Exhibit 10.3
LOAN AND SECURITY AGREEMENT
Dated: July 10, 1992,
Between: GEOGRAPHICS, INC., a Wyoming corporation ("Borrower"), whose address
is 0000 Xxxxx Xxxx, X.X. Xxx X0, Xxxxxx, Xxxxxxxxxx 00000, and
U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION ("Bank"), whose address
is N.W. Washington Business Banking, 0000 Xxxxxxxxxx Xxxxxx, X.X. Xxx
000, Xxxxxxxxxx, Xxxxxxxxxx 00000.
RECITALS
A. Borrower manufactures rub-on lettering at facilities in Blaine,
Washington, and sells its products throughout the United States and Canada.
B. Borrower desires to have (i) a $300,000 equipment loan, (ii) a
$1.2 million real estate loan, and (iii) a $1 million revolving line of credit
for payment of ordinary and necessary operating costs and expenses.
C. Bank is willing to provide the above-described loans and credit
extensions on the terms and conditions of this agreement.
NOW, THEREFORE, for value, Borrower and Bank hereby agree as follows:
1. LOANS AND CREDIT EXTENSIONS.
(a) EQUIPMENT LOAN. Bank hereby promises and agrees to make an
"equipment loan" to Borrower on the terms and conditions stated in this
agreement in an amount equal to the lesser of (i) $300,000, or (ii) 85 percent
of the liquidating value of the equipment owned by Borrower on the date of this
agreement (as estimated by Bank's Equipment Appraisal Department) net of all
debts and liabilities secured by senior liens or security interests covering the
equipment or any item thereof or interest therein. Bank's commitment to make
the equipment loan will expire on July 31, 1992, unless the conditions precedent
are satisfied (or waived by Bank) and the loan is funded on or before that date.
If made, Borrower promises and agrees to repay the equipment loan and
to pay interest, fees and costs without offset, defense or counterclaim to
Bank's order or assigns at the above address (or such other address as Bank may
hereafter specify) as follows:
(i) Principal will be repaid in 60 equal monthly installments
starting on the 10 day of the first calendar month immediately following
the calendar month in which the loan is made, and continuing on the same
day of each and every calendar month thereafter until the loan is paid in
full.
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(ii) Interest will accrue on the outstanding principal balance of the
equipment loan from the date the loan is made until repaid at a fully
fluctuating rate of interest equal to Bank's publicly announced prime rate
of interest plus a margin of 1.25 percent per annum. Interest will be paid
monthly in arrears at the same time and in the same manner as principal is
paid.
(iii) Borrower will pay a fee to Bank at the time the equipment loan
is made which will be in an amount determined by multiplying the principal
of the equipment loan by 1 percent.
(iv) Borrower will execute and deliver to Bank a note in a form
prescribed by Bank to further evidence Borrower's obligation to repay the
equipment loan and to pay interest, fees and costs in accordance with the
terms of this agreement; provided, however, that the terms and conditions
of this agreement shall control over any inconsistent term or condition in
that note. The note also will provide for reasonable attorney fees and
other collection costs as specified below.
(b) REAL ESTATE LOAN. Bank hereby promises and agrees to make a
"real estate loan" to Borrower on the terms and conditions stated in this
agreement in an amount equal to the lesser of (i) $1.2 million or (ii) 75
percent of the appraised value of the buildings, improvements, fixtures and
approximately 10 acres of land located at 0000 Xxxxx Xxxx, Xxxxxx, Xxxxxxx
Xxxxxx, Xxxxxxxxxx ("real estate"). Bank's commitment to make the real estate
loan will expire on July 31, 1992, unless the conditions precedent are satisfied
(or waived by Bank) and the loan is funded on or before that date.
If the real estate loan is made, Borrower promises and agrees to repay
the real estate loan and to pay interest, fees and costs without offset, defense
or counterclaim to Bank's order or assigns at the above address (or such other
address as Bank may hereafter specify) as follows:
(i) Principal and interest will be repaid in 59 equal monthly
installments (based on a repayment term of 180 months) starting on the 1st
day of the first calendar month immediately following the calendar month in
which the loan is made, and continuing on the same day of each and every
calendar month thereafter until the fifth anniversary of the date the loan
was made when the entire unpaid balance of the real estate loan will be
immediately due and payable regardless of the installment program
previously in effect.
(ii) Interest will accrue on the outstanding principal balance of the
real estate loan from the date the loan is made until repaid at a fixed
rate of interest equal to the average of the weekly yields on United States
Treasury Securities--Constant Maturity Series for the four weeks preceding
the loan funding date as published in the Federal Reserve Statistical
Release H.15 (519) last released before the funding date plus a margin of
3.5 percent per annum and adjusted to include the cost to Bank of any
required reserves and FDIC insurance premiums,
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will be paid monthly in arrears, and will be included in the monthly
installment amount.
