EXHIBIT 10.4
GENERAL CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT, dated as of September 29, 1998, between SPECTRUM
Commercial Services, a division of Lyon Financial 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"), and Digital Biometrics, Inc., a Delaware corporation, having the
mailing address and principal place of business at 0000 Xxxxxxx Xxxx,
Xxxxxxxxxx, Xxxxxxxxx 00000 (herein called "Borrower").
1. AGREEMENT. This Agreement states the terms and conditions under
which Borrower may obtain certain loans and/or other credit extensions from
Lender.
2. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:
"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) Seventy percent
(70%) 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) Five Hundred Thousand and No/100ths Dollars ($500,000.00) or
(y) Thirty Three percent (33%) 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.
"Business Day" shall mean any day on which major 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 so called raw materials or unmodified parts or other off-the-shelf
components; (ii) such Inventory does not meet all standards imposed by any
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governmental agency having regulatory authority over such goods and/or their
use, manufacture or sale; (iii) such Inventory has not been physically received
by Borrower at Borrower's principal offices in Minnetonka, Minnesota; (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; (viii) such Inventory is located in a place other than
Borrower's warehouse/principal place of business in Minnetonka, Minnesota; or
(ix) such Inventory which is not located in Borrower's warehouse in Minnetonka,
Minnesota but is contained in or is a part of an operational Tenprinter Model
1133S (including the printer) and which is limited, in the aggregate, to no more
than one-third of total Eligible Inventory. The value of Eligible Inventory
shall be the lower of the cost or market value of the Eligible Inventory 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 and actual shipment of
Inventory or the full and complete 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) for
Receivables resulting from the sale of product or equipment, the Receivable is
not paid by the account debtor within 90 days from the date of the certificate
of completion and acceptance relating to such Receivable; (iii) for Receivables
resulting from the provision of services, the Receivable is not paid by the
account debtor within 90 days from the date of the invoice relating to such
Receivable (iv) the account debtor disputes liability or makes any claim with
respect to the Receivable; (v) a petition in bankruptcy or other application for
relief under any insolvency law is filed with respect to the account debtor
owing the Receivable; (vi) the account debtor on the Receivable makes an
assignment for the benefit of creditors, becomes insolvent, fails, suspends, or
goes out of business; (vii) 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; (viii) 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; (ix) the account debtor
is an Affiliate or employee of Borrower; (x) the account debtor is also a
supplier or creditor of Borrower; (xi) 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; (xii) the
Receivable is either a consignment Receivable or a bonded Receivable or a
retainage; (xiii) the Receivable, along with all other Receivables from the same
debtor (including any Affiliate of that debtor), account for more than 33% of
the total amount of Eligible Receivables outstanding at any time; (xiv) for
Receivables resulting from the sale of equipment or product, a certificate of
completion and acceptance (in form and substance acceptable to Lender) has not
been signed by an authorized representative of the debtor is delivered to Lender
for such Receivable; or (xv) the Receivable is for any extended warranty or
other contract for services which is to be performed partially or fully in the
future.
"Equipment" shall have the meaning provided in Paragraph 3.
"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.
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"Independent Public Accountants" shall mean KPMG Peat Marwick
LLP or any other firm of independent public accountants which is acceptable to
Lender.
"Inventory" shall have the meaning provided in Paragraph 3.
"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.
"Loan Administration Fee" shall have the meaning provided in
Paragraph 17.
"Loan Document(s)" shall mean individually or collectively, as
the case may be, this Agreement, the Note 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 materially impair the ability of Borrower to perform its obligations under
this Agreement or any other Loan Document.
