LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is made this 5th day of January, 1999,
by and between MCLAREN ENGINES, INC., a Delaware corporation with principal
offices located in Livonia, Michigan ("Borrower"), and ASHA CORPORATION, a
Delaware corporation with principal offices located in Santa Barbara,
California ("Lender"). The Lender agrees to make, and the Borrower agrees to
repay the loan described below ("Loan") in accordance with the terms and
conditions set forth in this Agreement.
1. LOAN AND COLLATERAL.
a. Loan. The Loan made under this Agreement shall be, as follows:
One Million, Three Hundred Fifty-Five Thousand and no/100 Dollars
($1,355,000.00), to be evidenced by a Demand Promissory Note ("Note"), which
Loan shall be payable in accordance with the terms stated in the Note, a
sample copy of which is attached hereto as Exhibit A.
b. Payments. The Loan shall be repaid in accordance with the
terms and provisions of this Loan Agreement and the Note. In the event of an
inconsistency between this Loan Agreement and the Note, the terms and
conditions of the Note shall control.
c. Use of Loan Proceeds. The Borrower will use the proceeds of
the Loan in connection with the merger of Borrower and McLaren Engines
Acquisitions, Inc., a Michigan corporation ("Acquiror") as described in that
certain Agreement and Plan of Merger dated as of December 18, 1998 (the
"Merger Agreement") for the purpose of entering into such merger, and
redeeming all of the shares of the Borrower's issued and outstanding stock
held by Mr. H. Xxxxxxx Xxxxx and Xx. Xxxxxx X. Xxxxx. Following such merger
the Persons on Schedule A attached hereto (the "Shareholders") shall have
unencumbered title in and to all issued and outstanding shares of stock of
Borrower, including any options, warrants or rights to acquire any securities
of Borrower, free and clear of any claims, demands, entitlements, rights,
liens or other interests any other party.
d. Shares Held By Lender. In lieu of security for the performance
of the Borrower's obligations in connection with the Loan, whether under this
Agreement, the Note or otherwise, the Shareholders herewith have delivered to
Lender, endorsed in blank, accompanied by executed stock powers, all shares of
common stock of Acquiror owned by them and all shares of common stock of
Borrower acquired by them to Lender and have entered into that certain Stock
Purchase Agreement by and between Shareholders, Borrower and Lender.
Lender's participation in this Agreement is subject to the express condition
that the purchase and sale transaction contemplated in said Stock Purchase
Agreement will occur and close automatically upon the tender of consideration
to the Shareholders and escrow thereof by Buyer.
2. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Lender, as long as the Loan remains outstanding, as follows:
a. Existence and Authority. Borrower is a corporation organized
under the laws of Delaware, and the person or persons executing this Agreement
on behalf of Borrower have full power and complete authority to execute this
Agreement and all related documents and, when executed, this Agreement and all
related documents will be legal, valid and binding obligations of the
Borrower, enforceable in accordance with their terms.
b. Business and Location. Borrower is in the business of
developing, testing, manufacturing and selling high performance engines and
other automotive equipment, and its chief executive officer is Xx. Xxxxx X.
XxXxx.
c. No Litigation. Except as disclosed on Schedule 2(c), there are
no pending or to the Borrower's knowledge threatened suits or proceedings
before any court, governmental agency, regulatory body, or administrative
tribunal to which the Borrower is a party or by which its property may be
effected and which may result in any material change in the financial
condition of the Borrower or the Collateral.
d. Financial Condition. Except as disclosed on Schedule 2(d), the
Borrower has furnished to the Lender current financial statements, which
statements were prepared in accordance with generally accepted accounting
principles and are correct and complete and accurately present the financial
condition of the Borrower on the dates thereof in all material respects.
Further, except as disclosed on Schedule 2(d), there has been no material
adverse change in the business, property or condition of the Borrower since
the date of the most recent financial statements.
e. Title. Except as disclosed on Schedule 2(e), the Borrower has
good and marketable title to all property (tangible and intangible) necessary
for the proper and efficient operations of the Borrower's business, free from
all liens and encumbrances, except those relating to NBD Bank and those
described in writing.
f. Taxes. The Borrower has filed all federal, state and local
income and other tax returns and other reports required to be filed prior to
the date of this Agreement and the Borrower has paid all taxes, withholdings,
assessments and other governmental charges that are due and payable prior to
the date of this Agreement.