(iii) Borrower will pay a fee to Bank at the time the real estate
loan is made which will be in an amount determined by multiplying the
principal of the real estate loan by 1 percent.
(iv) Borrower will execute and deliver to Bank a note in a form
prescribed by Bank to further evidence Borrower's obligation to repay the
real estate loan and to pay interest, fees and costs in accordance with the
terms of this agreement; provided, however, that the terms and conditions
of this agreement shall control over any inconsistent term or condition in
that note. The note also will provide for reasonable attorney fees and
other collection costs as specified below. Borrower will secure payment of
the real estate loan by executing and delivering to Bank an insured
first-priority deed of trust (including security agreement and assignment
of leases and rents) covering the real estate and all leases, rents,
issues, profits, and other proceeds thereof.
(c) LINE OF CREDIT. Bank hereby promises and agrees to make loans
(commonly known as "advances") to Borrower under a revolving line of credit
on the terms and conditions stated in this agreement from time to time until
July 30, 1993 (the "maturity"), as long as (i) the aggregate amount of all
advances outstanding under the line of credit and the amount to be advanced
do not at any one time exceed the lesser of $1 million (the "line limit") or
the "borrowing base" (80 percent of Borrower's eligible accounts plus the
lesser of 40 percent of Borrower's eligible inventory or $500,000) and (ii)
no event of default or incipient default exists at the time the advance is
requested or made. Subject to the foregoing limitations, Borrower may borrow
and repay advances at any time and from the time to time without penalty or
premium because of the revolving nature of this commitment.
Borrower will deliver a written certificate, manually signed by a
duly authorized officer of Borrower, to Bank on the 10th and 25th day of each
calender month. The certificate will specify the amounts of eligible
accounts and eligible inventory, the borrowing base, and the unused portion
of the line of credit (i.e., the line limit minus outstanding advances) as
of, respectively, the 1st and 15th days of that month. This certificate will
be deemed to be a representation that, to the best of the officers knowledge
after due inquiry, that the amounts specified are true and correct and that
no event of default or incipient default exists as of the date of the
certificate unless the certificate discloses that a default or incipient
default exists and contains an identification with reasonable particularity
of the event or events of defaults or incipient default. Bank will have no
obligation to make advances by honoring checks or otherwise in the event of a
default or incipient default whether or not such default or incipient default
is disclosed by the certificate.
Borrower will receive advances on the line of credit by Bank honoring
checks or other disbursement items, such as wire transfers, drawn on Borrower's
general checking account at Bank's branch in Blaine, Washington, which are
payable to third persons. When such items
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are presented for payment, Bank will honor (make payment on account of) such
items to the full extent of the remaining line limit or the remaining
borrowing base, whichever is less, unless an event of default or incipient
default has occurred and has not been cured. In the event Bank determines
that Bank is not required to honor an item, Bank will notify Borrower of its
intent to dishonor an item before it actually dishonors in order to give
Borrower the opportunity to cure the event of default or incipient default or
to fund the item from other sources.
Borrower promises and agrees to repay all advances made to
Borrower under the line of credit and to pay interest, fees and costs as herein
provided without offset, defense or counterclaim to Bank's order or assigns at
the above address or such other address as Bank may hereafter specify as
follows:
(i) All advances must be repaid on or before the maturity, may be
repaid at any time without notice or penalty, and must be repaid at any
time that Borrower's certificate indicates that the balance of outstanding
advances exceeds the lesser of the line limit or the borrowing base.
(ii) Interest will accrue on the outstanding balance of advances from
the date of an advance until repaid at a fully fluctuating rate of interest
equal to Bank's publicly-announced prime rate of interest plus a margin of
1 percent per annum and will be paid in arrears monthly on or before the
last date of each calendar month and at the maturity.
(iii) Borrower will pay a fee of $3,750 to Bank at the time this
agreement is executed by Bank.
(iv) Borrower will execute and deliver to Bank a note in a form
prescribed by Bank to further evidence Borrower's obligation to repay
advances made under the line of credit and to pay interest, fees and costs
in accordance with the terms of this agreement; provided, however, that the
terms and conditions of this agreement shall control over any inconsistent
term or condition in that note. The note also will provide for
reasonable attorney fees and other collection costs as specified below.
(d) ALLOWED USES. The proceeds of the equipment loan and the real
estate loan and the proceeds of the first advance under the line of credit
will be used by Borrower only to satisfy Borrower's existing debts,
liabilities and obligations to Hongkong Bank of Canada and to obtain
terminations of any encumbrances, security interests or liens that that
organization may have in Borrower's assets. All further advances under the
operating line will be used only for ordinary and necessary commercial,
investment or business purposes. Without limiting the generality of the
foregoing, Borrower represents that none of those proceeds will be used to
acquire any "margin stock" as that term is used in Regulation U of the
Federal Reserve Board.