"Maturity Date" shall mean September 30, 2000, provided,
however, that Borrower shall have the option to extend the Maturity Date for
subsequent twelve month periods, unless Lender (in its sole and absolute
discretion) notifies Borrower at least sixty days prior to the then current
Maturity Date that the extension shall not be available and in that event, no
extension shall occur. In any event, the extension option shall not be available
if, as of the then current Maturity Date (i) an Event of Default has occurred
and is continuing (whether or not Lender has notified Borrower of such default),
or (ii) this Agreement has previously terminated as provided in Paragraph 23, or
(iii) Lender has, in its sole and absolute discretion, demanded payment of
amounts owed hereunder. Should Borrower have the option to extend the Maturity
Date and choose to do so, than Borrower shall notify Lender of its request for
an extension at least 15 days before the then current Maturity Date and, prior
to the then current Maturity Date, shall have executed a new or amended
promissory note reflecting the extended Maturity Date and which contains
substantially the same terms as the Note then in effect.
"Maximum Principal Amount" shall mean, at any date, Two
Million and No/100ths Dollars ($2,000,000.00).
"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 Profit" or "Net Loss" for any period shall mean net
income or loss for such period, determined in accordance with GAAP excluding,
however, (i) extraordinary gains (including but not limited to the conversion of
debt to equity, the forgiveness of debt and the like), 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 Borrower's revolving or promissory note of
even date payable to the order of Lender to evidence the Advances, including any
replacements, substitutions or amendments thereof.
"Obligations" shall have the meaning provided in Paragraph 3.
"Origination Fee" shall have the meaning provided in Paragraph
17.
"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.
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"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.
"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.
3. 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:
(a) 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;
(b) 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;
(c) 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;
(d) All General Intangibles and Deposit Accounts (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
(e) All Investment Property (as defined in the Commercial
Code) including but not limited to stock and other securities
evidencing ownership of any other organization, company or entity as
well as all amendments, extensions, renewals and replacements of the
above, together with all certificates, other instruments, options,
rights, interest, and other distributions issued as an addition to, in
substitution or in exchange for, or on account of, the same, all
whether now existing or hereafter arising and whether now owned or
hereafter acquired; and
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(f) 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, as well as all Deposit Accounts (as defined in the
Commercial Code), money, cash, and the like.
All such Receivables, Inventory, Equipment, General Intangibles, Investment
Property, Deposit Accounts, 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".
4. ADVANCES.
(a) 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.
(b) 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 day before the requested Advance is to be
made. Lender, shall make such Advance by transferring the amount
thereof in immediately available funds for credit to Borrower's
account, as specified in such notice. At the request of Lender,
Borrower shall confirm in writing any telephonic notice.
(c) The obligation of Lender to make Advances shall terminate
on the Termination Date.
(d) 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 (or earlier upon demand), 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.
(e) 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.
5. 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 (the "Initial Rate");
provided, however, that (i) in no event shall the Initial Rate, the Adjusted
Rate or the Re-adjusted 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 $5,200.00 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 November
1, 1998. Interest shall also be payable on the Maturity Date or on any earlier
Termination Date.
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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.
In the event Borrower earns "Net Profit" for the nine months ended June 30, 1999
(or earlier) of at least Six Hundred Thousand Dollars ($600,000.00), and
provided no Event of Default exists or has occurred, then as of the next
scheduled Monthly Payment Date following Borrower's written request for such
reduction and Borrower's delivery of financial statements pursuant to this
Agreement which reflect such Net Profit, the Initial Rate shall be reduced to
three and one-quarter percent (3 1/4%) in excess of the Prime Rate (the
"Adjusted Rate"). Provided that Borrower obtains the Adjusted Rate reduction
described above, then in the further event Borrower earns Net Profit for twelve
months ended September 30, 1999 (or earlier) of at least One Million Dollars
($1,000,000.00), and provided no Event of Default exists or has occurred, then
as of the next scheduled Monthly Payment Date following Borrower's written
request and Borrower's delivery of financial statements pursuant to this
Agreement which reflect such Net Profit, the Adjusted Rate shall be reduced to
two and one-half percent (2 1/2%) in excess of the Prime Rate (the "Re-adjusted
Rate") commencing with the next scheduled Monthly Payment Date following
Lender's receipt of the financial statements delivered to Lender. (the Initial
Rate, the Adjusted Rate and the Re-adjusted Rate are sometimes hereinafter
collectively referred to as the "Interest Rate"). If Lender later learns that
the required Net Profit was not accurate or not compliant with GAAP, an Event of
Default shall occur hereunder and the Interest Rate shall be retroactively
adjusted to the Initial Rate as if no reduction had ever taken place.
