment, and
bankruptcy searches from the filing offices in all states required by
Lender;
The Guaranties, in form attached hereto as Exhibit D,
appropriately completed and duly executed by each Guarantor;
Subordination Agreements relating to all notes
payable under which Borrower is obligated;
A certified copy of all documents evidencing any
necessary consent or governmental approvals (if any) with respect to
the Loan Documents or any other documents provided for in this
Agreement;
A certificate by the Secretary or any Assistant
Secretary of Borrower certifying as to: (i) attached resolutions of
Borrower's Board of Directors authorizing or ratifying the execution,
delivery and performance of the Loan Documents to which Borrower is a
party and any other documents provided for by this Agreement, (ii) the
names of the officers of Borrower authorized to sign the Loan Documents
together with a sample of the true signature of such officers, and
(iii) attached bylaws of Borrower;
Certificates of Good Standing for Borrower issued by
its state of incorporation and by those states requested by Lender;
A copy of the articles of incorporation of each
Guarantor that is a corporation certified by the Secretary of State;
Evidence of insurance for all insurance required by
the Loan Documents;
An officer certificate, in form and substance
satisfactory to Lender, executed by the President of Borrower;
The Note, in form and substance satisfactory to
Lender, appropriately completed and duly executed by the Borrower;
Appropriate collateral account agreements executed by
Borrower and the other parties thereto;
A collateral assignment of life insurance in the
amount of Five Hundred Thousand and No/100ths Dollars ($500,000.00) on
the life of Xxxxx X. Xxxxxxx in form and substance satisfactory to
Lender; and
Such landlord lien waivers and mortgagee consents as
Lender, in its sole discretion, may require, in form and substance
satisfactory to Lender in its sole discretion, appropriately completed
and duly executed;
Such other approvals, opinions or documents as Lender
may require.
CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Lender
to make any Advance (including the initial Advance) shall be subject to the
satisfaction of each of the following conditions, unless waived in writing by
Lender:
The representations and warranties of Borrower set
forth in this Agreement are true and correct on the date of the Advance
(and after giving effect to the Advance then being made);
No Default, no Event of Default and no Material
Adverse Occurrence shall then have occurred and be continuing on the
date of the Advance or result from the making of the Advance; and
No litigation, arbitration or governmental
investigation or proceeding shall be pending or, to the knowledge of
Borrower or any Guarantor, threatened against Borrower or any Guarantor
or affecting its business or operations or its ability to perform its
obligations hereunder which, if adversely determined to Borrower or any
Guarantor, would constitute a Material Advance Occurrence.
TERMINATION. Subject to automatic termination of Borrower's
ability to obtain additional Advances under this Agreement upon the occurrence
of any Event of Default specified in Paragraphs 20(d), (e), (f) or (g) and to
Lender's right to terminate Borrower's ability to obtain additional Advances
under this Agreement upon the occurrence of any other Event of Default or upon
demand, this Agreement shall have a term ending on the Termination Date
provided, however, that Borrower may terminate this Agreement at any earlier
time upon sixty days prior written notice; provided further, however, that if
Borrower terminates this Agreement at any time on or prior to August 30, 1997,
then Borrower shall pay to Lender a prepayment charge equal to the product
arrived at by multiplying $7,500.00 times the number of calendar months (whole
and fractional) from the Termination Date to and including August 30, 1999;
provided further, however, that if Borrower terminates this Agreement at any
time after August 30, 1997 and on or before August 30, 1999, then Borrower shall
pay to Lender a prepayment charge equal to $20,000.00; provided further,
however, that if Borrower terminates this Agreement on or prior to August 30,
1999 and repays all amounts owing to Lender hereunder completely from funds
borrowed from Western State Bank (and not from any other source of funds), then
no prepayment charge shall be due. On the Termination Date, all obligations
arising under this Agreement shall become immediately due and payable without
further notice or demand. Lender's rights with respect to outstanding
Obligations owing on or prior to the Termination Date will not be affected by
termination and all of said rights including (without limitation) Lender's
Security Interest in the Collateral existing on such Termination Date or
acquired by Borrower thereafter, and the requirements of this Agreement that
Borrower furnish schedules and confirmatory assignments of Receivables and
Inventory and turn over to Lender all full and partial payments thereof shall
continue to be operative until all such Obligations have been duly satisfied.