g. Governmental and Non-Governmental Requirements. The Borrower
has obtained all licenses, permits, authorizations, consents or approvals from
each governmental authority and has obtained or will obtain all licenses,
authorizations, consents, approvals or franchises from each non-governmental
entity necessary for the operation of the Borrower's business and all such
licenses, permits, authorizations, consents or approvals are, or upon
obtaining thereof, will be in full force and effect.
h. Compliance with Law. The Borrower is in compliance with all
applicable laws, rules, regulations and orders relating to the Borrower or any
aspect of the Borrower's business or assets, including, without limit, all
environmental laws, rules, regulations and orders. The Borrower agrees to
indemnify and hold the Lender harmless from any and all violations by the
Borrower of any laws, rules, regulations and/or orders.
3. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that, as
long as the Loan(s) remain(s) outstanding, the Borrower shall:
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a. Books and Reports. Maintain a proper accounting system in
accordance with generally accepted accounting principles, consistently
applied, and furnish the reports specified below, in form and detail
reasonably satisfactory to the Lender (in each case, such reports shall be
certified by an authorized individual on behalf of the Borrower):
(i) Management prepared financial statements within ten (10)
days after the end of each month.
(ii) Within thirty (30) days after the end of the Borrower's
fiscal year reviewed financial statements prepared by certified public
accountants acceptable to the Lender.
(iii) Within ten (10) days after the end of each month, aging
and listings of accounts receivable and accounts payable.
(iv) Physical inventory reports listing raw materials, work
in process and finished goods within ten (10) days after request by the
Lender.
(v) Copies of all federal, state and local tax returns of
the Borrower within fifteen (15) days after filing.
b. Notice of Adverse Events. Promptly notify the Lender in
writing of any Event of Default or institution of any litigation,
administrative proceeding or lien filed by governmental authorities or other
proceeding or occurrence which may have a material adverse effect on the
Borrower's business, property or financial condition.
c. Existence and Identity. Maintain and keep in full force and
effect the Borrower's existence under the laws of the state of its
organization, and continue its business as presently conducted. Except as
contemplated under the Merger Agreement, the Borrower shall not change the
legal format under which the Borrower was organized nor sell all or
substantially all of its property or merge the Borrower's business, in whole
or in part, without the prior written consent of the Lender. The Borrower
shall give the Lender prompt written notice of any change in location of its
chief executive office or any other place of business.
d. Insurance.
(i) Upon Lenders' request, provide the Lender with evidence
of all risk hazard insurance policy for fire and extended coverage insurance.
The policy must be in the amount of the Loan(s), or the full replacement cost
of the improvements, whichever is greater, but in no event less than one
hundred percent (100%) of the insurable value. The insured premises must be
described by the street address of the property. The hazard insurance policy
must contain replacement cost, inflation-guard, vandalism and malicious
mischief endorsements.
(ii) Upon Lenders' request, provide the Lender with evidence
of comprehensive general liability and property damage insurance with initial
limits of at least $1,000,000/$1,000,000 for bodily injury and $1,000,000 for
property damage.
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(iii) Upon Lenders' request, provide the Lender with evidence
of business interruption insurance in an amount to cover at least a twelve
(12) month period.
(iv) All insurance policies shall be in such amounts, upon
such terms and in such form as shall be reasonably acceptable to the Lender,
and shall be carried with insurers reasonably acceptable to the Lender. The
Lender's failure to request copies of such coverage or failure to approve such
shall not be a waiver of the Lender's future right to enforce the terms of
this Section 4(d). All insurance policies shall have been furnished to the
Lender. All policies shall require at least thirty (30) days prior written
notice to the Lender of cancellation or modification.
e. Taxes. Promptly pay all taxes, withholdings, levies and
assessments due to all local, state and federal agencies, and if requested by
the Lender, submit to the Lender copies of any and all federal or state or
local tax returns evidencing the computation and the payment of such taxes.
f. ERISA Compliance. Meet current funding requirements for
qualified employee benefit plans as required by law or regulations.
g. No Default Certificate. Furnish to the Lender, within ten (10)
days after request by the Lender, a certificate of the Borrower stating that
no Event of Default has occurred or, if an Event of Default has occurred,
stating its nature, how long it has existed and what action the Borrower
proposes to take with respect to the Event of Default.
h. Management. Continue to be managed and operated by the present
management.
i. Protection of Intellectual Property Rights. Vigorously protect
and defend all aspects of Borrower's intellectual property rights,
particularly with respect to use of the McLaren trademark, trade name and
service xxxx.
j. Other Information. Promptly furnish to the Lender such other
information, documents or certificates regarding the operations, business
affairs and financial condition of the Borrower as the Lender may reasonably
request from time to time and permit the Lender, its employees, attorneys and
agents to inspect, confirm and copy all of the books, records and properties
of the Borrower at any reasonable time.