Notwithstanding the foregoing, after an Event of Default, the 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 under the Note at any time be less than 15% per
annum; and (ii) interest payable under the Note with respect to each calendar
month shall not be less than $6,250 regardless of the amount of loans, Advances
or other credit extensions that actually may have been outstanding during the
month.. The undersigned shall also pay a late fee equal to 10% of any payment
under the Note that is more than 10 days past due.
6. 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.
7. REPORTS AND COLLECTIONS.
(a) Borrower agrees to furnish to Lender, at least weekly,
schedules describing Receivables created or acquired by Borrower
(including confirmatory written assignments thereof), including 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.
Borrower shall also advise Lender promptly of all disputes and claims
by Customers involving an amount in excess of $5,000.00. 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.
(b) 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.
(c) All full and partial payments arising from the sale,
collection or other disposition of Collateral (whether or not in the
ordinary course of business), including but not limited to the
collection of accounts receivable in the ordinary course of business
and the ordinary sale of inventory or services for cash, shall
immediately be delivered by Borrower to Lender IN THEIR ORIGINAL FORM
(except for endorsement where necessary) and UNCASHED (in the case of
checks or other documents). Borrower shall direct all customers and
other remitters of payments to mail payments to Lender's post office
box or other lockbox. Until such payments are so delivered to Lender
(or Lender's lockbox), such payments shall be held in trust by Borrower
for and as Lender's property and shall not be commingled with any funds
of
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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.
8. WARRANTY AS TO COLLATERAL. Borrower warrants that:
(a) 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 completed sale and actual
delivery of goods and/or the completed rendition of services to
Customers in the ordinary course of business in accordance with GAAP
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
(b) 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.
9. POWER OF ATTORNEY. Borrower authorizes and 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; (f) to obtain information from any bank, creditor,
customer or other Person regarding Borrower's relationship, account, history
etc.; (g) to sign lien waivers and other releases or satisfactions of claims or
rights by Borrower in exchange for payment or other consideration which Lender
in its sole discretion believes is appropriate under the circumstances; (h) to
directly verify and/or confirm the existence, authenticity, accuracy or terms of
any Receivable (both in Lender's own name or in Borrower's name) without
previously notifying Borrower of its intention to do so and Borrower grants its
consent to Lender for Lender's employees and agents to represent themselves as
agents of Borrower for these purposes; and (i) to do all things necessary to
carry out this Agreement; provided however, that the powers specified in clauses
(b), (c), (d), (g), and (i) above may be exercised only after the occurrence of
an Event of Default. Borrower ratifies and approves all acts of the attorney
excluding acts of gross negligence or willful misconduct. 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.
10. 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.
11. 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 to do so (except for
sales of Inventory in the ordinary course of business and sales of obsolete and
worn equipment not in excess of $25,000 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
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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 15 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 and in
form and substance satisfactory to Lender.
12. 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.
13. 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.
14. 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
reasonable 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
(including but not limited to bankruptcy or insolvency proceedings) 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.
15. PARTICIPATIONS. If any Person shall acquire a participation in
Advances made to Borrower hereunder, Borrower hereby grants to Lender as well as
any such Person holding a participation, and Lender and such Person shall have
and are 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. Borrower hereby grants to Lender
its continuing authority and consent to release any and all financial and other
information related to Borrower's financial condition, performance, its
business, operations or any other matter whatsoever to any Participant, or to
any other financial institution for their consideration of a possible
participation in Advances by such financial institution, provided such financial
institution agrees to consider such information only with respect to the
possibility of a participation and to otherwise maintain such information as
confidential.