(e) GENERAL MATTERS. Borrower acknowledges that the use of the term
"prime rate" is merely convenient reference to a commonly used term and is not
an express or implied
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representation or warranty that such rate is the best or lowest rate
available to Bank's most creditworthy customers. Borrower also acknowledges
and agrees that the phrase "per annum" means an annual period of 360 days
which results in an actual rate of interest slightly higher than the nominal
rate.
All payments will be deemed to have been made only when Bank has
actually received collected and unrestricted funds at the address specified
for payment. In the event that the date specified for a payment is not a
banking day, then interest shall accrue to and the payment shall be made on
the next following banking day.
Borrower waives acceptance, presentment, demand, protest, dishonor and
notice of any of the foregoing.
Bank may forbear with respect to default or covenant failures, extend
the maturity of any loan or credit extension one or more times, and modify
the interest rates or payment terms in connection with an extension, renewal
or restructure without affecting the liability of Borrower. Bank's
forbearance or other failure to exercise any right or remedy upon Borrower's
default shall not constitute a waiver or grounds for the claim of estoppel
with respect to the default or the term involved while such default continues
or in connection with any future default.
If any payment is not made within 10 banking days following the due
date for such payment, the Bank may, but shall not be obligated to, increase
the interest rate payable on the payment to a rate which is 5 percent per
annum in excess of the rate that otherwise would be applicable and such rate
shall continue in effect until the payment default is cured. This "default
rate" also will apply to the unpaid balance after maturity or acceleration.
If Bank engages an attorney to collect Borrower's debts (including VISA
card liabilities and checking account overdrafts) to Bank or to enforce or
construe the terms and conditions of this agreement, Borrower promises and
agrees to pay Bank's reasonable attorney fees and costs whether or not a
civil action, bankruptcy claim or proceeding or arbitration proceeding is
commenced, prosecuted to judgment, appealed or settled and to pay interest
thereon at the default rate from the date upon which payment in demanded by
Bank until payment is made by Borrower.
2. SECURITY AGREEMENT.
(a) GRANT OF SECURITY INTEREST. To secure payment and performance of
Borrower's present and future debts, liabilities and obligations to Bank,
Borrower hereby grants to Bank a security interest under Article 9 of the
Uniform Commercial Code in and to Borrower's present and future inventory,
accounts, equipment (including mobile goods, vehicles, rolling stock,
machinery, tools, furniture, furnishings, equipment which might be
classified as fixtures because of apparent method of affixation, accessories,
parts and accessions), instruments, chattel paper, documents, deposit
accounts, contract rights and general intangibles, and all products, proceeds
and records arising or related thereto (the "collateral").
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(b) FINANCING STATEMENTS. Borrower will execute and deliver to Bank
forms of financing statements deemed by Bank necessary or appropriate to
perfect, continue and reperfect Bank's security interest in the collateral.
Borrower's federal taxpayer identification number is 00-0000000.
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The original or a photocopy of this agreement without the original
signature of Borrower may be filed as a financing statement or a continuation
statement either by personal delivery or by facsimile machines. Borrower will
pay all fees and costs incurred by Bank in filing financing statements,
applications for certificates of title and like perfection documents and is
obtaining UCC lien searches confirming the priority of Bank's security
interest.
Borrower will immediately notify Bank of (i) any change in the name of
Borrower or Borrower's use of assumed business or trade names, (ii) the
relocation of its chief executive office or (iii) the transfer of inventory
into any states other than Washington (except transfers which are sales to
customers and other ordinary course transfers), so that Bank may file
additional financing statements or amendments to continue the prefected
status of
its security interest.
To the full extent allowed by law, Borrower appoints Bank as its
attorney in fact, coupled with an interest, for the limited purposes of
executing and filing financing statements and applications for certificate of
title and similar documents which may be in Bank's reasonable judgment
necessary or advisable for perfecting, continuing and reperfecting its
security interest in the collateral or any item thereof or interest therein.
(c) DEFINITIONS. "Account" or "account receivable" means any right to
payment for goods sold or leased or for services rendered which is not
evidenced by an instrument or chattel paper, whether or not it has been
earned by performance. "Eligible account" means an account receivable of
Borrower which is not subject to offset, defense or counterclaim, less than
60 days past due (90 days in the case of certain Super Store accounts
approved by Bank), owed by a non-affiliated account debtor located or
residing in the United States (or, if foreign, is supported by a letter of
credit acceptable to Bank) who is not to Borrower's knowledge insolvent or is
otherwise reasonably unacceptable to Bank and which does not result from
consignments or COD transactions. An account debtor which has more than 25
percent of its account more than 60 days past due is unacceptable to Bank.