GRANT OF LICENSE TO USE PATENTS AND TRADEMARKS COLLATERAL. For
the purpose of enabling Lender to exercise rights and remedies under this
Agreement, Borrower hereby grants to Lender an irrevocable, non-exclusive
license (exercisable without payment of royalty or other compensation to
Borrower) to use, license or sublicense any patent or trademark now owned or
hereafter acquired by Borrower and wherever the same may be located, and
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer and automatic
machinery software and programs used for the compilation or printout thereof.
MISCELLANEOUS.
The performance or observance of any affirmative or
negative covenant or other provision of this Agreement and any
supplement hereto may be waived by Lender in a writing signed by Lender
but not otherwise. No delay on the part of Lender in the exercise of
any remedy, power or right shall operate as a waiver thereof, nor shall
any single or partial exercise of any remedy, power or right preclude
other or further exercise thereof or the exercise of any other remedy,
power or right. Each of the rights and remedies of Lender under this
Agreement will be cumulative and not exclusive of any other right or
remedy which Lender may have hereunder or as allowed by law.
Any notice, demand or consent authorized by this
Agreement to be given to Borrower shall be deemed to be given when
transmitted by telex or telecopier (provided a confirmation copy
thereof is sent by First Class U.S. mail within 24 hours of
transmission) or personally delivered, or three days after being
deposited in the U.S. mail, postage prepaid, or one day after delivery
to Federal Express or other overnight courier service, in each case
addressed to Borrower at its address shown in the opening paragraph of
this Agreement, or at such other address as Borrower may, by written
notice received by Lender, designate as Borrower's address for purposes
of notice hereunder. Any notice or request authorized by this Agreement
to be given to Lender shall be deemed to be given when personally
delivered, or three days after being deposited in the U.S. mail,
certified, return receipt requested, postage prepaid, or one day after
delivery to Federal Express or other overnight courier, in each case
addressed to Lender at its address shown in the opening paragraph of
this Agreement, or at such other address as Lender may, by written
notice received by Borrower, designate as Lender's address for purposes
of notice hereunder; provided, however, that any notice to Lender given
pursuant to Paragraph 4(b) shall not be deemed given until received.
This Agreement, including exhibits and schedules and
other agreements referred to herein, is the entire agreement between
the parties supersedes and rescinds all prior agreements relating to
the subject matter herein, cannot be changed, terminated or amended
orally, and shall be deemed effective as of the date it is accepted by
Lender.
Borrower agrees to pay and will reimburse Lender on
demand for all out-of-pocket expenses incurred by Lender arising out of
this transaction including without limitation filing and recording fees
and attorneys' fees and legal expenses, including costs of in-house
counsel (whether or not suit is commenced), whether incurred in the
negotiation and preparation of this Agreement, in the protection and
perfection of Lender's security interest in the Collateral, in the
enforcement of any of the provisions of this Agreement or of Lender's
rights and remedies hereunder and against the Collateral, in the
defense of any claim or claims made or threatened against Lender
arising out of this transaction, or otherwise including, without
limitation, in each instance, all reasonable attorneys' fees and legal
expenses incurred in connection with any appeal of a lower court's
order or judgment. Lender is authorized to deduct any such expenses
from any amount due Borrower and/or to add such expenses to Borrower's
loan account hereunder.
Borrower acknowledges that Lender has certain
responsibilities in connection with the taking of Advances and the
administration of this Agreement.
Borrower hereby agrees to indemnify, exonerate and hold Lender, and its
officers, directors, employees and agents (the "Indemnified Parties")
free and harmless from and against any and all actions, causes of
action, suits, losses, liabilities and damages, and expenses in
connection therewith including, without limitation, reasonable
attorneys' fees and disbursements (the 'Indemnified Liabilities"),
incurred by the Indemnified Parties or any of them as a result of, or
arising out of, or relating to:
any transaction financed or to be financed in
whole or in part directly or indirectly with proceeds of any
Advance, or
the execution, delivery, performance or
enforcement of this Agreement or any document executed
pursuant hereto by any of the Indemnified Parties, except for
any such Indemnified Liabilities arising on account of any
Indemnified Party's gross negligence or willful misconduct.