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16. 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:
(a) Borrower is a corporation duly organized, existing, and in
good standing under the laws of the State of Delaware, 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.
(b) 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.
(c) 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.
(d) 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 the property of Borrower which, if
determined adversely, would be a Material Adverse Occurrence, and
Borrower is not 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.
(e) 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.
(f) All of the assets of Borrower are free and clear of
Security Interests except those listed on Schedule E attached hereto.
(g) 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 September 30, 1997. 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.
(h) 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.
(i) 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.
(j) 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.
(k) All amounts obtained pursuant to Advances will be used for
Borrower's working capital purposes.
(l) 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.
(m) (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
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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.
(n) 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.
(o) 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.
(p) The number of shares and classes of the capital stock of
Borrower 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.
(q) Except for Contingent Obligations shown on Schedule I
attached hereto, Borrower does not have any Contingent Obligations.
(r) 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.
(s) 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 (unless otherwise disclosed by Borrower) 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).
17. AFFIRMATIVE COVENANTS. Borrower agrees that it will:
(a) Furnish to Lender in form satisfactory to Lender:
(i) 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;
(ii) 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
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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);
(iii) 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;
(iv) 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, both certified as true and
accurate by an officer of Borrower;
(v) Within 10 days after the end of each month, an
inventory certification report for all Inventory at all
locations and in form acceptable to Lender and certified as
true and accurate by an officer of Borrower; and
(vi) From time to time, at Lender's request, any and
all other material, reports, information, tax returns and/or
figures reasonably required by Lender.
(b) 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).
(c) 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.
(d) Promptly notify Lender in writing of any substantial
change in present management or present business, of its intention to
enter into a new business or industry, or of its intention to wind
down, liquidate or close substantially all of its business;
(e) Pay when due all amounts necessary to fund in accordance
with its terms any Plan;
(f) 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;
(g) Permit Lender and its representatives, at any time, to
examine and inspect any Collateral, and to examine, inspect and copy
the Debtor's records pertaining to the Collateral and the Debtor's
financial condition, business and property.
(h) Loan Administration Fee. Pay Lender for the period
commencing on the date of this Agreement and continuing through the
date of full payment of all Obligations, a reasonable administration
fee (herein called the "Loan Administration Fee"), which shall be equal
to the sum of $3,000 per calendar quarter (or any partial quarter),
commencing as of the date hereof and pro-rated for the balance of the
current calendar quarter, plus all reasonable 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 as of the date hereof (for the balance of
the current calendar quarter), and thereafter on October 1, 1998 and on
the first day of each subsequent 3 month period/quarter. The existence
or payment of the Loan Administration Fee, Line Maintenance Fee or any
other fee or charge, shall in no way alter or diminish the obligation
to pay interest, Lender's costs of collection and reasonable attorneys'
fees, or any other fees or charges imposed under this agreement or any
other agreement between Lender and Borrower;
(i) Origination Fee. Pay to Lender an origination fee (the
"Origination Fee") in the amount of Twenty Thousand and No/100ths
Dollars ($20,000.00) less the $10,000 survey fee which has already been
paid and which is credited against the Origination Fee. The entire
amount of the Origination Fee shall be nonrefundable and shall be
deemed to have been earned upon execution of this Agreement.
(j) 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,
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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).
(k) Promptly notify Lender of any Default or Event of Default.
18. NEGATIVE COVENANTS. Borrower agrees that it will not:
(a) Expend or contract to expend an aggregate in excess of
$500,000 for fixed assets in any fiscal year, whether by way of
purchase, lease or otherwise, and whether payable currently or in the
future.
(b) 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.
(c) 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;
(iii) up to $500,000 in convertible subordinated debentures according
to the existing purchase agreement therefore; or (iv) indebtedness, not
exceeding $50,000.00 at any one time in the aggregate outstanding,
which was incurred to acquire fixed assets, but only to the extent that
such fixed asset acquisition is permitted by Paragraph 18(a).