"Inventory" means goods held by Borrower for sale or lease or to be furnished
under contracts of service, including raw materials, work in process,
materials used or consumed in Borrower's business and finished goods.
"Eligible inventory" means that the merchantable finished goods inventory and
raw materials of Borrower (but not work in process), but only to the extent
that the items thereof have been paid for and are not subject to any prior
lien, valued at the lower of cost or market value.
(d) CONSENT TO SALE OF COLLATERAL; NOTICE TO ACCOUNT DEBTORS; POSSESSION
AND DISPOSITION. Bank hereby consents to the sale of inventory for reasonably
equivalent value for cash or on ordinary trade terms and to collection of
accounts in the ordinary course of Borrower's business. Bank also consents to
the good faith compromise of accounts and disputes
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regarding defective or nonconforming inventory items and returns and rebates
in connection therewith. Bank's security interest shall extend to returned or
repossessed goods.
Upon the defaults of Borrower under this agreement, Bank is authorized to
notify account debtors of the grant of the security in the accounts and to
demand payment directly from the account debtors. Borrower acknowledges that
any payment by account debtors to Bank, rather than to Borrower, following
Borrower's default will constitute satisfaction of the account debtor's debt
to Borrower to the extent of the payment.
Upon Borrower's default under this agreement, Bank will be entitled to (a)
immediate possession any and all of the collateral, (ii) require Borrower to
enable the collateral and make it available to Bank at a place to be
designated by Bank which is reasonably convenient to Bank and Borrower and
(iii) to sell, lease or otherwise dispose of any or all of the collateral in
its then condition or following any commercially reasonable preparation or
processing. Borrower agrees that a letter delivered to Borrower at least 20
days before a public or private sale or other disposition is reasonable
notification of such sale or disposition.
3. CONDITIONS PRECEDENT.
The following are conditions precedent which must be satisfied by Borrower
or waived by Bank prior to the making of any loan or advance:
(a) CORPORATE DOCUMENTS. Borrower has delivered to Bank true and correct
copies of (i) its articles or restated articles of incorporation, including
all amendments thereto, (ii) its bylaws, including all amendments thereto,
(iii) a certificate of good standing/existence issued by the Wyoming
Secretary of State and dated within 15 days before the date of this
agreement, (iv) a certificate of qualification as a foreign corporation
issued by the Secretary of State of Washington and dated within 15 days
before the date of this agreement and (v) a copy of the resolutions adopted
by Borrower's board of directors authorizing Borrower to enter into and
perform its obligations under this agreement, including borrowing and the
specification of officers and employees who are authorized to request
advances, repayment and grant of encumbrance, security interest and lien,
duly certified as true, correct and in effect as of the date of this
agreement by the secretary or assistant secretary or Borrower.
(b) LOAN DOCUMENTS. Borrower has duly executed (i.e., signed and delivered
to Bank) by and through a duly authorized officer or officers this agreement,
the three notes required by this agreement, the deed of trust and related
documentation (including environmental questionaire and indemnity) and the
financing statements required by Bank to perfect its security interest
(collectively the "loan documents").
(c) APPRAISAL; SURVEY; INSURANCE. Bank has received in forms acceptable to
Bank (i) an appraisal of the real estate, (ii) a survey of the real estate
which identifies the boundaries of the real estate and the location of all
buildings, improvements and easements, and (iii) a policy or certificate of
fire insurance with extended coverage endorsement and with a lender's
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loss endorsement which allows recovery of insurance proceeds by Bank
regardless of any offsets, defenses or counterclaims by the insurer against
Borrower.
(d) DEED OF TRUST. Bank has recorded the deed of trust covering Borrower's
real estate in the Whatcom County mortgage records and a title insurance
company approved by Bank has issued to Bank an ALTA extended form loan policy
of title insurance insuring the validity and first priority of the deed of
trust as a lien against the real estate, subject only to current taxes and
assessments and such other matters of record as are reasonably acceptable to
Bank, including easements and restrictions which do not materially affect the
value or utility of the real estate, and containing such additional
endorsements as may be reasonably required by Bank.
(e) FINANCING STATEMENTS. Bank has filed financing statements executed by
Borrower in Washington to perfect its security interest in the collateral,
and the state filing office or a private lien search person has confirmed to
Bank that the security interest is first in time and right to the lien claims
and security interests of all persons other than such secured parties as Bank
may approve in writing including Whatcom State Bank (Pfainkoch Model VP450
Packaging Machine Serial 91-167) and SAFECO Credit Company, Inc. (Rosback 13
Bin Collator, Model CV913 and peripherals and 0000 Xxxxxxxxxx 22 x 30-1/4"
SBG Cylinder Press, S/N 23249).