If and to the extent that the foregoing undertaking may be
unenforceable for any reason, Borrower hereby agrees to make the
maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. The
provisions of this Paragraph shall survive termination of this
Agreement.
This Agreement is made under and shall be governed by
and interpreted in accordance with the internal laws of the state of
Minnesota, except to the extent that the perfection of the Security
Interest hereunder, or the enforcement of any remedies hereunder with
respect to any particular Collateral, shall be governed by the laws of
a jurisdiction other than the State of Minnesota. Captions herein are
for convenience only and shall not be deemed part of this Agreement.
This Agreement shall be binding upon Borrower and
Lender and their respective successors, assigns, heirs, and personal
representatives and shall inure to the benefit of Borrower, Lender and
the successors and assigns of Lender, except that Borrower may not
assign or transfer its rights hereunder without the prior written
consent of Lender, and any assignment or transfer in violation of this
provision shall be null and void. In connection with the actual or
prospective sale by Lender of any interest or participation in the
obligations, Borrower authorizes Lender to furnish any information in
its possession, however acquired, concerning Borrower or any of its
Affiliates to any person or entity.
Borrower hereby irrevocably consents and submits to
the personal jurisdiction of any Minnesota state court or federal court
over any action or proceeding arising out of or relating to the
Agreement, and Borrower hereby irrevocably agrees that all claims in
respect of such action or proceeding may be shall be venued (at the
sole option of Lender) in either the District Court of Dakota or
Hennepin County, Minnesota, or the United States District Court,
District of Minnesota. Borrower hereby irrevocably waives, to the
fullest extent it may effectively do so, the defense of an inconvenient
forum to the maintenance of such action or proceeding. Borrower
irrevocably consents to the service of copies of the summons and
complaint and any other process which may be served in any such action
or proceeding by the mailing by United States certified mail, return
receipt requested, of copies of such process to Borrower's address
stated in the preamble hereto. Borrower agrees that judgment final by
appeal, or expiration of time to appeal without an appeal being taken,
in any such action or proceeding shall be conclusive and may be
enforced in any other jurisdictions by suit on the judgment or in any
other manner provided by law. Nothing in this Paragraph shall affect
the right of Lender to serve legal process in any other manner
permitted by law or affect the right of Lender to bring any action or
proceeding against Borrower or its property in the courts of any other
jurisdiction. Borrower agrees that, if it brings any action or
proceeding arising out of or relating to this Agreement, it shall bring
such action or proceeding in the District Court of Hennepin County,
Minnesota.
(continued)
(i) A photocopy or other reproduction hereof may be
filed as a financing statement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LENDER: SPECTRUM COMMERCIAL SERVICES, INC.
By
Its
BORROWER: APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
By
Its
Fed. Tax ID #: 00-0000000
List of Exhibits
Exhibit A Compliance Certificate
Exhibit B Form of Note
Exhibit C Borrower's Financial Projections
Exhibit D Form of Guaranties
List of Schedules
Schedule A Locations of Inventory and Equipment
(Paragraph 10)
Schedule B Names Under Which Borrower Has Done Business (Paragraph 16(a))
Schedule C Capital Stock of Corporations Owned by Borrower
(Paragraph 16(a))
Schedule D Litigation (Paragraph 16(d))
Schedule E Security Interests (Paragraphs 16(f) and 18(d))
Schedule F Patents, Trademarks, Copyrights and Franchise Rights
(Paragraph 16(l))
Schedule G Financial Statements (Paragraph 16(h))
Schedule H Stock and Stock Ownership of Borrower (Paragraph 16(p))
Schedule I Contingent Obligations (Paragraph 16(q))
Schedule J Permitted Existing Indebtedness (Paragraphs 18(c) and (d))