(d) 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.
(e) 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.
(f) 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 other than Integral
Partners, Inc. which is being formed to operate Borrower's so called
IIS business.
(g) Permit more than $50,000.00 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;
(h) 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;
(i) Except for payments pursuant to agreements and Board of
Directors resolutions existing on the date hereof, 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 twenty five percent (25%) or
pay any such increases in Compensation of officers other than from
profits earned in the year of such payment;
(j) Permit any default to occur under the terms of any Loan
Document, note, loan agreement, lease, mortgage, contract for deed,
security agreement, or other contractual obligation binding upon
Borrower;
(k) Make any substantial change in present ownership,
management or present business, enter into a new business or industry,
or take actions to wind down, liquidate or close substantially all of
its business; provided however, that the sale of additional equity is
expressly permitted;
(l) 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;
(m) Change its terms of trade with respect to the due date of
any Receivable;
(n) Change its fiscal year;
(o) (i) Permit or suffer any Plan maintained for employees of
Borrower or any
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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;
(p) 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;
(q) 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;
(r) Amend or modify the provisions of any Subordinated Debt;
or
(s) Maintain any Inventory at a warehouse which issues
negotiable warehouse receipts with respect to such Inventory.
19. 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.
20. DEFAULT AND REMEDIES. It shall be an Event of Default under this
Agreement if:
(a) Borrower fails to make any payment required under this
Agreement or any present or future supplements hereto or under any
other agreement between Borrower and Lender when due, or if payable
upon demand, upon demand; or
(b) Borrower fails to perform or observe any covenant,
condition or agreement contained in this Agreement or in any other Loan
Document; or
(c) Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower proves to have been
false, incorrect or misleading in a material respect when made; or
(d) A proceeding seeking an order for relief under the
Bankruptcy Code is commenced by or against Borrower provided however,
that if such a proceeding is commenced against Borrower on an
involuntary basis, then only if such action is not dismissed within 60
days of first being filed; or
(e) Borrower 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
(f) Borrower 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 a substantial part of Borrower's property; or
(g) 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
(h) Borrower takes any action to authorize, or in furtherance
of, any of the events described in the foregoing clauses (d) through
(g); or
(i) All or a substantial part of the assets of Borrower are
sold, leased, or otherwise disposed of (whether in one transaction or
in a series of transactions) to one or more Persons;
(j) Any judgments, writs or warrants of attachment, executions
or similar process (not covered by insurance) in the aggregate amount
that exceeds $25,000.00 is issued or levied against Borrower 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 issuance or levy of any garnishment, summons, writ of
attachment, writ, warrant, attachment, tax lien or tax levy, execution
or other process against any property of Borrower; or
(l) The attachment of any tax lien to any property of Borrower
which is other than for taxes or assessments not yet due and payable;
or
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(m) A Material Adverse Occurrence takes place.
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 credit extensions or 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 credit extensions or 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 reasonable 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.
21. 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) A favorable opinion of counsel to Borrower in form and
substance satisfactory to Lender;
(b) UCC-1 Financing Statements in a form acceptable to Lender
appropriately completed and duly executed by Borrower;
(c) Acceptable recent UCC, tax lien, judgment, and bankruptcy
searches from the filing offices in all states required by Lender;
(d) [Deleted];
(e) Subordination Agreements relating to all notes payable
under which Borrower is obligated;
(f) 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;
(g) 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;
(h) Certificates of Good Standing for Borrower issued by its
state of incorporation and by those states requested by Lender;
(i) [deleted];
(j) Evidence of insurance for all insurance required by the
Loan Documents;
(k) An officer certificate, in form and substance satisfactory
to Lender, executed by the President or Chief Financial Officer of
Borrower;
(l) The Note, in form and substance satisfactory to Lender in
its sole and absolute discretion, appropriately completed and duly
executed by the Borrower;
(m) Appropriate collateral account agreements executed by
Borrower and the other parties thereto;
-14-
(n) 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;
(o) Such other approvals, opinions or documents as Lender may
require.