(f) REPRESENTATIONS; CONDITIONS; ADVERSE CHANGE. The representations and
warranties made by Borrower in this agreement to the best of Borrower's
knowledge are true, complete and correct in all material respects and
Borrower has satisfied all conditions imposed on it in any commitment letter
issued to it by Bank. There has been no material adverse change in the
financial condition or business prospects of Borrower since the date of the
latest financial statements provided to Bank. Borrower's chief executive or
financial officer has executed for Bank a certificate confirming the
foregoing.
(g) CONVERSION TO EQUITY OR SUBORDINATION. Borrower's shareholders have
converted approximately U.S. $500,000 in shareholder loans to equity
contributions or have executed a subordination agreement in a form prescribed
by Bank in which the shareholders agree that such debt will be subordinate to
Borrower's debts, liabilities and obligations to Bank. Such agreement will
allow Borrower to make ordinary course payments on account of the
subordinated debt prior to a default or incipient default under this
agreement.
4. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
(a) FORMATION. Borrower is a Wyoming corporation in good standing and has
duly qualified to transact business as a foreign corporation in Washington
and all other states where the nature of its business activities or the
ownership of property requires such qualification.
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(b) EXECUTION. The execution and performance of this agreement and
the related loan documents by Borrower have been duly authorized by all laws
relating to Borrower, by Borrower's corporate documents and by its board of
directors (and, if required by law or its corporate documents, by the holders
of its equity interests).
(c) AUTHORIZED SIGNERS. The loan documents have been duly
executed by officers of Borrower who have been duly authorized to perform
such acts.
(d) VALID, BINDING AND ENFORCEABLE. The loan documents are the
legally valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
(e) NO VIOLATION OR BREACH. The execution of the loan documents
and the performance by Borrower of its obligations hereunder and thereunder
do not violate any law applicable to Borrower or constitute a default or
breach of any contract to which Borrower is a party or by which its property
is bound.
(f) NO MATERIAL LITIGATION. There is no material litigation,
prosecution, investigation or other proceeding of any nature whatsoever
(specifically including those related to environmental matters) now pending
or, to the knowledge of Borrower, threatened involving Borrower or its
property except for those matters disclosed to Bank in writing before the
execution of this agreement by Bank.
(g) ACCURATE FINANCIAL INFORMATION. The financial, accounting and
business information provided by Borrower to Bank is true and correct in all
material respects and accurately presents the financial condition and
business organization and operations of Borrower as of the date of such
information.
(h) NO DEFAULT. Borrower is not in default in the performance of
any material obligation to any third person except for those obligations
being contested by Borrower in good faith, by appropriate means and with an
adequate reserve being maintained for payment in the event of an adverse
outcome.
(i) COMPLIANCE WITH LAWS. Borrower is in compliance with all
applicable laws, the noncompliance of which would be material to Borrower's
financial condition, business or property. Without limiting the generality of
the foregoing, Borrower is not now nor will it become a potentially
responsible party with respect to any vessel or site at which toxic or
hazardous substances, pollutants or contaminants ("hazardous wastes") have
been or may reasonably be anticipated to be released in reportable quantities
into the environment except for those matters disclosed to Bank in writing
prior to execution of this agreement by Bank. For the purposes of this
agreement, petroleum products, natural gas, friable and potentially friable
asbestos and polychlorinated biphenyls are classified as hazardous wastes.
(j) TAX RETURNS AND TAXES. Borrower has filed all tax returns
required by law to be filed and has paid all taxes and similar government
impositions when due except for those
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taxes and impositions being contested by Borrower in good faith, by
appropriate means and with an adequate reserve being maintained for payment
in the event of an adverse outcome.
(k) SOLVENCY. Borrower is not insolvent or the subject of any
insolvency proceeding. There has been no material adverse change in the
business, financial condition or property of Borrower since the date of the
last financial statements provided to Bank by Borrower.
Each time that Borrower requests an advance under the line of
credit, Borrower will be deemed to reaffirm the accuracy and completeness of
the foregoing representations and warranties in all material respects.
Borrower hereby agrees to indemnify, defend and hold harmless Bank from and
against any and all loss, liability, claim, cost or expense, including
damages, penalties, attorney fees and court costs, of any nature or kind
arising from or related to any error or omission in the foregoing
representations and warranties.
5. COVENANTS.
(a) AFFIRMATIVE COVENANTS. Borrower covenants that until all
loans and credit extensions are paid in full and all claims against Bank are
discharged:
(i) Borrower will preserve its legal status and franchises and pay
all taxes and annual fees in connection therewith.
(ii) Borrower will comply with all laws, specifically including,
but not limited to, all laws relating to the environment and to the
storage, transportation, disposal and release of hazardous wastes;
(iii) Borrower will obtain and maintain with responsible carriers
such worker's compensation, fire with extended coverage endorsement,
public liability and property damage and such other insurance in such
coverage amounts, deductibles and terms as may be consistent with
industry practices and as may be reasonably acceptable to Bank and will
provide evidence of such insurance to Bank as and when required by
Bank. The insurance policies covering collateral and the real estate
will include a lender's loss endorsement and will not be subject to
amendment or cancellation without providing at least 30 days' prior
written notice thereof to Bank.