4. NEGATIVE COVENANTS. The Borrower covenants and agrees that, as long
as the Loan(s) remain(s) outstanding, the Borrower shall not:
a. Acquire Fixed Assets. Acquire fixed assets in any one (1)
month period without prior approval of Lender in excess of $50,000.
b. Lease. Enter into any lease of real or personal property
without prior approval of lender.
c. Borrowings. Except from NBD Bank, borrow money, or act as
guarantor on any loan or other obligation.
d. Create Liens. Other than with NBD Bank or the liens existing
Schedule 2(e), mortgage, assign, hypothecate, encumber, or in any manner
create, suffer or permit liens on its property, and except for liens that have
been disclosed in writing by the Borrower to the Lender prior to the date of
this Agreement and consented to by the Lender.
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e. Transfer Assets. Except in the ordinary course of business,
sell, lease, transfer, assign or otherwise dispose of any of the Borrower's
property.
f. Compensation. Except pursuant to the Merger Agreement, allow
any person or entity to be paid dividends or distributions on its capital
stock or otherwise, in any fiscal year, without the prior approval of the
President of the Borrower and the Chief Executive Officer of the Lender.
g. Dividends. Except pursuant to the Merger Agreement, change its
capital structure or declare dividends, make capital distributions or redeem
capital stock.
h. Ownership. Except pursuant to the Merger Agreement, transfer,
suffer or permit a change in ownership or control of the Borrower or the
business without Lender's approval.
i. Extension of Credit. Except for trade credit or trade terms
provided in the ordinary course of business, make loans, advances or
extensions of credit to or make investments in any person or entity.
5. EVENTS OF DEFAULT. After the consummation by Lender of the purchase
of all of their shares of Borrower from the Shareholders, the occurrence of
any one of the following events shall constitute an "Event of Default" under
this Agreement and, notwithstanding the terms of any note or other agreement
given in connection herewith or otherwise, shall be an Event of Default under
the terms of any such note or agreement:
a. Monetary. Failure by the Borrower to fully pay any amount
owing on the Loan in accordance with the terms of the Note.
b. Breach. Any failure by the Borrower to comply with, or breach
by the Borrower of, any of the terms, provisions, warranties or covenants of
this Agreement or any other agreement or commitment between the Borrower
and/or any guarantor and the Lender, which breach is not cured within five (5)
days after receipt of written notice thereof.
c. Foreclosure. Institution of remedial proceedings or other
exercise of rights and remedies by the holder of any security interest against
the Collateral or any portion thereof.
d. Insolvency. The insolvency of the Borrower or any guarantor or
the admission in writing of the Borrower's or any guarantor's inability to pay
debts as they mature.
e. Misstatement. Any statement, representation or information
made or furnished by or on behalf of the Borrower or any guarantor to the
Lender in connection with or to induce the Lender to make the Loan(s) shall
prove to be materially false or materially misleading when made or furnished.
f. Bankruptcy. Institution of bankruptcy, reorganization,
arrangement, insolvency or other similar proceedings by or against the
Borrower or any guarantor.
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g. Casualty Loss or Judgment. Any loss, theft, substantial damage
or destruction to the Collateral, or the issuance or filing of any attachment,
levy, garnishment or the commencement of any related proceeding or the
commencement of any other judicial process upon or in respect to the Borrower
or any guarantor or the Collateral.
h. Transfer of Assets. Except pursuant to the Merger Agreement,
sale or other disposition by the Borrower of any substantial portion of assets
or property, or death, dissolution, merger, consolidation, termination of
existence, insolvency, business failure or assignment for the benefit of
creditors of or by the Borrower.
i. Failure to Pay. If there is any failure by the Borrower and/or
any guarantor to pay when due any indebtedness (other than to the Lender) or
in the observance or performance of any term, covenant or condition in any
document evidencing, securing or relating to such indebtedness.
j. Adverse Change. There is a substantial change in the existing
financial condition or worth of the Borrower which the Lender in good faith
determines to be materially adverse.
k. Insecurity. The Lender in good xxxxx xxxxx itself insecure.