22. 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:
(a) 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);
(b) 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
(c) No litigation, arbitration or governmental investigation
or proceeding shall be pending or, to the knowledge of Borrower,
threatened against Borrower or affecting its business or operations or
its ability to perform its obligations hereunder which, if adversely
determined to Borrower, would constitute a Material Adverse Occurrence.
23. TERMINATION. Subject to automatic termination of Borrower's ability
to obtain additional Advances or credit extensions under this Agreement upon the
occurrence of any Event of Default specified in Paragraphs 20(d), (e), (f), (g)
or (h) and to Lender's right to terminate Borrower's ability to obtain
additional credit extensions and 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 prior to the then current Maturity Date, then Borrower shall pay to
Lender a prepayment charge equal to the product arrived at by multiplying
$5,200.00 times the number of calendar months (whole and fractional) from the
Termination Date to and including the then current Maturity Date; provided
further, that if Borrower terminates this Agreement prior to the then current
Maturity Date and repays all amounts owing to Lender hereunder completely from
funds borrowed from Riverside 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.
24. 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 but
only after the occurrence and during the continuance of an Event of Default) 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.
25. MISCELLANEOUS.
(a) 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.
(b) 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
U.S. mail, first class, 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
business days after being deposited in the U.S. mail, certified, return
receipt requested, postage prepaid, or one business day after delivery
to and receipt by Federal Express or other overnight courier, in each
case addressed to Lender at its address shown
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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.
(c) 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.
(d) Borrower agrees to pay and will reimburse Lender on demand
for all expenses incurred by Lender arising out of the origination of,
or during the duration of, this transaction including without
limitation filing and recording fees and reasonable 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 operation of cash management,
delivery/courier or other services including Lender's then current
charges for the operation of a lockbox and wire transfer or advance
fees, 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. Borrower acknowledges that, at Lender's
discretion, certain expenses may be charged to Borrower at Lender's
then current rate for such services to its customers generally or
alternatively, at its actual cost including overhead charges. Lender
may also impose other miscellaneous charges for additional products or
services provided to Borrower based on the cost agreed to by Borrower
from time to time. 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 making of Advances and the administration of
this Agreement. Consequently, Borrower hereby indemnifies, exonerates
and holds 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:
(i) any transaction financed or to be financed in
whole or in part directly or indirectly with proceeds of any
Advance, or
(ii) 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.
(e) 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.
(f) 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 financial institution or other lender, provided that
such institution or lender agrees in writing to maintain any
confidential information as confidential.
(g) 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
-16-
action or proceeding 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, Fourth 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 or as later notified in writing. 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.
(h) The provisions of this Agreement are severable, and in any
action or proceeding involving any State corporate law, or any State or
Federal bankruptcy, insolvency, reorganization or other law affecting
the rights of creditors generally, if the obligations of the Borrower
hereunder would otherwise be held or determined to be void, invalid, or
unenforceable on account of the grant of a security interest hereunder
to secure Borrower's contingent obligations, then, notwithstanding any
other provision of this Agreement to the contrary, the amount of such
liability shall, without any further action by Borrower, Lender or any
other person, be automatically limited and reduced to the highest
amount which is valid and enforceable as determined in such action or
proceeding.
(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
By /s/ Xxxxxx Xxxxxxxxx
-----------------------------------------
Its Senior Vice President
---------------------------------------
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BORROWER: DIGITAL BIOMETRICS, INC..
By /s/ Xxxx X. Xxxxx
-------------------------------------------------------
Its Chief Operating Officer and Chief Financial Officer
-----------------------------------------------------
Fed. Tax ID #:00-0000000
-18-
List of Exhibits
Exhibit A Compliance Certificate
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 of Borrower (Paragraph 16(p))
Schedule I Contingent Obligations (Paragraph 16(q))
Schedule J Permitted Existing Indebtedness (Paragraphs 18(c) and (d))
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