(iv) Borrower will pay and perform when due all material
obligations to all third persons except for those obligations being
contested by Borrower in good faith, by appropriate means and with
an adequate reserve being maintained for payment in the event of an
adverse outcome.
(v) Borrower will file all tax returns required by law to be filed
and will pay all taxes and similar government impositions when due
except for those taxes and impositions being contested by Borrower in
good faith, by appropriate means
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and with an adequate reserve being maintained for payment in the event of an
adverse outcome.
(vi) Borrower will provide to Bank reasonably detailed financial
statements (including on a comparative basis balance sheets and related
statements of income and expenses, and at fiscal year-end changes in cash
position with related footnotes and comments) prepared in accordance with
generally accepted accounting principles and practices consistently applied
("GAAP") except where specifically agreed otherwise:
(A) within 45 days following the end of each of the first three fiscal
quarters as of the end of that quarter and for that portion of Borrower's
fiscal year then ended, and
(B) within 120 days following the end of the fiscal year (March 31) as
of the end of that fiscal year and for the fiscal year then ended and audited
by a certified public accounting firm of national or regional reputation (or
as may otherwise be approved in writing by Bank in advance) and not
containing any significant qualification by such accounting firm.
Bank shall have the right to inspect all of Borrower's financial records
(including, but not limited to, records relating to collateral and accounts
payable), in whatever form such records are stored, at all reasonable times
and to discuss with Borrower's accounting employees and outside accountants
such records and the financial statements provided to Bank. Bank will give
prior notice to Borrower of its intention to discuss such matters with
Borrower's outside accountants so as to provide the opportunity to Borrower
to be present at such discussions.
(vii) Borrower will provide to Bank such additional information as may be
required to keep Bank currently and completely informed as to all material
matters involving the business, financial condition and property of Borrower,
including pending and threatened litigation and other governmental
proceedings. Without limiting the generality of the foregoing, Borrower will
provide to Bank (A) monthly accounts receivable and payable aging reports
with such base information, documents and data as Bank may request, (B)
quarterly compliance certificates as and when the quarterly financial
statements are provided, and (C) annual business forecasts and projections
within 45 days following the end of Borrower's fiscal year. The compliance
certificates will be signed by the chief executive or financial officer of
Borrower and will state either that there is no default by Borrower under the
agreement to the knowledge of the signing officer after due inquiry or that a
default or defaults exists and, if there is a default or defaults, the
certificate also shall specify such default(s) with reasonable particularity
and shall specify Borrower's plan for cure of the defaults within a reasonable
period of time.
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(b) FINANCIAL COVENANTS. Borrower covenants that at all times until
all loans and credit extensions have been paid in full and all claims against
Bank are discharged, Borrower will maintain:
(i) a tangible net worth (assets (other than the account of Xxxxxx
Distribution, Inc.) minus liabilities other than debt subordinated to Bank)
of not less than $2,750,000.
(ii) working capital of at least $1,800,000
(iii) a current ratio (current assets to current liabilities) of at
least 2 to 1.
(iv) a capital ratio (debts to tangible net worth) of no more than
2 to 1.
(v) cash flow coverage (net income plus interest expense and
depreciation to interest expense and the current portion of long-term debt
interest expense) of at least 1.25 to 1.
(c) NEGATIVE COVENANTS. Borrower covenants that until all loans
and credit extensions have been paid in full and all claims against Bank are
discharged:
(i) Borrower will not directly or indirectly "transfer" (sell,
lease, assign or otherwise dispose of or create or allow the imposition
of any new lien against) any material part of its assets except for
sales of inventory and collection of accounts in the ordinary course of
business and liens to secure additional debts which are allowed under
the terms of this agreement.
(ii) Without Bank's prior written consent, Borrower will not
directly or indirectly purchase or otherwise acquire an interest in any
third person, become liable for additional debts, form any subsidiary or
make any loan, advance or other payment to any third person in any
fiscal year except for purchases of supplies and raw materials,
purchases and leases of capital items not in excess of $350,000 in any
fiscal year, and open account credit of up to $500,000 extended to
Borrower's Canadian affiliate, Xxxxxx Distribution, Inc.