6. ACCELERATION. Upon any Event of Default occurring, which default
has not been timely cured, the Lender may at any time declare the Loan
immediately due and payable, in each case without presentment, demand,
protest, notice of dishonor, notice of non-payment or other notice of any
kind, all of which are waived by the Borrower.
7. REMEDIES.
a. General. The Lender shall have all the rights and remedies
provided by law or equity or by agreement of the parties, including, without
limit, all of the rights and remedies available under the Michigan Uniform
Commercial Code. The remedies of the Lender are cumulative and not exclusive.
No delay, waiver or failure on the part of the Lender to demand strict
adherence to the terms of this Agreement or any related document shall be
deemed to constitute a course of conduct or waiver inconsistent with the
rights herein.
b. Application of Proceeds. Any proceeds received by the Lender
from the exercise of its remedies shall be applied as follows:
(i) First, to pay all costs and expenses incidental to the
sale or other disposition of the Collateral.
(ii) Second, to all sums expended by the Lender in carrying
out any term, covenant or agreement under this Agreement or any related
document.
(iii) Third, to the payment of the Loan. If the proceeds are
insufficient to fully pay the Loan, then application shall be made first to
interest accrued and unpaid, then to any other charges and expenses, and then
to the outstanding principal balance.
(iv) Fourth, any surplus remaining shall be paid to the
Borrower or to any other party lawfully entitled party.
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8. OTHER AGREEMENTS. The Borrower and Shareholders shall execute and
deliver to the Lender such agreements, certificates or instruments as may be
reasonably required by the Lender to evidence obligations to the Loan,
including but not limited to the Note of even date herewith. All such
agreements and those given in connection with any other loan, present or
future, shall also constitute security for the Loan, and all security given to
the Lender securing the Loan shall also secure all other obligations of the
Borrower to the Lender.
9. MISCELLANEOUS. The Borrower and the Lender further agree as
follows:
a. Governing Law. This Agreement shall be governed by and
interpreted according to the laws of the state of Michigan, without giving
effect to conflict-of-laws principles. The parties hereto irrevocably agree
and consent that any action in connection with this Agreement may be brought
in any state or federal court that has subject matter jurisdiction and is
located in, or whose district includes, Xxxxx County, Michigan, and that any
such court shall have personal jurisdiction over Shareholders and Borrower for
purposes of such action.
b. Successors and Assigns. This Agreement shall be binding upon
the permitted successors and assigns of the Borrower, and the rights and
privileges of the Lender under this Agreement shall inure to the benefit of
its successors and assigns. The Borrower shall not assign its rights, duties
and obligations under this Agreement without the Lender's written consent,
which consent may be given or withheld in the Lender's sole discretion.
c. Notices. Notice from one party to another relating to this
Agreement shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address, telex number or
telecopier number set forth in this Agreement by any of the following means:
(I) hand delivery, (ii) registered or certified mail, postage prepaid, (iii)
express mail or other overnight courier service, or (iv) telecopy, telex or
other wire transmission with request for assurance of receipt in a manner
typical with respect to communications of that type. Notice made in
accordance with these provisions shall be deemed delivered on receipt if
delivered by hand or wire transmission, on the third business day after
mailing if mailed by registered or certified mail, or on the next business day
after mailing or deposit with the postal service or an overnight courier
service if delivered by express mail or overnight courier.
d. Amendments. Any amendment of this Agreement shall be in
writing and shall require the signature of the Borrower and the Lender.
e. Partial Invalidity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remaining provisions of this Agreement.
f. Joint and Several Obligations. The obligations of each person
or entity which signs this Agreement shall be joint and several.
g. WAIVER OF JURY TRIAL. THE BORROWER, SHAREHOLDERS AND THE
LENDER ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE,
BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE
OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND
VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS AGREEMENT OR THE LOAN(S).
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This Agreement is executed and delivered on the day and year set forth
above.
WITNESS: BORROWER:
MCLAREN ENGINES, INC., a
Delaware corporation
/s/ Wiley X. XxXxx
By: Xx. Xxxxx X. XxXxx
Its: President
ASHA CORPORATION
/s/ Xxxx X. XxXxxxxxx
By: Xxxx X. XxXxxxxxx
Its: President
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