6. DEFAULT.
Time is of the essence. Borrower shall be in default under this
agreement if Borrower (a) fails to make any payment (principal, interest,
fees or costs and expenses) required by this agreement within five days
following the due date thereof, (b) fails to pay any other debt or liability
or perform any other obligation owned to Bank within applicable grace
periods, (c) makes an untrue statement of any material fact or omits to state
a material fact necessary in order to make the statements made, in light of
the circumstances under which they are made, not misleading, (d) uses loan
proceeds for a purpose or purposes not specified in this agreement or
otherwise approved by Bank in advance, (e) fails to comply with any of
material obligation,
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other than payment, under this agreement within 20 banking days following the
date such compliance is required by this agreement, (f) is insolvent, becomes
the subject of any insolvency proceeding or becomes a judgment debtor for
more than $500,000 unless such liability is either covered by insurance or
bonded in connection with an appeal, or (g) bank in good faith believes that
there has been any other material adverse change in Borrower's financial
condition or business prospects.
7. REMEDIES.
In the event of Borrower's default, Bank may, but shall not be
obligated to, immediately accelerate (declare immediately due and payable)
all loans and credit extensions made under this agreement without notice or
prior demand and may, whether or not this agreement is accelerated,
immediately proceed with the exercise of all rights and remedies that Bank
may have against Borrower and/or the collateral in such order and by such
proceedings as Bank may select. All debts, liabilities and obligations of
Borrower to Bank under or pursuant to this agreement will be automatically
accelerated in the event of insolvency or the commencement of an insolvency
proceeding by or against Borrower. All rights and remedies of Bank are
cumulative and not exclusive and the commencement or partial exercise of any
such right or remedy shall not preclude Bank from the exercise of any other
right or remedy until all loans and credit extensions made under this
agreement are paid in full. Bank's rights specifically include the right of
set off against any obligations owed by Bank to Borrower against Borrower's
obligations to Bank.
Subject to any applicable statute of limitation, any controversy
(claim, offset, defease or counterclaim arising in either contract or tort)
arising out of or relating to this instrument or agreement may be settled by
binding arbitration in Seattle, Washington, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as supplemented by
applicable law, and judgment upon the award rendered by the arbitrator (a)
may be entered in any court having jurisdiction thereof. One arbitrator and
the expedited procedures of such roles will be used in cases involving claims
and counterclaims of $250,000 or less. In all other cases, three arbitrators
and the general rules will be used. In all cases, each arbitrator will be
neutral and an active member of the Washington State Bar. This right to
arbitration will not prevent or delay Bank's rights to foreclose in the event
of default.
8. PARTICIPATION.
Bank shall have the unconditional right to sell participation
interests in this agreement.
9. BORROWER ASSIGNMENT.
Borrower shall NOT have the right to assign its rights or
obligations under this agreement and the related loan documents and any
attempted assignment also shall be a default by Borrower under this agreement.
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10. SUCCESSORS AND ASSIGNS.
Subject to the foregoing restrictions on Borrower assignment, this
agreement and the related loan documents shall bind and inure to the benefit of
the respective successors and assigns of Borrower and Bank.
11. GOVERNING LAW.
Borrower and Bank have selected Washington law, except for any of its
choice of law provisions which would make the law of another jurisdiction
applicable to this agreement, to govern the construction and enforcement of this
agreement.
12. JURISDICTIONAL CONSENT.
Borrower hereby submits to the jurisdiction of any state or federal
court sitting in Seattle, Washington, in any action or proceeding relating to
this agreement and the related loan documents and the collateral, and hereby
waives any claim that such a forum is inconvenient or that there is a more
convenient forum.
13. PARTIAL INVALIDITY.
If any term of this agreement or the related loan documents is
hereafter determined to be illegal or unenforceable, that term will be deemed
deleted without invalidating the remaining terms and, to the fullest extent
permitted by law, Borrower hereby waives any provision of law which renders any
term illegal or unenforceable. In the event that (i) the amount of interest and
fees payable by Borrower is later determined to be usurious and (ii) Borrower is
not prohibited from pleading the defense of usury or maintaining any action
thereon or therefor, any such interest in excess of the maximum allowable rate
automatically shall be deemed to have been applied to principal.
14. DEFINITIONS; INTERPRETATIVE AIDS.
(a) DEFINITIONS. As used in this agreement:
"Affiliate" means a person that directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, another person through the ownership of equity interests, relationship,
control, management of property or otherwise.
"Banking day" means a day, other than a Saturday, on which Bank is
open to the public its main branch for carrying on substantially all of its
banking functions.
"Contract" means indenture, agreement, contract, lease, instrument and
like documents evidencing contractual rights and obligations.
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"Control" means the direct or indirect power to direct the management
and policies of a person, or the use or disposition of that person's property,
whether through the ownership of equity interests, contract or otherwise.
"Debt" means a liability for borrowed money.
"Good faith" means honesty in fact in the conduct or transaction
concerned.
"Governmental unit" means the United States, any foreign state or
nation, or any xxxxx, xxxxxxxxxxxx, xxxxxxxx, xxxxxxxxx, agency, department,
subdivision, court, tribunal or other instrumentality thereof.
"Incipient default" means a default but for the giving of notice or
the passage of time, including any applicable cure period.
"Insolvency proceeding" means an assignment for the benefit of
creditors or other proceeding intended to liquidate or rehabilitate the estate
of the person involved, including a state court receivership involving all or
substantially all of a person's property as well as any liquidation or
reorganization proceeding under the Bankruptcy Code.
"Insolvent" means a financial condition such that either the person's
total liabilities are greater than the fair value of all of the person's
property or the person is unable to pay its liabilities in the ordinary course
of business as they become due.
"Law" means any existing or future ordinance, statute, rule,
regulation, order, injunction, writ or decree of any government or any
subdivision or agency thereof, including amendments to any such law. Without
limiting the generality of the foregoing, laws includes the Internal Revenue
Code of 1986 (the "IRC"), the Employee Retirement Income Security Act of 1974
("ERISA"), the Fair Labor Standards Act ("FLSA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("XXXX"), the Resource
Conservation and Recovery Act of 1976 ("RCRA") and the National Environmental
Policy Act ("NEPA").
"Liabilities" means monetary obligations whether reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed,
legal equitable, secured or unsecured.
"Lien" means a charge against or an interest in property to secure
payment or performance of an obligation, including an encumbrance against real
estate or security interest in tangible or intangible personal property obtained
by contract, such as a mortgage, deed of trust, security agreement, pledge
agreement or assignment, as well as by judgment, levy, sequestration or other
legal or equitable process or proceeding.
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"Material" means that which in reasonable and objective contemplation
will or realistically is likely to affect the decision, business or property
of a person, or the person's credit worthiness as to such business or
property, in a significant manner.
"Obligation" means a duty imposed on a person by law, promise, contract
or otherwise, including a liability and a debt.
"Organization" means a corporation, government or governmental
subdivision or agency, business trust, estate, trust, partnership or
association, two or more persons having a joint or common interest, or any
other legal or commercial entity.
"Person" means an individual or an organization.
"Records" means correspondence, memoranda, tapes, computer data bases
and operating systems, papers, books and other documents, specifically
including, but not limited to, appraisal information, invoice and billing
information, accounts aging analyses, inventory calculations and valuations.
"Subsidiary" means an affiliate of a person which is controlled by that
person directly or indirectly through one or more intermediaries.
(b) INTERPRETATIVE AIDS. Accounting terms not specifically defined in
this agreement shall be defined or interpreted and all accounting procedures
will be performed in accordance with GAAP unless Bank consents in advance to
a different procedure.
Legal terms not specifically defined in this agreement shall be
defined, if and to the extent necessary, in accordance with the definitions
provided by the Uniform Commercial Code and the Bankruptcy Code of the United
States before resorting to any other reference.
In this agreement, the singular includes the plural and vice versa and
the neuter includes the masculine and the feminine and vice versa.
15. INDEMNITY. Borrowed promises and agrees to indemnify, defend and
hold harmless Bank from and against all claims, loss, liability, fines,
penalties, cost and expense (including reasonable attorney fees) which in any
way arise from or relate to a material misrepresentation or omission by
Borrower, the failure of Borrower to perform its covenants or other
obligations under this agreement or Borrower's ownership or use of the
collateral and the real estate, including hazardous waste claims and
proceedings. This indemnity will survive payment or discharge of Borrower's
debts to Bank under this agreement.
16. COMPLETE AGREEMENT.
This agreement and the related loan documents are the complete and
final agreement of the parties relating to the loans and credit extensions to
be provided hereunder.
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The express terms and conditions of this agreement supersede are intended to
be exclusive and they replace all prior agreements and understandings whether
written or oral.
The terms and conditions of this agreement are intended to supplement
the terms and conditions of the related loan documents. However, in the event
of an express conflict between the terms or conditions of this agreement and
the terms and conditions of any related loan document, the terms and
conditions of this agreement will control over the conflicting terms of the
other document.
17. STATUTORY DISCLAIMER.
Under Washington law, an agreement, promise or commitment to lend money,
to otherwise extend credit, to forbear with respect to the repayment of any
debt or the exercise of any remedy, to modify or extend the terms under
which the creditor has lent money or otherwise extended credit, to release
any guarantor or cosigner, or to make any other financial accommodation
pertaining to the debt or other extension of credit must be in writing and be
signed by the creditor to be enforceable.
U.S. BANK OF WASHINGTON, GEOGRAPHICS, INC.
NATIONAL ASSOCIATION
By /s/ Xxx Xxxxxxxxx By /s/ Xxxxxx X. Xxxxx
-------------------------------- --------------------------------
Xxx Xxxxxxxxx C.E.O.
Vice President
By /s/ Xxxxx Xxxxx
--------------------------------
Secretary
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